How effective is the centerpiece of the Bush administration's rescue effort: the program to inject $250 billion into financial institutions large and small?

It is a simple question with no easy answers.

First, it has only been six weeks since the initial $125 billion was invested in nine companies, including Bank of America Corp. and Goldman Sachs Group, but since then more than 100 companies have nearly exhausted the program's funding.

Second, the Treasury Department has repeatedly shifted the goals of the Capital Purchase Program. Initially, it was designed to fund more lending by banks, then it was supposed to finance consolidation, and just this week Treasury Secretary Henry Paulson said bankers would use the money to cover losses as lenders write down or sell troubled assets.

"You almost need a road map to figure out what they did and what they didn't do," said Paul Miller, managing director of Friedman, Billings, Ramsey & Co. Inc. "It's so convoluted, and I think that's confused the markets, and that's why you've seen the markets be so volatile to begin with, because it doesn't look like there is a continuous plan coming out of the Department of Treasury."

Brian Gardner, a political analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., agreed that this is "something that is going to be very tough to track," but he said it is too soon to judge the program's effectiveness. "It's early to figure this all out. I suspect that in a couple months we'll look back and say, 'Yes, this was successful,' but we are not going to know for months."

In the first audit of the program, the Government Accountability Office agreed Tuesday that it is too early to assess the program's impact.

"Evaluating the impact of Treasury's efforts under Tarp, which are intended to improve conditions in credit and other markets, will be challenging for a number of reasons," the GAO said. "As we have noted, little time has passed since the initial infusion of capital into the institutions, and a variety of other programs and efforts directed at bolstering the economy and helping homeowners are still being considered." (See related story.)

Other observers are less forgiving.

"The stated goal of the capital infusion was to increase lending by financial institutions, and by most people's measures, it just has not accomplished that goal," said Michael Barr, a senior fellow at the Center for American Progress and a former Treasury official in the Clinton administration. "Financial institutions are using the capital in part to merge with other institutions and in part to shore up their capital in the event of further asset decline, which is a rational response."

Chris Whalen, managing director at Lord, Whalen LLC's Institutional Risk Analytics, said the program could have been better if the Treasury had taken common stock, rather than preferred shares.

"Preferred is not helping us, clearly, because the other investors can see the common is basically impaired and is going to be consumed by loss," he said. "Treasury is standing behind them. They need to stand next to them.

"If you want to be credible with the future injections and the existing CPP, you have to convert it to common," he said. "That tells the world that you have confidence."

Mr. Miller agreed with that assessment.

"The problem is because it's not common and it doesn't take the first-loss position," he said. "So the reason banks haven't lent it out is because it's not common equity — it's preferred."

Plenty of sources said the market simply remains too unsettled to expect bankers to commit the new funds to long-term lending.

"Unless the banks' balance sheets had been cleaned of their troubled assets, or they had identified their troubled assets, no amount of capital would have resulted in a macro amount of economic impact," said Josh Rosner, managing director of the research firm Graham Fisher & Co.

Mr. Whalen agreed and said the capital infusions merely provided bankers some breathing room. "It bought us some time," he said. "It helps with their losses. It's not going to help them lend money."

Bert Ely, an independent consultant in Alexandria, Va., said it is important to consider what might have happened if the Treasury had not stepped in at all.

"I think we would be in worse trouble than we are now if those investments had not been made in those institutions, and it is starting to facilitate transactions of stronger banks into weaker banks, and that's all we can ask for right now," he said.

The most obvious example of is PNC Financial Services Group Inc.'s using its $7.7 billion Treasury capital injection to fund its deal for National City Corp.

But that transaction was characterized by observers, including Rep. Steven LaTourette, R-Ohio, as the Treasury's using the program to pick winners and losers.

Hoping to be among the winners, some companies are filing applications with the Federal Reserve Board to become bank holding companies to qualify for funding under the program.

"The change to the financial supervisory system, with all of these organizations coming under the Fed's umbrella, that is a change in structure, and that to me needs to be reconciled next year," said Ernest T. Patrikis, a lawyer at White & Case LLP and a former Fed official.

Many observers said they expect future capital injections to come with more conditions.

"I can't imagine going forward without Congress adding conditions on to different types of outlays," said Joseph Mason, a professor at Louisiana State University and a former economist for the Office of the Comptroller of the Currency. "The money that has yet to go out will be more directed toward special purposes, rather than the general outlay of capital infusions in the style that we saw previously."

Mr. Paulson is widely expected to ask Congress for access to the final $350 billion authorized in the original bailout law.

The situation is like "a child with an allowance burning a hole in his pocket," Mr. Rosner said.

"Where does it stop, and how do you define need, and how do you deal with the fact that those who actually need it don't deserve getting it?" he asked. "Those were the very basic questions that should have been set up before we embarked on spending the $700 billion and still remain unanswered, and, frankly, that's why the crisis won't end, because the approach to ending it has been as undisciplined as the environment that caused it."

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