Focusing the bailout program on infusing billions into banks — and possibly other types of companies — to pump up their capital and bolster lending to customers was deemed a faster and more effective approach to stabilizing the financial system than the original centerpiece of the plan, Paulson said.

Buying financial institutions' toxic debts would have required a "massive commitment" of the bailout money, Paulson told the panel. As economic and financial conditions quickly worsened, it became clear that the first installment of the money — $350 billion — for that purpose "simply isn't enough firepower," he said.

It's crucial that the administration be nimble in assessing changing conditions and adapt the bailout strategy accordingly, Paulson said.

"If we have learned anything throughout this year, we have learned that this financial crisis is unpredictable and difficult to counteract," he said. "There is no playbook for responding to turmoil we have never faced. We adjusted our strategy to reflect the facts of a severe market crisis."

But lawmakers worried the administration was sending confusing signals to taxpayers and Wall Street investors.

"It is in the best interest of, not only the economy, but also of the public, that as we shift and improvise on occasion that we clearly communicate the objective and the basis for what we're doing," said Rep. Spencer Bachus, R-Ala. "I have a particular concern and that's that we don't appear to have an exit strategy."

Treasury will focus on rolling out a capital injection program to pour $250 billion into banks in return for partial ownership stakes in them, Paulson said. And, the department will search for new ways to boost the availability of auto loans, student loans and credit cards, which have been become harder to get due to the credit crisis.

Specifically, the department along with the Federal Reserve, is exploring using some of the bailout money to bankroll a new loan facility designed to help companies that issue credit cards, make student loans and finance car purchases. Paulson said he expected putting up only a "relatively modest share" of the bailout money for this facility.

So far, the Treasury Department has pledged $250 billion for banks and has agreed to devote $40 billion to troubled insurer American International Group— its first slice of funds going to a company other than a bank. That leaves just $60 billion available from Congress' first bailout installment of $350 billion.

Paulson said he is not planning to initiate another capital injection program beyond those already announced. Thus he's unlikely to tap the remaining $350 billion before the Bush administration leaves office on Jan. 20.

The idea behind the capital injection program is for banks to use the money to rebuild reserves and lend more freely to customers. However, banks do have the leeway to use the money for other things, such as buying other banks, paying dividends to investors or bonuses to executives. That has touched a nerve with some lawmakers.

"My constituents are telling me that many of them still cannot get access to credit," said Rep. Carolyn Maloney, D-N.Y.

Locked-up lending is a prime reason why the U.S. is suffering through the worst financial crisis since the 1930s. All the fallout from the housing, credit and financial crises have badly hurt the economy, which is almost certainly in recession, analysts say.

Paulson said the U.S. had "turned a corner " in averting a financial collapse, but he warned "there's a lot of work that still needs to be done in terms of the recovery of the financial system."

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AP Business Writer Marcy Gordon contributed to this report.