Panel of 5 Picks Bailout Winners, Losers

There was a rare moment of levity at the Treasury Department on Friday as the children of government workers scampered from office to office in Halloween costumes. A few minutes later, the children were gone and the hallways were retaken by grim-faced grown-ups — handing out tricks and treats of a different sort.

The Treasury building is ground zero for the Bush administration’s $700 billion rescue of the financial system — an ambitious, increasingly embattled program that passed an early milestone last week when the government wired the first $125 billion to the nine largest banks in the United States.

Having been handed vast authority and almost no restrictions in the bailout law that Congress passed a month ago, a committee of five little-known government officials, aided by a bare-bones staff of 40, is picking winners and losers among thousands of banks, savings and loans, insurers and other institutions.

It is new and unfamiliar terrain for the officials, who are making monumental decisions — a form of industrial policy, some critics say — that contradict the free market philosophy they usually espouse. Predictably, the process is stirring alarm from Capitol Hill to Wall Street.

“People are always going to second-guess what you do,” said David G. Nason, the assistant Treasury secretary for financial institutions, who designed the program and sits on the investment committee. “We don’t have time to complain; we need to manage our time so we can make progress.”

Other officials said it was premature to condemn the program, given that the first capital injections were made only last week. The Treasury’s overriding goal, they said, is to stabilize the nation’s financial system after its worst crisis since the 1930s.

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Among the problems, critics say, is that despite earlier promises of transparency, the process is shrouded in secrecy, its precise goals opaque. Treasury officials have refused to disclose their criteria for deciding which banks are healthy enough to get money — and which are too sick.

And officials have yet to say they even have a broader strategy, though banking executives are convinced the government wants to encourage acquisitions of sick banks by healthy ones.

Industry sources said that banks, after filing a two-page application, are assigned a ranking from 1 to 5 — with 1 or 2 essentially guaranteeing that they are eligible, and 5 insuring they are not — by their regulator. The five officials then make what can be a life-or-death decision, with a thumbs-down generally interpreted to mean that a bank was not healthy enough to survive on its own.

The work is complex, far-reaching and telescoped into an impossibly tight timetable. And it is being done against the backdrop of a change of power in Washington, which will throw many of these people out of their jobs on Inauguration Day.

“There is a real urgency to deploy this money quickly and effectively,” said James H. Lambright, who took a leave three weeks ago as the president of the Export-Import Bank of the United States to become the interim chief investment officer of the rescue effort.

A trim, self-confident former investment banker, Mr. Lambright, 38, is the chairman of a committee of relatively young officials — all are in their 30s or 40s — with backgrounds in law, banking or regulation. None of them could have expected this kind of responsibility; Mr. Lambright himself was a last-minute substitute after a previous appointee was kept in his old job.

On Friday evening, Mr. Lambright was lugging a six-inch-thick pile of folders — plus a pair of BlackBerrys and a cellphone — as he prepared for a Sunday afternoon meeting of the committee to select the next banks to receive capital infusions.

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