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U.S. authorities are now openly bickering about how to fix the country's woes – most notably, how to spend a $700-billion (U.S.) bailout fund.

As world leaders meet to find common ground on salvaging the global economy, the U.S. Congress, Treasury Secretary Henry Paulson and Federal Deposit Insurance Corp. head Sheila Bair are pitching wildly different plans for what's left of the bailout cash.

After abandoning an original scheme to take toxic mortgages off the books of banks, Mr. Paulson is insisting the bulk of the money be used to bolster the capital of banks and other financial institutions.

Ms. Bair, on the other hand, wants roughly $25-billion set aside to reward lenders who agree to ease terms for as many as 1.5 million homeowners at risk of defaulting on their mortgages. She, like many Democrats, wants the focus on stemming foreclosures, which are driving real estate prices ever lower.

The FDIC posted details of the proposal on its website yesterday, ignoring Mr. Paulson's opposition.

Democrats in Congress are also pushing the Bush administration to dip into the so-called Troubled Asset Relief Program, or TARP, to save the ailing Detroit Three auto makers from bankruptcy.

The bitter infighting comes as Prime Minister Stephen Harper joins a gathering of leaders from the world's leading industrialized and developing countries in Washington to deal with the global financial crisis.

On the eve of Saturday's summit, Mr. Paulson acknowledged that the United States' reputation has been tarnished as a result of the financial crisis that began in the U.S. housing market and spread like a virus.

“We have in many ways humiliated ourselves as a nation with some of the problems that have taken place here,” Mr. Paulson told CNBC television.

The gathering comes amid fresh signs that the United States – the world's largest economy – is headed for a particularly virulent recession. U.S. retail sales fell at a record annual rate of 2.8 per cent in October, dragged down by plummeting car sales.

“The remarkable resiliency that kept U.S. consumers shopping during the first half of the year … is no more,” CIBC World Markets economist Meny Grauman said bluntly.

Meanwhile, Mr. Paulson and Neel Kashkari – the man he picked to run the TARP – vigorously defended the government's abrupt change of course.

“It's not a stimulus; it's not an economic growth plan,” Mr. Kashkari, the interim assistant Treasury secretary, told a congressional subcommittee probing record home foreclosures. “It's an economic stabilization plan.”

Mr. Kashkari pointed out that the problem with the FDIC plan to stem foreclosures is that it amounts to a subsidy for lenders, rather than a repayable investment.

“The FDIC proposal, at the end of the day, is a spending proposal,” he said.

Mr. Kashkari suggested that new legislation might be needed to fund the FDIC plan because it's based on a different principle than the one President George W. Bush and Mr. Paulson pitched to Congress and the American people.

Echoing the sentiments of other lawmakers, Republican congressman Darrell Issa of California accused Treasury officials of misleading lawmakers with a “bait and switch” – telling them the money would be used to buy mortgages and then abruptly changing plans.

Mr. Kashkari told the committee that the decision to change plans was made for the good of the economy. With the banking system under severe stress, he said, officials made the calculation that buying roughly three million mortgages would take longer and have less impact than a move to shore up confidence in the entire banking system.

Treasury has set aside $250-billion of the bailout fund to buy stakes in banks, of which nearly $200-billion has already been spent. Mr. Kashkari said the department was poised to approve another 20 purchases.

Also Friday, mortgage lender Freddie Mac sought an initial injection of $13.8-billion in government aid after posting a $25.3-billion third-quarter loss. The Treasury Department set aside $200-billion in early September to shore up the finances of mortgage lenders Freddie Mac and Fannie Mae, which together own or guarantee nearly 60 per cent of all U.S. home mortgages.