Economists have criticized the US Treasury for abandoning plans to buy up toxic mortgage securities under the $700 billion bailout plan.

US Treasury Secretary Henry Paulson said last Wednesday the government was backing away from appending the bailout fund to buy troubled mortgage assets.

Paulson said the Troubled Asset Relief Program (TARP) would now change focus to buy up credit card, auto loans and other non-mortgage consumers' debt.

Economists said Paulson's plan to use TARP funds to purchase credit card and auto loan debt was both ill-advised and unnecessary, American weekly Time reported.

"I don't think providing more leverage to consumers is best for our economy in the long-term," said Adam Lerrick, a visiting scholar at the Washington-based think tank American Enterprise Institute.

"The consensus is that consumers have borrowed too much over the past 10 years, so I don't get why putting them further into debt is the answer."

The Treasury had persuaded Congress into approving the bailout plan by promoting it as a means to purchase illiquid mortgage assets from financial institutions.

Industry watchers have said the credit card and auto lending sections have been able to weather the financial crisis, Time said.

"Our data shows that people still have more access to credit than ever before," said Andrew Davidson, a VP at market research firm Synovate. "Some companies are pulling back credit to riskier borrowers, but for the industry as a whole, access and usage of credit cards is at record levels."

Some economists have cast doubts on Treasury's justification for the new plans arguing that credit card debt, unlike mortgages, is unsecured and can be wiped away in bankruptcy as well, Time added.

"Paulson seems to be working under the impression that when it comes to consumer spending liquidity is the issue," said Dean Baker, who co-founded the Center for Economic Policy Research. "People aren't buying because they just lost a lot of money and might be about to lose their job."

"I don't get what the rationale for this new program is," Baker added. "If it was a bad idea for the mortgage market, then it's a bad idea in the credit card market."

AKM/RA