Administration officials are grappling with how best to announce the extension of the Troubled Assets Relief Program at a time when the economy is struggling and the unemployment rate is at its highest point in 26 years. The officials are hoping that by putting US$200 billion toward paying down the US$12 trillion debt, they could mitigate the political fallout, the sources said.

No final decision about the fate of the bailout has been made and officials are keenly aware that their preferred course contains risks. Officials worry that lawmakers, seeking to fund their own projects, may try to tap any large sum of unused money set aside for debt reduction, the source said, speaking on condition of anonymity because the internal deliberations were private.

Congressional Democrats are already eyeing the unexpended bailout cash as a source of funding for new efforts to combat soaring unemployment. Rep. John Larson, D-Conn., chairman of the House Democratic Caucus, said lawmakers could an important message about their priorities by taking money from the financial bailout program and redirecting it to pay for road and bridge projects and other measures meant to create jobs.

“We want to look at how Wall Street can refund Main Street,” Larson said He added that he and a number of other senior House Democrats are also considering a new tax on financial transactions.

Meanwhile, some lawmakers warn that the administration must do even more to cut the deficit. Sen. John Thune, R-S.D., introduced a bill this week that would end the bailout program. He said he was aiming keep it from turning into what he called “a political slush fund.”

About US$139 billion in original TARP funds remain unallocated and available to the Treasury Department. Banks have meantime returned about US$71 billion the government gave them and paid another US$10 billion in interest and dividends to the Treasury. Under the law passed last year, Treasury Secretary Timothy Geithner need only notify Congress if he wants to extend the program until October, the two-year anniversary of the bailout bill.

But many lawmakers have decried the massive initiative — proposed by the Bush administration and continued under Obama — for using tax dollars to aid banks that triggered the crisis in the first place. The public was especially infuriated by multi-million dollar bonuses paid out to executives of firms that got bailout funds.

As the financial crisis has abated, Treasury officials have tried to recast the initiative by winding down its programs for big banks and directing help to small businesses, community banks and struggling homeowners instead. Officials have even started calling the bailout by its alternative name, the Emergency Economic Stabilization Act.

Over the summer, Treasury officials considered using the unallocated funds to support troubled commercial real estate markets, but ultimately dismissed the idea. Since then, Geithner has supported using the leftover money to reduce the nation's debt, the sources said.

White House and Treasury officials have been meeting regularly to discuss how best to handle the extension of the bailout, officials said. The president's political and economic advisers agree with their counterparts at Treasury that the program must be extended so that initiatives for small business, community banks and housing can continue and to reassure financial markets that the administration has enough money on hand to address another, unforeseen financial crisis.

White House aides said they are continuing to discuss how to structure the extension and when to announce it. A decision must be made by Dec. 31. Administration officials are mindful that this potentially unpopular move will come as President Obama is engaged in other politically charged matters, including the Congressional debate over healthcare reform and the development of a new U.S. strategy for the Afghanistan war.

Discussions are also continuing between the White House and Treasury this week about how to divide up the unused TARP funds between debt reduction and the smaller bailout programs.

In announcing the bailout extension, officials could set aside the majority of this money for small business programs as a nod toward the administration's focus on spurring job growth, the sources said. On the other hand, the White House is under pressure to show they are serious about reducing the nation's deficit, which has ballooned as the result of government spending to address the economic crisis, and this could prompt officials to channel the majority of funds to debt relief.