By Joseph J. Schatz, CQ Staff

When Democratic leaders balked this week at handing over $25 billion in emergency loans to a flailing U.S. auto industry, they signaled some buyer’s remorse about the $700 billion financial industry bailout they approved just weeks ago.

“The context is this,” House Financial Services Chairman Barney Frank , D-Mass., said Thursday. “There is widespread dissatisfaction not just in the Congress, but in the country, with what is perceived to be a failure of the recipients of those [financial bailout] funds to carry out the intent that the Congress had. There is a sense that we did not do a good enough job of safeguarding the use of those funds, or providing prevention against abuse.

“And you could not get, I believe, through either house of Congress today what some people might think was a repeat. That’s why we need to take time, because you already have a great deal of skepticism on the part of the public, on the part of the Congress and in much of the media that we acted too quickly and didn’t do enough to anticipate problems.”

House Speaker Nancy Pelosi , D-Calif., and Senate Majority Leader Harry Reid , D-Nev., along with other key Democrats, said Thursday that if the Big Three submit a proposal in writing to Congress by Dec. 2 that shows a path to viability that will protect taxpayers and auto workers, the banking committees on both sides of the Capitol will hold hearings that week, with floor action possible the week of Dec. 8.

Pelosi said Friday that she and Reid are sending a letter to the chieftains of GM, Ford and Chrysler outlining what they expect in terms of both accountability and a path to viability.

The hesitancy to act immediately despite warnings of imminent collapse for at least one of the automakers reflected both public anger at Detroit’s own failings and growing unease about the course of the $700 billion financial industry bailout.

Frank was a leading congressional architect of the Troubled Asset Relief Program (TARP), the financial rescue plan (PL 110-343) that was rushed through Congress in just over two weeks at the urging of Treasury Secretary Henry M. Paulson Jr. The measure became law Oct. 3.

At the time, Congress expected the funds to be used by Treasury to buy up illiquid mortgage-backed securities that were clogging the books of banks and other financial institutions, in hopes that action would restore confidence in the viability of those banks and prompt them to resume lending.

But the Treasury Department instead decided to use the funds to inject billions of dollars directly into struggling banks and insurance companies, acquiring equity stakes in the companies.

Despite Treasury’s actions, banks have been slow to resume lending and credit remains tight. The stock market has continued to slide, to levels not seen in more than a decade. Home foreclosures continue. And lawmakers worry they should have put more conditions on the $700 billion.

Senate Banking Chairman Christopher J. Dodd , D-Conn., in an interview with National Public Radio on Friday, expressed “not only my frustration but the frustration of my Senate colleagues here over the pace of this movement and the direction that some of these steps are taking.”

Unless Treasury makes some changes, he warned, Congress will step in with more restrictions in January. “They know what they need to be doing, and they’re not acting responsibly, in my view. And if they don’t act responsibly, then I’m going to require them to act responsibly.”

Frank, who supports aid for the struggling domestic auto sector, said Thursday that speeding through billions more in federal funding for another industry would be politically unwise.