During today’s congressional hearing, Treasury Department official Neel Kashkari had two basic answers to this question.

First, the financial system hasn’t collapsed. And that, Kashkari said, is “the most direct, important information.”

If you want a somewhat more refined assessment than that, it gets more complicated. Things have gotten better, Kashkari  testified, but we’re still at a “point of low confidence.” Banks, he acknowledged, are being “cautious” in using the bailout billions to make new loans. Only when “confidence returns,” he said, will he “expect to see more credit extended.”

But what will bring about that return of confidence? Didn’t Treasury Secretary Hank Paulson proclaim that “we must restore confidence in our financial system” when he announced the department’s plan to invest up to $250 billion in the nation’s financial institutions? In other words, program was billed as a way to restore confidence, but now Treasury is saying it won’t do the trick on its own.

It’s not clear what the government could do to restore confidence. But Kashkari said that because of the TARP, that day will come sooner:

“It’s going to take time. Think of it this way. Remember the economic stimulus checks that Americans got? If – if an American – if a homeowner or a person was nervous about their economic situation, they got that check, they’d be more likely to put it in the bank than to go out and spend it.

“And so we need to see confidence return to the system to really see the lending take off. And we need to get all the capital in the system. It’s not going to happen as fast as any of us would like. But it’s going to happen much faster for us having taken this action, than if we hadn’t.”

Meanwhile, while Treasury officials offer such vague promises about what the billions will accomplish, they continue to rebuff requests that it track how institutions are spending the money – our best chance, say watchdogs, of knowing the true impact of the TARP.

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