Earlier today we noted that the Treasury Department had hired staff with the specific attributes needed to carry out its original plan for the bailout -- buying banks' bad assets -- only to then decide that it would change its approach by directly injecting capital. That news raised questions as to whether the department has the right people in place for what's an extremely complex and crucial task.

And a report in today's Wall Street Journal sheds a bit more light on the hiring issues that have plagued Treasury's response to the crisis. It reveals that the department is struggling to bring on enough people to handle the glut of applications for assistance that are flooding in from troubled financial institutions.

Neel Kashkari, the man running the TARP program, said at a recent at a luncheon before a housing organization that the department's Office of Financial Stability is operating at half-staff, with about 40 full-time employees. Kashkari said he hopes to double that number by the time the Obama administration takes over on January 20th.

(And by the way, granted Kashkari needs to keep the pubic informed on what he's doing, but doesn't he have more pressing matters to attend to right now than attending luncheons?)

The Journal adds, not exactly reassuringly:

In the past month, the Treasury has been scrambling to make major policy decisions while at the same time conducting the nuts-and-bolts tasks of finding a permanent staff. Decisions have largely been left up to interim staff members, many from other federal banking regulators, who are temporarily at Treasury but are expected to eventually return to their previous positions.

Part of the manpower problem here may be caused by the impending transition. According to Wayne Abernathy, an executive at the American Bankers Association, many Treasury staffers may be headed for the door in advance of the changeover, making it especially hard to keep the department fully-staffed.

Abernathy also suggests, intriguingly, that it may have been in part because of this very problem that Treasury switched from the asset-buying approach to the capital-injection approach. "I don't think that was a small part of why Treasury in the end abandoned the asset-purchase program," he told the paper. "It's very people-intensive."

But it doesn't appear that the switch has entirely solved the problem. And if, in addition to having too few people, Treasury also has the wrong people, as was suggested by that earlier report we noted, that would hardly help the situation.

This may have more to do with a desperate and extraordinary situation than with any deliberate malevolence or even incompetence, but given the stakes, the Treasury's personnel problems are worth keeping an eye on nonetheless.

The Treasury Department had originally intended that the $700 billion of TARP bailout money would go to buying up the bad assets of banks and other financial institutions. But then, as was widely reported, Treasury Secretary Hank Paulson reversed course last month and announced that he would take an entirely different approach, using the money simply to inject new capital into troubled banks.

What have we lost through this flip-flopping? It's impossible to know for sure, but one line from a Tuesday New York Times report offers a hint. The paper notes an interesting finding in an audit of the rescue plan, conducted by the Government Accountability Office:

Treasury already had hired staff members for the initial mission, some of whom were not necessary or best suited for the work required under the new strategy.

So have new staff members, who have specific expertise in the issues involved in the new strategy, now been hired? Or is Treasury assigning the crucial task of rescuing the nation from financial collapse to staffers who aren't the best people for the specific job? We'd love to know.

The rest of the expected contents of the GAO report are hardly more encouraging. The Times says the report "is expected to be critical of the Treasury Department's failure to set up ways to track how its bailout money is being used in the marketplace."

It's also "likely to call for tighter controls over the conflicts of interest that are arising as financial specialists, institutions and law firms are hired for Treasury work that could later aid their private-sector clients."

Both of these potential problems have been highlighted by members of Congress and others in recent weeks.

More on this when the report is officially released next week...