Obama, who has drawn fire from Americans for bank bailouts that began under Republican President George W. Bush and continued by Obama, said the legislation's provisions make clear that no firm is protected because it is deemed "too big to fail" like AIG during the financial meltdown. "There will be no more taxpayer-funded bailouts. Period," he said. "If a large financial institution should ever fail, this reform gives us the ability to wind it down without endangering the broader economy."

It’s not a coincidence that the states find themselves in a fiscal bind. The increasing dependency on the federal government has contributed to the states’ dereliction of duty when it comes to keeping their fiscal houses in order.

Mr. Obama did not propose to offset the cost of any state aid with savings from other spending cuts or tax increases, as some conservative Democrats and Republicans have demanded. He reminded the leaders that he has proposed several ways to reduce future spending, including a three-year domestic spending freeze starting in the coming fiscal year. But his advisers, and many economists, argue that additional deficit spending is needed to keep the economy from relapsing into recession.

American Express Corp. raised its offer by $80 million to $340 million before Treasury agreed to sell back its warrants. Morgan Stanley, one of the nation’s biggest banks, reached a tentative deal to buy its warrants back for $900 million. But senior Treasury officials decided the offer still wasn’t high enough, and Morgan agreed to pay an extra $50 million. In more than a half-dozen other cases cited by the inspector general, Treasury officials quietly bargained with a variety of different tactics.

“We’re not interested in repaying until the economic landscape is on solid footing and heading north and that … our nonperforming loan trends are heading north, too.”