WASHINGTON—Trying to recast the $700 million bailout proposal as a taxpayer rescue package rather than a boon to Wall Street, Treasury Secretary Hank Paulson today appeared to embrace curbs on executive compensation, a hot-button issue among thousands of people who are inundating their lawmakers with complaints about lending moguls at hand at the expense of taxpayers.

"The American people are angry about executive compensation and rightfully so,"  Paulson told a jammed hearing of the House Financial Services Committee. "Many of you cite this as a serious problem. And I agree.  We must find a way to address this in legislation without undermining its effectiveness.”

He did not give any specifics but was responding to lawmaker complaints that they are receiving overwhelmingly negative reaction to the idea of throwing a lifeline to high-paid executives while average people are struggling to pay mortgages and, in many cases, avoid foreclosure.

In an appearance—his third hearing on Capitol Hill in two days—Paulson acknowledged that he needed to do a better job in convincing the American public that the financial crisis was directly impacting them.

Even the committee’s ranking Republican, Deborah Pryce of Ohio, told Paulson and Federal Reserve chairman Ben Bernanke that “we need taxpayer support, but we’re not there yet.

"Yours is a sales job, gentlemen."

Paul Kanjorski, Democrat of Pennsylvania, pressed Paulson on the executive payissue, noting that people have the impression that "corporate fat cats and cowboy capitalists" were benefiting and taxpayers were being asked to "pay a tab for a party to which they were not invited."

Paulson also tried to dispel criticism that that the program is money out the door—with no guarantees or control.

”This is not a spending program. It is an asset purchase program, and the assets which are being bought and held will ultimately be resold with the proceeds coming back.”\

Bernanke joined in the reassuring chorus, noting that "government assistance should be given with the greatest reluctance and only when the stability of the economy, and consequently the health of the economy, is at risk."

He said private rescue efforts had been tried but none forthcoming, and urged the Treasury to be allowed to buy “illiquid assets from financial institutions to Main Street."

Clearly trying to appeal to Main Street, Paulson said federal officials had been reviewing the financial scene since the "housing correction began last summer."

"Treasury has examined many proposals as potential remedies for the turmoil that the correction has caused in our banking system," he said. His comments came after a number of committee members took to the microphone to complain that nothing was being done for taxpayers.

Paulson told Barney Frank, the Massachusetts Democrat who chairs the committee and is a key player in hammering out any bailout, that the Treasury had been working with the Federal Reserve "to address financial market stresses with as minimal exposure for the U.S. taxpayer as possible."

Paulson appeared with Ben Bernanke, who pressed the case for quick action, noting the economy "continues to confront substantial challenges, including a weakening labor market and elevated inflation."

The Fed, Paulson noted, has taken "bold steps to increase liquidity in the markets," saying that the two had worked together on a case-by-case basis—addressing problems at Fannie Mae and Freddie Mac, working with market participants to prepare for the failure of Lehman Brothers, and lending to American International Group so it can sell some of its assets in an orderly manner.

His remarks were similar to the urgency he expressed this morning to a Joint Economic Committee hearing, where he urged Congress to act on the Treasury plan to "avert what could otherwise be very serious financial consequences for our financial markets and for our economy."

But lawmaker after lawmaker who proceeded the two at the hearing emphasized that their constituents were opposed. Emanuel Cleaver, a Democrat of Missouri, got downright earthy when he, recalling growing up with animals during his childhood in Texas, said that "if you feed pigs, they become hogs. I'm looking at this and fear they'll [Wall Street] become hogs feeding at the trough."

Paulson fended off efforts to pin him down on pay issues, rebuffing questions by Brad Sherman, Democrat of California, about whether he would oppose a bill to cap "plain vanilla" pay—salary, not bonuses—at $1 million annually.

Paulson said he didn't want to "negotiate" the terms of the bailout at the hearing.

Instead, as each member pounded on the disillusionment and disconnect with the voting public, Paulson said the bailout was not about Wall Street alone but the entire economy.

"If these severe stresses continue or get worse, there will be big problems for small business," Paulson said. "There will be an inability to sustain themselves. The biggest protection is getting a program that works. I'm saying that over and over again and the biggest thing we can do is get a program that works."

"Nobody likes pay for failure," he told another member, Luis Gutierrez, Democrat of Illinois. Paulson reiterated his willingness to accept some pay guidance, and said the average taxpayer " should be angry, and he should be scared. "

Acknowledging complaints of broken regulation, Bernanke acknowledged a need for "systemic regulation to put out this fire."

Frank ended on a humorous note. "No offense to you gentlemen," he said to Paulson and Bernanke, "but I've seen quite a lot of you. And I hope not to see you for a while."