I can hardly believe the hand-wringing over the relative success of TARP, popularly known as the bank bailout. It’s based on a fiction that the only problem anyone had with it was that it gave a lot of money to the banks without the expectation of getting it back. Now that the money specifically handed out to banks is drawing a net profit of about $7 billion dollars, everyone’s moving to reassess this. You can only derive that “TARP profit” number if you take out AIG, and the auto companies, and I think GMAC, which is a bank, and also Fannie and Freddie’s historic losses. AIG and Fannie and Freddie’s losses, incidentally, are directly tied to BANKS, in different ways; AIG’s deficit comes from paying off counter-party banks on credit default swaps, and Fannie and Freddie got stuck with the banks’ crap mortgage loans.

Not only that, but Treasury snuck something incredible into this report:

As for President Obama’s mortgage modification program, the CBO estimates that the Treasury Department will use no more than $20 billion of TARP funds, less than half of the $50 billion originally allocated. That’s because the CBO expects many fewer people will participate in the program than the government originally expected, a view held by many housing industry observers.

Just last month in that celebrated blogger meeting with Treasury, top officials promised that they would spend all of the $50 billion dollar allotment on HAMP. To the extent that there are “savings” from TARP, they come mainly from the fact that they’re pulling $30 billion dollars away from helping struggling homeowners. What a scandal.

UPDATE: So this article referenced above is from March. That changes things but I’m not sure for the better. It means Treasury claimed a $50 billion dollar commitment to HAMP, months after their own reports showed it would be $30 billion lower.

So just on its face, this conversation is absurd. And let’s not forget that TARP represented about 2% of all financial support received by the big banks, and hardly should be the main focus.

But just to give you a taste of this argument, here’s Kevin Drum:

But TARP itself? Its net direct cost is zero, and when you include the fact that it almost certainly saved the banking system and softened the recession, it may boast the biggest bang for the buck of any bill ever passed by Congress.

Well, that’s not true. But what I wish Kevin Drum read was…