Every couple months, the idea that “TARP worked” bubbles up from the Administration. Usually it takes the form of saying that the economy was saved at a very low cost. But now the Treasury Department is getting bolder. They claim that, based on the latest numbers, TARP turned a profit. This is hedged with the qualifier “from banks,” but the big flashing word “PROFIT” in the headline shows you the point of emphasis.

The federal government has reaped a $10 billion profit on bank loans made under the controversial Troubled Asset Relief Program (TARP).

The Treasury Department announced Tuesday that the government had pulled in another $1.7 billion in proceeds stemming from TARP loans.

Bank of Montreal had acquired M&I Bank of Milwaukee and, as part of the deal, paid back the purchased bank’s share of TARP funds.

Now, it’s fair to say that I reject the entire premise. TARP was barely 2% of all emergency support given to the banks; all it did was provide a way to put Congress on the record for bailouts, giving them less room to complain about all those other emergency lending programs. What’s more, the extraordinary support to Fannie and Freddie – numbering in the hundreds of billions, all of which will be lost – comes directly from their purchase of bad loans, or in effect the initial purpose of TARP. So narrowing the focus to TARP bank loans is really distorting the facts.

But there’s another way in which this works. Treasury is claiming a $10 billion profit in TARP bank loans. But a substantial portion of TARP was supposed to be directed to supporting HAMP and foreclosure mitigation programs. We know by now that HAMP will not come close to reaching its goals. The latest HAMP stats show that the program has ground to a near-halt, with only 30,000 or so monthly pickups of trial modifications for nearly a year. So far, the program has spent less than $2 billion of a $50 billion commitment. And this money is supposed to be delivered to banks in incentive payments to help families facing foreclosure. So saving $48 billion on those incentive payments provides more than four times the “profit” from TARP bank loans. In other words, the nice shiny TARP balance sheet is built by reneging on the commitment to help homeowners and the greater economy.

Treasury keeps playing this game because they want to set a narrative that bailouts are bot responsible and, now, profitable. But TARP failed in its mission. It was designed not only to bail out the banks but to fix the economy. And we are suffering through the worst recovery since the Great Depression. All of the toxic assets still on the books of the banks are sucking up capital resources and distorting lending practices in the economy. Household debt and a flatlined housing market have led to this stagnant recovery as well. These are items TARP could have fixed. It didn’t.

David Dayen

David Dayen