Plugging the Deficit With TARP Funds

NEW YORK (TheStreet) -- The idea of closing the federal deficit with funds from a bailout program that has its own deficit requires a bit of mental wrangling.

The federal budget gap is politically unpopular for the Obama administration, which has been attacked by fiscal conservatives for its "tax and spend" policies. On Thursday afternoon, the Treasury Department released data showing that the deficit widened to $176.4 billion in October, up 13% from the year-ago period. Job losses have eaten away at revenue while spending - on a litany of economic programs, financial stability plans, health care, jobless benefits and two costly wars - has only escalated. The Treasury predicts that the deficit will increase to $1.5 trillion in fiscal 2010, from $1.4 trillion in the year ended Sept. 30.

The issue looms larger now that Democrats have lost, or barely scraped by, in several elections around the country earlier this month. Independent voters, it seems, have been shaken by all the taxing and spending, even if the policies are part of a delicate balance meant to prevent a more severe economic decline.

The Troubled Asset Relief Program, or TARP, is another political football that lawmakers have frequently attempted to launch, avoid or misconstrue. (That's despite the fact that 74% of the Senate and 60% of the House voted "yea" to TARP under the Bush administration last year, and a majority -- albeit less robust -- renewed the bailout program in January.)

Showing the public that Obama's team is working dutifully to close the budget gap would be a good thing. Showing taxpayers that some of it will be filled by profitable investments in big, bad banks like Goldman Sachs(GS Quote), JPMorgan Chase(JPM Quote) and Morgan Stanley(MS Quote), and unspent money that might otherwise have been used for their more troubled peers, would be an even better thing.

But a more cynical taxpayer could look at it another way.

More than $85 billion has been returned to the government from banks that accepted TARP but no longer need it. That includes $70.7 billion in outright repurchases; $2.1 billion in loan principal repayments; $9.5 billion in dividends and interest payments; and $2.9 billion in extinguished or exercised warrants.