Congress is fighting with both the administration that is leaving and the one that is coming  about what should happen to the $350 billion left in the TARP. Most legislators do not seem to be happy about how Treasury Secretary Henry Paulson spent the first $350 billion. Too much of it got invested in banks and car companies. Not enough went to help mortgage holders.

Whether it is practical to help people with troubled home loans one-by-one may be beside the point. The fight over the TARP will be vicious. Saying that taxpayers will get their money back by saving the housing market probably creates good will politically.

The TARP may simply disappear before the debate about how it should be used is over. Bank of America (BAC) is negotiating with the government for billions and billions of dollars to close its acquisition of Merrill Lynch. That was not how it was supposed to work. BAC was supposed to have had the balance sheet to afford both Merrill and Countrywide.

Sitting on the government’s side of the table in the talks with Bank of America are officials from Treasury, the Fed, and the FDIC. The deposit insurance agency does not have the capital to bail out a lot of big banks. It has to worry about work-outs for smaller ones that are failing. The Fed is willing to lend big banks money for a short term. It is not likely to get into the business of trading cash for equity.

The Treasury has already been through a round of throwing money at financial firms in exchange for equity and the possible right of making sure bank executives get the salaries they deserve rather than the ones their boards give them.

Once Congress does go along with letting Obama’s Treasury Secretary have access to the $350 billion still left from the money that was allocated for the TARP, a great deal of it may be going right back out to banks. The forecast now is that Citigroup (C) could lose $10 billion this quarter. A look at what is happening to consumer credit, LBOs, and the alarming increase in corporate bankruptcies means that Citi may need more than one injection of capital this year. The same holds true for Bank of America and a number of other financial firms which have not yet telegraphed their Q4 numbers.

The fight over the use of the TARP funds may be academic. The money has already been spent.

Douglas A. McIntyre

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