For folks like Timothy Geithner it is a big thing to boast about the profit the government made on the TARP. We got more of this children's story in the NYT yesterday in an article reporting on the end of the TARP. It is worth understanding the meaning of profit in this context.

The basic story is fairly simple. The TARP was a program through which we lent otherwise bankrupt banks, and actually bankrupt auto companies, hundreds of billions of dollars at interest rates that were far below the market rate. However the interest was higher than what the government paid on its borrowing, therefore Timothy Geithner gets to run around saying that we made a profit.

Before you start thinking that this is a great idea and we should give all the government's money to the Wall Street banks, imagine that we had given the same money to an different institution, Bernie Madoff's investment fund. As we all know, Madoff's fund was bankrupt at the time because he was running it as a Ponzi, the new investors paid off the earlier investors. He hadn't made a penny on actual investment in years.

But, if the government had lent him tens of billions of dollars at the rates charged to the Wall Street banks, and furthermore given the Timothy Geithner "no more Lehmans" guarantee (this meant that the government would not allow another major bank to fail), then Madoff would be able to invest the money borrowed from the government in the stock market. In fact, with the no more Lehman's guarantee he could have borrowed tens or hundreds of billions more from other sources and invested this in the stock market as well. (If he had been a favored bank, he could have also taken advantage of below market interest rate loans from the Fed.)

After a few years, Madoff would have made enough money to cover his shortfall. He could then both repay his investors and repay the loans to the government. This would have then allowed Timothy Geithner to boast about how we made a profit on the loans to Bernie Madoff.

The reality is that the boast of a profit in this context is pretty damn silly. The question is whether an important public purpose was served by rescuing the Wall Street banks from their own greed.

That's a hard one to see. Geithner and Co. trot out the Second Great Depression scare story, but this is just another children's story. We have known how to get out of a depression since Keynes, it's called spending money. And even Republicans are down with stimulus in a severe downturn. The first stimulus was signed by George W. Bush when the unemployment rate was 4.7 percent.

So TARP was about using the government to save the Wall Street banks from the market, end of story. There is no reason for anyone to care that Timothy Geithner gets to say we made a profit on the deal. We could have made a profit on rescuing Bernie Madoff too.