Should The TARP Cover Job Creation?

As the President holds his jobs summit today, one question that's sure to come up is: how do we pay for all of these ideas for job creation. Although some may be long-term debt neutral, most will require the government to spend. But Democrats in Washington are beginning to suggest an alterative to passing another big stimulus bill: just use the money the Treasury has been slowly accumulating as banks pay back their bailout tabs. Although this option is politically convenient, it's ethically bankrupt.

The New York Times reports today on the growing chorus of lawmakers who want to use the repaid bailout money to reduce unemployment:

Many Democrats are eager to apply any balance toward a jobs bill, to avoid adding to the deficit and to put the widely reviled bank bailout program -- known as TARP, for Troubled Asset Relief Program -- to use for ordinary Americans.

You might remember back in February the brutal battle in Congress to pass the stimulus legislation. A second stimulus bill will be even more challenging, since the public has become increasingly concerned with the growing deficit. Using the TARP fund is particularly attractive to Democrats because it eliminates both those obstacles: you need neither new legislation nor additional debt.

Here's the problem -- the TARP money was never intended to be used for jobs stimulus. Its purpose was to stabilize banking and end the financial crisis. As the bill (.pdf) that gave life to TARP says, the funding was meant:

to immediately provide authority and facilities that the Secretary of the Treasury can use to restore liquidity and stability to the financial system of the United States

Of course, President Bush's Treasury first disregarded the TARP fund's actual purpose when it decided to use some of this money for the initial bailout of automakers GM and Chrysler. But just because a Republican administration ignored the intention of this legislation doesn't mean a Democrat administration should make the same mistake.

If the Obama administration and/or Congress want more spending for jobs, then there's a mechanism in place to make that happen: they should create new legislation. If they have the votes to pass such a bill and public support, then they can do as they please. But to use the left over TARP money as an all-purpose slush fund disregards the reason why this money was set aside in the first place. It might even be illegal.