Yesterday, I mentioned that I was worried that Congress and the administration might start thinking about ways to use the $200 billion of the reduced estimate of the losses from TARP for new spending programs. Never mind that this $200 billion does not translate into $200 billion in new spending but, rather, has a value of roughly $50 billion. Today the Washington Post has this story:

The official said the Treasury expects a total of $175 billion in repayments from banks by the end of next year.
Politics may ultimately play into the decision of how to use the unspent bailout funds, analysts said. The administration is aware that worries over high unemployment often trump voters’ concerns about budget deficits, said analysts and economists in contact with Obama’s aides. Democrats on Capitol Hill say the idea of using a Wall Street bailout to help small businesses has a lot of appeal among lawmakers and voters.

In fact, according to the New York Times, congressional Democrats:

have already decided to divert about $70 billion from what is left in the bailout fund to the cost of additional road-building and other construction projects, credit to small businesses and further aid to state and local governments. The administration had wanted to dedicate unspent bailout money to the deficit but signaled to Congressional leaders late last week that it would not oppose their plans.

Also, in the Washington Post’s article we learn that House Democrats have not learned anything from this crisis and “are seeking to tap the government’s massive bailout fund to help homeowners . . . struggling to make their mortgage payments.” House Financial Services Committee chairman Rep. Barney Frank even “signed on to a proposal by Rep. Maxine Waters that would channel $3 billion from the federal Troubled Assets Relief Program toward mortgage relief for jobless Americans.”

But as my colleague Garrett Jones explained to the Post, it is a mistake to treat “the returns of TARP money as if it were a special kind of windfall.” Instead, he explains, “This should be about setting a pattern for the future and getting in the habit . . . of constraining the deficit.”

In other words, whatever money Treasury gets back shouldn’t be spent, but it should be used it to pay off the country’s massive debt.