So how was your weekend? I don’t know about you, but I woke up Monday morning poorer by $2.3 billion.

Not me personally, needless to say, but me as a metaphor for the U.S. taxpayer. I’m referring to the ultimate example of “throwing good money after bad”—the $2.3 billion bath that taxpayers are getting from the loss of every single penny of bailout money that was pumped late last year into CIT Group, the big commercial lender that filed for bankruptcy on Sunday. In the waning days of the Bush administration, the government decided that CIT Group, which funds thousands of small businesses around the country, was too big to fail. In went $2.3 billion from the Troubled Asset Relief Program, for which the Treasury received preferred stock.

Well, guess what? CIT filed for a Chapter 11 bankruptcy reorganization, and the world did not come to an end—except for the loss of that $2.3 billion. Private enterprise has, for the moment, triumphed. Veteran corporate raider Carl Icahn has extended a $1 billion credit line to fund CIT through December 31, as it limps through its prepackaged bankruptcy and extinguishes its debt and nulls-out its shareholders, including you and me. While the company is hardly in the pink, it should stagger on well enough so that retailers won’t be completely without financing in the months ahead.

There is a lot of popular resentment of TARP, which is Demon No. 1 on the radio talk-show circuit, and CIT’s bailout is an easy (and understandable) target. Critics of the bailout are already beginning to pounce on the $2.3 billion wipeout as a reason to attack the whole basis of the TARP program. And they have a point. This was a terrible use of taxpayer money. But what it really shows is not that the TARP program is fundamentally bad, but that the government was amazingly incompetent in structuring TARP deals and failed completely to protect the taxpayers in case of default.

Henry Paulson, the former Treasury secretary and ex-Goldman Sachs CEO, negotiated a deal that would have gotten him canned if he was still at Goldman. We know that with relative precision because Goldman negotiated a $3 billion loan with CIT Group in June of 2008. The fine print of the Goldman deal gave the bank understandable protection in the event of default. The term of the deal was for 20 years, and CIT was obliged to pay Goldman $1 billion in the event of a Chapter 11 bankruptcy. When the Treasury negotiated the deal with CIT in December, the insurer was in much more desperate straits and should have been forced to cough up far better terms. Instead, the taxpayers wound up with absolutely nothing in the event of default. (And Goldman Sachs became a principal beneficiary of the taxpayer-screwing bailout. Surprise, surprise.)

Taking advantage of this one-sided deal that kept CIT afloat, in comes Carl Icahn. He had been quietly buying up CIT bonds, to the extent that he emerged a few weeks ago as CIT’s biggest bondholder. In mid-October, he sent the board of CIT a sharply worded letter accusing them of overpaying for loans in order to garner support for its reorganization plan. He offered to loan CIT $6 billion in return for half the fees, but he wanted to wind down the loan portfolio. He told TheStreet.com at the time: “They want to wind down most of the assets anyway, but they're saying 'Let's keep this business alive,' and I don't know what business. They don't have a business. They've got a little factoring business that's sort of melting away, you know?”

Icahn was upset with what he called “questionable transactions” such as the Goldman deal, and called CIT mismanaged. But that wasn’t terribly fair, was it? He neglected to mention that terrific $2.3 billion infusion of taxpayer cash that CIT obtained at the end of the year—not from Santa Claus but from somebody just as generous, albeit with taxpayer money. CIT didn’t even have to be a particularly sharp negotiator to get those sweet terms. Everybody was getting 'em.

It’s easy to say, “Put someone like Carl Icahn in charge of Treasury.” But we’ve done that before, and it hasn’t worked. Hank Paulson wasn’t exactly a linoleum dealer before he came to Treasury. But you might argue that a linoleum store is more hardheaded in dealing with its customers than Paulson was in dealing with TARP recipients. Seems that hardened business executives tend to get backbones of jelly when they go into government. Perhaps because it’s not their money that’s at stake.