Treasury TARP Returns: Collateral Damage

WASHINGTON, D.C. (TheStreet) -- The U.S. Treasury is overstating the gains it has made through the Capital Purchase Program, according to a professor who has been critical of the bailout.

Linus Wilson, professor at the University of Louisiana's business school, calculates the Treasury had earned 14.2% through Sept. 24, 2009 on its investments in the 23 banks that have repaid all the government money they received, less than the 17% returns cited by Herbert Allison, the Assistant Secretary for Financial Stability, in recent congressional testimony.

The banks that have repaid the government bailout money include American Express (AXP Quote), Goldman Sachs (GS Quote), US Bancorp(USB Quote), Bank of New York Mellon (BK Quote) and Morgan Stanley(MS Quote), among others. Most institutions that have received bailout money, including Citigroup(C Quote), Bank of America(BAC Quote) and AIG (AIG Quote), have not paid it back yet.

Wilson argues that the discrepancy between his numbers and those of Allison stems from how the dividends and preferred stock were reinvested. Wilson assumes they were used to pay down the national debt, as Allison told Congress July 22, between the 1:19:00 to 1:20:00 marks.

"It is my understanding that as that money comes in, that reduces the national debt, but let me give you a more definitive answer on that as soon as possible," Allison said.

Wilson calculated the 14.2% return by factoring in the prevailing T-bill rates for the short-term investment horizons that he determined would apply if the money was used to pay down the national debt.