Days ahead of the release of the bank stress test results, reports have surfaced that Citigroup (NYSE: C) may attempt to raise capital from private investors rather than take more U.S. bailout funds. Such a move could strengthen the firm's equity without giving the government more control.

Although the results of the test haven't been released, it is widely known that Citigroup is considered one of the banks that will need to raise cash to continue (some reports state more than $10 billion).

American International Group (NYSE: AIG) just can't get out of its own way. Seriously, if you want a blueprint of how not to spend "free" money from taxpayers, just read the media's coverage of the bank.

According to MarketWatch, the company is going to pay $450 million to employees of the unit that was basically responsible for the bank's collapse, you read that right.

It definitely seems that this decision is not resonating well across the nation's capital, as Larry Summers (economic advisor to the President) said that the payments are "outrageous." Democratic senator Barney Frank told Fox News that the government needs to look into whether or not these bonuses are "legally recoverable." Yet another Democrat, Elijah Cummings, wants AIG CEO Edward Liddy to resign.

President Obama has presented a budget that will yield a $1.75 trillion deficit --12% of GDP. But he promises to slice that deficit in half by the end of his current term. The budget has many items in it, but I found two to be particularly interesting -- the decision to more than double the original TARP and the move to repeal a loophole that enables hedge fund and private equity managers to slice their tax bills in half.

The budget could add as much as $750 billion for bank bailouts. The TARP had allocated $700 billion to that bailout task last year. $350 billion of that has been spent and if the latest $750 billion is added to the yet-to-be-spent second half of the TARP, that leaves $1.1 trillion of taxpayer money going out the door. But for what purpose? We know $16 billion went to bonuses and there have been the multi-million parties as well. But as far as getting more lending out to individuals and companies, the zombie banks that got the money have kept their purse strings tight.

Meanwhile, the budget does do something good. It makes private equity and hedge fund managers pay income tax on their income instead of treating that income as if it was a capital gain -- subjecting it to the lower 15% tax rate. I argued this point on CNBC back in July 2007 with the Wall Street Journal's Alan Murray (and he ended up agreeing with me). Unfortunately, closing this loophole would have done much more good when hedge funds and private equity firms were actually making money.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing.

The arguments about the value of shares in Citigroup (NYSE: C) rage back and forth most trading days. The shares can run up or run down 15% during any given market session.

On days when it looks like American banks will be bailed out with common shareholders remaining intact, Citi runs up. On days when nationalization of the banks seems more likely, it heads toward new lows.

Mortgage applications fell almost 25% last week with new loan applications for home purchases hitting an eight-year low, according to the Mortgage Bankers Association. People continue to sit on the sidelines, waiting for prices to drop. Who wants to buy a home today if the price for that home might be lower soon after the deal closes?

Adding to that wait-and-see attitude are some major incentives that could be part of the stimulus package making its way through Congress. The biggest incentive of them all is a Senate provision that would give all home buyers a $15,000 tax credit. Who wouldn't wait to see if that provision survives the House/Senate negotiations?

The U.S. stock market drops 381 points and you ask why. News analysts say that investors were not satisfied with the details of the bank bailout plan.

Well, if you dig a little deeper you will find out the real reason for the stock market's sell off. As part of the bailout plan, the Obama administration plans to conduct a "stress test" across the nation's largest banks. This "stress test" is mandatory for about 20 of the country's largest banks. This is exactly what the banks have been avoiding, that is, to come clean about their losses. Now the whole world will be able to see the extent to which these guys were leveraged out and the kinds of outrageous risks they took.