One economic data point that sort of slipped under the radar recently concerned the U.S. Federal Reserve's $78.4 billion payment to the U.S. Treasury in 2010, up about 65% from $47.4 billion in 2009.

And the reason for the revenue surge? Experienced investors or others who have reviewed the Fed's report will realize that much of it stems from income from the Fed's purchase of mortgage securities and Treasury securities in connection with the quantitative easing, part 2 program, or QE2.

Under QE2, the Fed will purchase up to $600 billion in assets from November 2010 to June 2011 -- this coming after the Fed purchased $1.7 trillion in assets through March 2010.

Hartford Financial (HIG - option chain) stock is trading lower today after the US Treasury Department announced it will sell its warrant positions in HIG and Lincoln National (LNC) over the next several weeks. The Treasury initially received these warrants as part of the financial sector bailout program. This news is sending both stocks significantly lower as traders expect these sales will create bearish pressure on the stock. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on HIG.

This morning, HIG opened at $22.19. So far today the stock has hit a high of $22.22 and a low of $21.51. As of 12:30, HIG is trading at $21.94, down $0.51 (-2.3%). The chart for HIG looks bullish and S&P gives HIG a positive 4 STARS (out of 5) buy ranking.

The big market news of the day is that Citigroup, Inc. (C) will not have Uncle Sam for a shareholder for much longer. The news that the Treasury would sell the taxpayer interest in the bank pushed shares down 3% to $4.18.

For the most part the market traded sideways. Ford Motor Company (F) dropped slightly on its announcement that it March sales were be nothing extraordinary. Shareholders expected the month to be a home run. Apple, Inc. (AAPL) shares hit a new 52-week high of $233.87 as excitement grew about its iPad launch

Today's unofficial closing bell numbers:

Dow 10,895.86 +45.50 (0.42%)
S&P 500 1,173.22 +6.63 (0.57%)
Nasdaq 2,404.36 +9.23 (0.39%)

Blame a poor US Treasury auction, blame poor home sales data, or blame Portugal after a Fitch downgrade. Regardless, the markets needed a breather and may need even more of a breather ahead. Depending upon which stock indexes you track, we had been in a constant gain environment with the market up 10 of the past 11 days.

Here were today's unofficial closing bell levels:

Dow 10,836.15 -52.68 (-0.48%)
S&P 500 1,167.72 -6.45 (-0.55%)
Nasdaq 2,398.76 -16.48 (-0.68%)

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Former U.S. Treasury Hank Paulson was not subtle in his opening remarks Wednesday to a U.S. House committee investigating both the U.S. Treasury's decision to bail-out American International Group, Inc. (AIG) via 100% payments to its counterparties, and the U.S. Federal Reserve's quantitative easing policy.

Paulson, said had federal policy makers not acted to save AIG, a failure of the financial system could have ensued, and pushed the U.S. unemployment rate to a Great Depression-esque 25%, marketwatch.com reported Wednesday.

US Treasury Geithner wants to protect his turf. He sent a letter to Nancy Pelosi and Senate Majority Harry Reid extending the Troubled Asset Relief Program (TARP) until October 3, 2010, keeping $550 billion in bailout funds.

His letter states that: "The extension is necessary to assist American families and stabilize financial markets because it will, among other things, enable us to continue to implement programs that address housing markets and the needs of small businesses and to maintain the capacity to respond to unseen needs."

Three quarters of the fiscal year is comfortably behind us, and the U.S. budget deficit has already passed the $1 trillion mark. In June alone, the federal government spent faster than it earned to the tune of $94.3 billion. The result is below the median predicted by 30 estimates according to a Bloomberg News survey of economists -- projections ranged from $70 billion to $109.3 billion for the month. This is the first time we've had a June deficit since 1991.

In June 2008, the deficit for the month was a much more modest (but still sizeable) $33.5 billion. But last month spending spiked 37% to $309.7 billion, while revenue plunged 17% to $215.4 billion.

So how does the rest of the year look? Pretty grim.

U.S. Treasury Secretary Geithner is expected to give out details of his toxic asset purchase plan, which includes forming public-private partnership. The cost of the program is estimated at $1 trillion!

Before you can even think of spending another $ 1 trillion bailing out the banks, you have three major problems to take care of:

1. JP Morgan Chase & Co (NYSE: JPM) is holding $ 87.7 trillion of CDSs "off the books." Citigroup Inc (NYSE: C) and Bank of America Corp (NYSE: BAC) are holding another $43 trillion of CDSs "off the books." That's $130.7 trillion "off the books" for just three banks. CDSs, CDOs and CLOs are over the counter (OTC) transactions. Bank regulators do not determine the dollar value of these transactions. If you don't even look at the transactions, how can you determine the extent of the problem? This is why the title of this post says it is foolhardy to spend $1 trillion of taxpayer money when you don't even know the extent of the problem.

After last Thursday, when the Dow lost 345 points, I speculated that another bailout plan would emerge over the upcoming weekend. As I posted, there was no obvious reason why the market fell so much that day. But one of the possible clues of trouble was that Bill Gross, who manages the $800 billion Pacific Investment Management Co. (PIMCO), was making noises about how the government needed to spend $500 billion to save the housing market.

Coincidentally, Gross -- whose holdings include $500 billion in mortgage-backed securities (MBS) -- is rumored to have "helped" the Treasury with its bailout plan for Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). And he has profited handsomely from it since he bought the MBS during the panic-- which have risen in value post-bailout.

The reason I felt that a bailout was coming is because this administration has a solid track record of responding to stock market plunges with weekend rescue plans. Evidently it is concerned that Asian markets -- more specifically China's which happens to own $340 billion worth of MBS -- need a weekend bailout plan so when their markets open on Monday they will have something to celebrate. The Big Picture has provided a helpful service by listing the six Sundays in the last 14 months that the government has announced a new bailout plan for the financial markets.

Another shoe is dropping in the ongoing credit collapse here in this nation of whiners. According to the New York Times, the default rate on so-called Leveraged Loans -- (a very strange name if you ask me since a loan is leverage) that refers to loans used to finance corporate takeovers -- climbed fast from 0.24% in August 2007 to 3.3% in August 2008.

The loans that have gone bad so far are not big ones -- they are more like the canary in the coal mine -- hinting at bigger problems to come. The Times says, "the loans that have gone bad have been concentrated in two industries - real estate and auto parts. S.& P. calculates that they have accounted for almost half of this year's defaults. Gambling has also had problems, as it turns out that there are too many casinos in some places."

The biggest loans have yet to default. But their collapse is inevitable. That's because banks are scrambling to raise capital and shore up their balance sheets. And the leveraged loans were structured to benefit from a lending market in which the name of the game was to keep from losing market share by making it ever easier to borrow. Thus the terms of leveraged loans were easy -- featuring, as the Times reported, a "flood of 'covenant-lite' and 'toggle-[Payment in Kind] PIK' loans."

The Treasury and some members of Congress are concerned that sovereign funds from the Middle East and Asia may use their investments in US banks and corporations to push their global political goals. Treasury Undersecretary for International Affairs David McCormick said the government-controlled funds may raise "legitimate national security concerns," and may distort markets if not managed properly, according to MarketWatch.

If the large funds walk away from investing in the US, especially when banks and brokerages may need more money to weather the credit crisis, finding large pools of capital may be difficult.

But, one sovereign fund, Singapore state investor Temasek, appears to be willing to agree to make official its intention to put money into US companies for only "financial" reasons. According to Reuters, "A Temasek Holdings executive told a U.S. House of Representatives subcommittee that it supports the aim of U.S. lawmakers to maintain the right balance between national security and investment flows."