Big Banks: They All Fail

The Russell 2000 (NYSE:IWM) is drifting higher this afternoon, buoyed by a dividend hike at large-cap benchmark IBM and reassuring data out this morning.

At 1:25 pm ET, the Russell is up 1.16%, while the Dow is down 0.04% and the S&P 500 is down 0.07%.

Earlier today consumer confidence data numbers were released, showing a rise of more than 12 points to 39.2, up from a revised 26.9 in March. Analysts were expecting a reading of 29.5. Also out today was more housing data that showed an 18.6% drop in February.

Small caps on the rise today include Virtual Radiologic Corporation (Nasdaq:VRAD), up nearly 30% after announcing first-quarter financial results.

*****I figured Citigroup (NYSE:C) would be asked to raise more cash to insulate it against further losses. But when I read that the Treasury will raise reserve requirements for all 19 banks subjected to the Treasury’s “stress tests,” it suddenly made sense.

As you know, I’ve explored a couple different stress test scenarios. In one, all banks pass the stress tests in order to convince investors that banks are healthy. In another, one or two banks are failed and made examples of, prompting the others to quickly get behind Geithner’s PPIP and dump their toxic assets at reasonable prices.

I’m a little embarrassed that I didn’t see this outcome. After all, Geithner and the Obama administration have made it painfully clear that they prefer to play softball with Wall Street at the taxpayers’ expense. How could I have thought that any bank would be singled out and be made an example?

And I suppose passing all the banks would have been a little obvious. But . . .

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