All told, the government is currently facing $8 billion in losses on the 10 biggest investments it made – and that’s after accounting for the $424.1 million paper gain on Morgan Stanley (MS Quote) shares and the $271.6 million paper profit on Goldman Sachs (GS Quote) shares. 

For those keeping score, the Treasury owns almost $200 billion in preferred stock from 532 firms, but 8 firms account for $134 billion. In all, the bailout is now more than $3 trillion, which is just about as much as the entire federal budget for last year. Morgan Stanley and Goldman Sachs are the only 2 out of the 10 biggest government investments that are in the money. Aside from those two bright spots, the only other good news for taxpayers is that the government collected $2.5 billion in dividends from its banking investments through March 31. 

So my recommendation to Treasury Secretary Tim Geithner is to take the money and run if any banks are ready to buy back the preferred shares and repay the bailout money they took. If taxpayers have to wait for the shares of these banks to top the strike price, we may be stuck with these investments for a very long time.

Regulators have stress tested the 19 largest U.S. banks to determine their capital needs should economic conditions deteriorate further. Officials have said that they will release the results in some form this week. The markets are anxiously awaiting the results as investors try to figure out which banks are on the path to recovery and which might face pressure to raise more capital, possibly through government funds.

Investors have embarked on their own guesswork, crafting their own results of the governments’ tests. Some banks’ shares have already been punished following early leaked reports that they will need more capital. Citigroup may have to raise more capital, according to preliminary results of its stress test, people familiar with the matter said on Tuesday, and Bank of America Corp may need billions of dollars more, the Wall Street Journal has reported.

Most experts agree that the idea of the stress tests has changed since Treasury announced the exercise in February. The original intention was to use the tests to determine which banks might need to participate in a new government capital infusion program, but market appetite for information on banks’ health has expanded its significance. Officials have said that the public disclosures will likely allow outside analysts to test their own assumptions of the banks’ health against regulators’ assessments.

However, a document the Federal Reserve released last Friday revealing the underlying assumptions of the stress tests did not include many specifics. The government has to decide whether to release the results of individual banks next week, or just disclose summary information for all the tested banks. Regarding whether banks themselves self disclose, bank examination findings are generally exempt from U.S. Securities and Exchange Commission disclosure requirements. Some experts have argued that the stress test process has risen to the level of a material event that investors should be informed about.

Citigroup reported a loss per share of 18 cents, which was narrower than the 34 cents analysts predicted. A year ago, the company suffered a loss of more than $5 billion, or $1.03 a share. Shares rose 12 percent in pre-market trading. Citigroup has been the weakest of the large U.S. banks, posting quarterly losses since the fourth quarter of 2007, but in March, CEO Vikram Pandit triggered a stock market rally after he said that January and February had been profitable for Citigroup.  It was one of the first signals that the banking industry might not be as sick as many believed.

Earlier that month, fears that banks would need to be nationalized sent stocks plunging to 12-year lows. Citigroup’s better-than-expected report on Friday came after surprisingly solid earnings from JPMorgan Chase & Co., Goldman Sachs Group Inc., and Wells Fargo & Co. over the past several days. While recent results from these healthier banks have brought some relief to investors, many have been waiting to see how more troubled banks such as Citigroup have fared. 

On Wall Street, futures spiked early Friday following the earnings announcements, retreated slightly as investors looked deeper into the reports, then moved higher again. Still, the moves were modest as investors were mindful of the weakness that still pervades the financial sector.

The New York based lender Citigroup, who had received three U.S. government rescue packages watched as its shares rose 25 percent higher.  The financial giant Bank Of America gained 15 percent and Goldman Sachs added five percent.  The nation’s second biggest home lender, last week reported about three billion in first quarter net income which was up from the previous year.  Apparently, the financial giants are leading the U.S. market recovery. 

Now that the banking sector is stabilizing experts believe the cycle will continue to move upwards. Citigroup, Goldman Sachs and JP Morgan who are all based in New York, are scheduled to release earnings this week. Bank of America, based in Charlotte, North Carolina, and New York’s Morgan Stanley will report next week, along with Wells Fargo. Citigroup and Morgan Stanley are expected to report a loss on a per-share basis, and the four others will probably post a profit, according to analysts’ estimates compiled by Bloomberg. Fears of nationalization have pretty much vanished as it’s becoming clear that the banks are slowly getting back on their feet.