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Yes, you've been bamboozled! Hoodwinked! You're being taken for suckers that not only can't count, but whose memories have been washed away by threats of swine flu and reality TV shows. Do not fret, though. What I have is PROOF of the great Banking Bamboozle, for all to see. Now, armed with this proof, all I need for you is to go out and do something about it. Don't sit there staring at your screen, thinking "damn, he's got a point". Send a copy of this proof along with your comments to all of your elected officials, congressspersons, senators, bankers, insurers, business partners and the media outlet of your choice. The other alternative is... Maybe the powers that be have a point and threats of swine flu combined with the latest episode of survivor and flowery proclamations of "green shoots" amid 10.2% unemployment is all it takes to pull the wool over your eyes. We shall see, shall we??? This is a fact and figures packed blog post, complete with a plethora of downloadable models and references. Please do take the time to read through it before you return to your daily dose of government recommended "American Idol"... Yes, my goal is to piss you off! To goad you into action! To elicit a response.... and it gets worse as you read on.

I have compartmentalized this rather lengthy, yet interesting (to the right people) diatribe into major segments. Feel free to skip ahead or pick and choose the ones which most interest you - or if you have been freshly unplugged from the Matrix, I suggest you sit back with a good glass of wine and read through this entire missive:

  1. Social mobility: The reason why the big banks are being protected at all costs and on the breaking backs of the unemployed taxpayer
  2. The truth behind the Stress Tests and Unemployment
  3. The truth behind credit loss assumptions: Where the hell did the stress test numbers come from?
  4. The Grand Finale: So, what banks are in trouble and how much trouble are they in? A very granular and unprecedented look at the weaknesses of some of the anointed 19 that you cannot get from anywhere else!

You may have seen bits and pieces of stress test analysis in other blogs and news sites, but I doubt if you have seen all pieces of the pie stitched together, as below. You see, many complain about Goldman Sach's $40 billion of bonuses during a time of near depression, but as all who bother to even consider have probably summarized - this government is ran by, and ran for, the capitalist class. If you even have to ask a question after this statement, you can be rest assured you are not part of that class that the government truly serves. In preparation for the social mobility thesis behind the protection of the banks below, you should download this handy-dandy model that shows  you (in full detail) where YOU stand in the grand scheme of socio-economic stratification, or to put it more simply, how much the powers that be believe CNBC can effect your behavior (quick registration is required, you may choose the free option to subscribe) - Socio-economic stratification model Socio-economic stratification model 2008-11-07 13:47:25 156.00 Kb. For many, going through this model is the equivalent of choosing between the blue and red pill in the Matrix, literally risking an unjacking from the network of make believe.

For those who feel you must get offended when social class is discussed, I strongly suggest you stop here and watch Cramer scream BUY! BUY! BUY! or otherwise get a solid dose of MSM, mind numbing programming. For the rest of you who choose to continue reading, you have just chosen the Blue Pill - prepare to be unplugged from the Matrix!

Social Mobility: The Reason Why the Big Banks Are Being Protected. Unlike the Jefferson's, We're moving on down!

 Social class is defined (on this blog) as the amount of control one has over one's socio-economic environment. It is much more than money, although money is a large component. For instance, Barack Obama is in a higher class than Robert DeNiro or Derek Jeter, although Robert DeNiro and Derek Jeter are most likely wealthier (although that is quite debatable after taking into consideration the value of Obama's campaign contribution list and membership database from his social networking site!). Obama's higher class stems from his ability to exert more control over his socio-economic environment. The factors that this author uses to determine class combine (with the associated weights) to create a "socioeconomic index":

Socioeconomic Index=

(Occupation X 12) + (Income source X12) + (Income X 7) + (Wealth X 14) +

(Education X 7) + (Dwelling area X 15) + (Class Consciousness X 7) +

(Housing X 12)

As you can see, wealth is the largest contributor to the class standing, and coincidentally it is the factor that is the most at risk in this current economic climate. I believe that there will be a significant entry into the upper middle class by those who were once firmly entrenched into the upper classes! While that may not seem like a big deal to many, it is damn big deal to those who are moving down the ladder. This also means, that there will be some space for others to move (relatively speaking) up the ladder into the capitalist class. One man's (or woman's) misfortune is another's opportunity.

Social Mobility is the name of the game in times of severe dislocation - times like we are experiencing now. It is the endgame of the extant capitalist class to convince the populace, both by means of government misinformation and disinformation disseminated through the mainstream media, that the current severe economic dislocation is over and we are well on the path to economic recovery. Economic recovery in this sense during this period can also be read as the cementing of the status quo for the capitalist class! Everytime a member of the capitalist oligarchy stumbles from its perch (usually in times of severe economic dislocation), a driven member from a lower rung on the socio-economic food chain rises to takes its place. The goal of the capitalist class is to prevent that lower rung member from rising "BY ANY MEANS NECESSARY!" Hence the "protect the banks at any cost" scenarios that you see coming from Paulson, Geithner, et. al. The mantra that you hear being preached by the guardians of the gates of the Capitalist Class, saying "we barely averted catastrophe!",  "The demise of XYZ (or GS) bank will bring upon us the end of the World as we know it", or any other nonsensical drama, is simply propaganda to frighten the sheeple into stepping in line, lockstep behind the minions of the Capitalist Class. Banks have been failing for thousands of years and the world moved on, without so much as a hiccup in the vast majority of cases. The world will come to an end as we know it for those members of the Capitalist Class that were closely associated to any bank that fails, which is why you here the aforementioned mantra from the minions of the Capitalist Class. Hey, I need for those underperforming banks to fail - for they are dragging on the productivity of this country like some royalty receiving wealth and influence from birthright rather than from merit or performance, and the failure of such institutions will enrich this country by allowing the hybrid vigor of the true capitalistic producers (as opposed to the rigid caste-like capitalist class) to move into the capitalist rung on the ladder and truly produce value. 

The massive amounts of extremely valuable, and apparently low cost (relatively) or absolutely free information disseminated from sources such as BoomBustBlog or ZeroHedge are attempts at equalizing the effect of the Capitalist Class Oligarchy, thus enabling social mobility through awareness. You see, when you are on top of the ladder, social mobility can only mean bad things. For everyone else, it can hold the promise of better things to come. 

Lower Strata




Working Poor


Middle Strata

Lower Middle Class



Upper Middle Class


Upper Strata

Lower Upper Class

 <-- 20% to 30% of BoomBustBloggers are here, roughly 1,500 of you!


Higher Upper Class - the Capitalist Class


Once you are aware of how these things break down, you will see many settings in a different light. Again, here is the BoomBustBlog class model (based loosely upon the Index of Status Characteristics) available for download to anyone interested in delving into this further (quick registration is required, you may choose the free option to subscribe). See xls boombustblog.com_social_class_model v.7.3 156.00 Kb.

Now, on to those Stress Tests!

Let's take a walk through recent history... Earlier this year, in an attempt to assuage the fear of bank insolvency, the government issued what amounted to "take home" stress tests for the big US banks. These tests were known as SCAP (Supervisory Capital Assessment Program) tests. I have warned about the inaccuracies of these tests in the spring (see Welcome to the Big Bank Bamboozle and More-on-Reggie-Middletons-Bank-Stress-Testing), but now with the benefit of hindsight I will systematically go through the aspects of these tests which SEVERELY overestimated the strengths of the banks in question, with ample evidence sprinkled throughout.


The Unemployment Figures Used in the Stress Tests Have Proven to be Fantasy, at the Very Best! 

The stress tests assumed a worst case scenario for unemployment to be 8.9% in 2009 (see pages 8 and 9 in pdf scap_design_and_implementation 06/11/2009,23:08 286.90 Kb). As the facts stand now, the unemployment rate rose from 9.8% in September to 10.2% in October 2009 (see U.S. Unemployment Jumps to 10.2%, Prompting Obama to Pledge Fresh Measures). The long-term unemployment rate (including marginally attached job seekers and workers who are discouraged or part-time for economic reasons) rose from 17% in September to 17.5% in October 2009. (U.S. BLS)



As you can see, the major driver of future bank credit losses has been woefully underestimated, and thus the capital requirements of said banks have been woefully underestimated, among other things. We shall get to that in detail later on in this missive. For now...


The stress test assumptions worst case scenario was off by 130 basis points for 2009 and we are currently in uncharted territory since we pierced the worse case scenario for the entire prediction term of the assumption period (the 10.2% number was for October and we are trending sharply higher).

Even the Federal Reserve was more pessimistic shortly after the government agreed to let most banks pay back TARP and allegedly "passing" the stress tests. Despite this, last minute epiphany they were still significantly too optimistic. The U.S. Federal Reserve estimated unemployment at 9.2%-9.6% for Q4 2009 and 9%-9.5% for Q4 2010, off by up to a full 100 basis points, but still better than what they allowed the banks to project losses with.

More data tidbits before we move on:


The truth behind credit loss assumptions: Where did the stress test numbers come from? They came from the guys that were actually being tested. It's the world's largest take-home test!

On several occasions, I have released research that explicit details the default rates, and as an extension, the loss and recovery rates behind residential mortgages in most states in the US (by combining the default rates with the Case Shiller data) - see "the open source mortgage default model", the downloadable, open source default and loss rate model (free registration required): Revised SCAP Assumptions Public Open Source Version 1.1 Revised SCAP Assumptions Public Open Source Version 1.1 2009-05-18 15:15:47 1.21 Mb and "Green Shoots are Being Fertilized by Brown Turds in the Mortgage Markets" (these links are must read items - they contain megabytes of government sourced, empirical loss data that directly contradicts what was offered in the SCAP tests). The aforelinked document is also available as a .pdf for download (with additional commentary) after a free registration:'s Realistic Recast of SCAP's Realistic Recast of SCAP 2009-05-12 14:52:09. Much of this info came directly from the NY Fed and the FDIC, hence it was readily available to the Federal Reserve and the Treasury as well. Despite this, the SCAP tests used much more optimistic numbers than the NY Fed's own findings, and the results are becoming apparent as I type this.

Reference Fannie Mae's recent credit losses - Fannie’s Draws From Emergency Treasury Fund Reach $60 Billion ...Then there is evidence of further distress at other mortgage insurers: AIG Taps U.S. for $4.2 Billion to Help Restructure ILFC, Mortgage Insurer.

Ambac Insurance Unit May Be Put in Receivership, JPMorgan Says  (JPM is a year and a half late. I told you this back in 2007, see Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion and Follow up to the Ambac Analysis) and on the consumer finance front Consumer Credit Declines More Than Forecast as American Job Losses Persist.

This is a must read document for anyone who has bothered to venture this far into the blog post (registration required to download):'s Realistic Recast of SCAP's Realistic Recast of SCAP 2009-05-12 14:52:09. It was generated using data culled directly from the NY Fed's and the FDIC websites. I have created an open source model of this data for all to use at their discretion (registration required to download): Revised SCAP Assumptions Public Open Source Version 1.1 Revised SCAP Assumptions Public Open Source Version 1.1 2009-05-18 15:15:47 1.21 Mb

Here are a few key excerpts...


Geographic breakdown of Alt A loans


Source: New York Fed

I have warned about Alt A loans in the beginning of the year - see  The banking backdrop for 2009. As of April 30, 2009 there were nearly 2 mn Alt A loans outstanding, each with an average balance of $321,293, representing $651 bn (down from $658 bn in March 2009) of total Alt A loans (avg FICO score of 705). California with 43.8% of total Alt A loans (avg FICO score of 709) had the largest share of Alt A loans followed by Florida (9.4% of total Alt A with avg FICO score of 700) and New York (5.6% of Alt A loans with avg FICO score of 704).

Net Charge offs:


Alt A loans
State Total Loans past due Foreclosed Loans REO loans Gross Charge offs Recovery Rate Net Charge offs
CA 12% 11% 5% 36% 9% 32%
FL 9% 23% 3% 42% 9% 39%
NY 8% 8% 1% 26% 28% 19%
IL 6% 11% 4% 29% 21% 23%
TX 3% 2% 1% 11% 35% 7%
NJ 7% 13% 1% 30% 21% 24%
MI 6% 4% 7% 25% 9% 23%
MD 10% 7% 3% 29% 15% 25%
MA 8% 8% 2% 26% 28% 19%
PA 5% 4% 1% 17% 15% 14%
OH 4% 6% 2% 19% 21% 15%
AZ 8% 9% 5% 30% 9% 27%
Total 17.1% 9.3% 3.4% 30.5% 20.3% 26.6%

Is there collusion amongst the banks to drive up the prices of Toxic Assets? 

Last year, the government offered a public/private investment program that used taxpayer funds to assist private investors in leveraging up to purchase toxic assets off of bank balance sheets. I made immediate, and public, note that this program was rife with possibilities of collusion amongst the banks and loopholes ready to be abused. I even created a model for congress to peruse which detailed a few of the possibilities. See (free registration required): 

PPIP full model, with collusion and implied leverage PPIP full model, with collusion and implied leverage 2009-03-26 01:00:41 202.00 Kb. Miraculously, within months, toxic asset prices started floating higher. Hmmm! I am not saying outright collusion did occur, but it really does smell fishy. 

For those of you want to know what the stress tests results of the big banks were if they used the NY Fed/FDIC official loss data, I have run the numbers for you. It doesn't look very pretty in some cases. This content is paid subscriber-only, except for the two links that have public-lite and public excerpt included! Let's walk through the PNC free data, in light of how misleading their latest quarterly report was (see For those that didn't notice - Reggie Middleton on PNCl Q3-09 Results and then be sure to read At What Point Does Accounting Gimmickery Become an Outright Lie? Let's Ask PNC).

Click any of these graphics to enlarge...


 Notice the amount of leverage that PNC is using if one were to use the NY Fed and FDIC data in lieu of what PNC has proffered through their take home test.


As you can see from above, there is a significant difference between what the government's SCAP tests reveal PNC will lose and what the government's NY Fed and FDIC call sheet data says PNC will lose - a very significant difference. Solely as a result of looking at this chart, one should be willing to demand a second round of considerably more stringent stress testing.


If one were to granularly break down the foreseen losses to PNC's portfolio using the government data...


As you can see, going through each major loan category in PNC's books reveals a much LESS optimistic scenario than ANY portrayed in their SCAP take home test results...

In an act of near unprecedented generosity, I have included the PNC valuation along with the Blackrock contribution in the free PNC lite public download below (in alphabetical order). 


Subscriber content that reveals what the banks REALLY needed in terms of capital and cushions to whether the true rate of losses and unemployment to come. You may subscribe here to access this content.

Goldman Sachs Stress Test Professional Goldman Sachs Stress Test Professional 2009-04-20 10:06:45 4.04 Mb

Goldman Sachs Stress Test Retail Goldman Sachs Stress Test Retail 2009-04-20 10:08:06 720.25 Kb

MS Simulated Government Stress Test MS Simulated Government Stress Test 2009-05-05 11:36:25 2.49 Mb

MS Stess Test Model Assumptions and Stress Test Valuation MS Stess Test Model Assumptions and Stress Test Valuation 2009-04-22 07:55:17 339.99 Kb

PNC SCAP Results recast using FDIC and NY Fed data - Pro PNC SCAP Results recast using FDIC and NY Fed data - Pro 2009-05-15 07:31:21 455.37 Kb

PNC SCAP Results recast using FDIC and NY Fed data - Retail PNC SCAP Results recast using FDIC and NY Fed data - Retail 2009-05-15 07:30:25 395.18 Kb

PNC Stress Test Pro PNC Stress Test Pro 2009-04-13 02:10:17 3.11 Mb

PNC Stress Test update - Professional PNC Stress Test update - Professional 2009-04-21 15:55:56 3.00 Mb

PNC Stress Test Retail PNC Stress Test Retail 2009-04-13 02:11:08 323.51 Kb

PNC Stress Test update - Retail PNC Stress Test update - Retail 2009-04-21 15:53:52 777.50 Kb

PNC stress test write up - public lite PNC stress test write up - public lite 2009-07-27 02:37:11 995.30 Kb

Sun Trust Banks Simulated Government Stress Test Sun Trust Banks Simulated Government Stress Test 2009-05-05 11:37:13 1016.17 Kb

JPM Public Excerpt of Forensic Analysis Subscription JPM Public Excerpt of Forensic Analysis Subscription 2009-09-22 14:33:53 1.51 Mb