Presenting The Real Impact Of US Stress Test Transparency

Tyler Durden's picture

Far be it from us to reflect Schadenfreude here but at the time of the squeezefest leading up to and after the announcement of the lipstick-on-a-pig US Stress Tests in mid-March, when CDS were remaining wide and hardly budged, we questioned the reality of the assumptions and the lack of contagion comprehension. Most critically, in the 4 months since that wondrous day when all was proved great in the world of US banking, the major financials are down a stupendous 25% on average with Wells Fargo taking over the mantle of least used bed-pan in the E-Coli ward - at an unimpressive unchanged since 3/13.


Equity performance of the major US financials since the Fed's Stress Tests...on average -25%

and CDS remain notably less sanguine that stocks (though the latter have caught down to that reality and remained in sync for the last six weeks or so)... with CDS 75bps wider on average since the Stress Tests were announced...


Charts: Bloomberg

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adr's picture

So what caused the 100+ point spike in the market at 10:30? Still trying to find that out.

other than PPT action of course.

HD's picture

Europe closed. Happens like clockwork.

The Monkey's picture

Great time to sink it all into financials & lever up. Lot's of bearish news out there & heavily shorted too.

J 457's picture

Not so sure.  Either WFC is best of breed, or best to short.  I guess Wachovia had a pristine balance sheet just like WaMU and Countrywide....

slaughterer's picture

Operation - RESULTS
Operation Date: 07/23/2012
Operation Type: Outright Coupon Purchase
Release Time: 10:15 AM
Close Time: 11:00 AM
Settlement Date: 07/24/2012
Maturity/Call Date Range: 07/31/2018 - 05/15/2020

Total Par Amt Accepted (mlns) : $4,779
Total Par Amt Submitted (mlns) : $19,984

Jay Gould Esq.'s picture

"No one has ever made the banks disclose the type of shit that I made them disclose after the stress tests. No one ! And now you're saying that I haven't been fucking transparent ?"

-- Mr. Timothy Geithner. Successor to Alexander Hamilton.

HD's picture

CNBC is in full spin mode. EVERY half hour they have Liesman on to say the market WILL NOT DROP and the Fed will act in September...

It would be funny, if it wasn't so sad.

jeff314's picture

is liesman jewish????

francis_sawyer's picture

Who cares if he's a joo or not... He's just a fucking doughboy... The kind that inmates in a maximum security prison tend to admire the way moonshiners do Ned Beatty...

RSloane's picture

You have to keep in mind that CNBC believes themselves to be the true market movers and shakers. Before I stopped watching it regularly, I kept hearing from their useful idiots that CNBC just moved the market up, or CNBC's call on something saved this or that's earnings. Despite their abyssmal and falling ratings, they truly believe they are the center of the financial universe. Liesman is nothing more than the Fed's very own useful idiot who unfortunately for him resembles Mr Potato Head moreso than a credible source of information. Anyone who believes whatever goverment approved propoganda bullet coming from Liesman's mouth needs a full course of anti-psychotic medication.

azzhatter's picture

the only reason left to watch CNBC is my personal fantasy of that saucy little Aussie wench, Mandy Drury. It involves her barking like a dog

Jake88's picture

 i thought you were one who would like to hear liesman squeal like a pig

mrktwtch2's picture

i really hope that by 2020 we can look back at these yrs (2010-2013)..and look back and say "what were they thinking...were they all idiots??"

TrainWreck1's picture

by 2020, such thoughts will need to be contemplated in solitude, lest ye be branded a renegade.


Vincent Vega's picture

No need to wait til 2020...I can answer now: yes, they are all fucking idiots; they haven't a clue.

i_call_you_my_base's picture

"Were they all idiots?"

You pose this as a question?

TaxSlave's picture

...with Wells Fargo taking over the mantle of least used bed-pan in the E-Coli ward...

Thanks for that...

TrainWreck1's picture

By inverting the stress test results, and re-naming it LSF*, we could see higher numbers, instead of lower.

Since we all know that higher is better, this will speed the recovery from that recession thingamajig we had.



*Loose Stool Function

surf0766's picture

Everyone is transparent. We can see they are full of shit

fonzannoon's picture

and they did not even stress test these douchebanks for a rise in interest rates 

buzzsaw99's picture

jump for joy and watch my legs shimmy

i got a clean bill of health from turbo timmy

eclectic syncretist's picture

The stress tests were conceived and designed as a way to boost public confidence in the banks, not to enhance transparency or anything else.  They were a farce from the very first, and are being proved so now.

azzhatter's picture

Everything being done is too enhance confidence. It's not working

Winston Churchill's picture

Ze daily beatimgs will continue until morale improves.

FieldingMellish's picture

Only the clients and depositors are stressed. Management is fine, thank you very much... bonus please!

Haager's picture

Uhmmm, hasn't Dimon and his wife recently done a good purchase of JPM-stocks? Seems that he knew it al along.

laomei's picture

Here's a stat from the other end of the economy... the poor.

1976: Median household income: $10,962
1976: Poverty threshold (assuming a 2 person household, no kids): $3,838
Earning 35% or less of the median was legally considered poverty.
Minimum wage in 1976 was $2.30 an hour.

2011: Median household income: $51,413
2011: Poverty threshold (assuming a 2 person household, no kids): $15,063 
Earning 29.3% or less than the median was legally considered poverty.
Minimum wage in 2011 was $7.25 an hour.

"Median individual income" stats would make this easier, as "per capita" is kinda bullshit. And I would really be interested in calculating this all out on an individual basis using a poverty line for singles.

So, anywho, looking at this. To hit the poverty threshold in 1976 at minimum wage it would take 32.1 hours a week, 52 weeks a year.

At present, it takes 39.955 hours just to hit poverty.

Poverty in 2012 means a full time, 40-hours a week job at minimum wage. You have to work 19% more just to get to the same fucking place you would be at 36 years ago.

How about how much you get to keep of that poverty wage? (No, I am not bothering with state taxes here)
1976 tax rates:

 14%: $0-$1000

 15%: $1001-$2000

 16%: $2001-$3000

17%: $3001-$4000

Standard minimum deduction of $2100 filing jointly. FICA was 5.85% leaving $3,613 pretax and $1,513 taxable. Taxes would be $217. End of the day, in your pocket you have $3,396 or an effective overall tax rate of 11.5%. Or in real terms, you worked 3.69 hours a week for the taxman. Inflation adjusted, this is $13,696.09 today.

2011 tax rates:

10%: $0-$17,000

Standard deduction of $11,600 filing jointly. FICA was reduced temporarily to 5.65% leaving $14,212 pretax and $2,612 taxable. Taxes would be $261. End of the day, in your pocket you have $13,951 or an effective overall tax rate of 7.4%. Or in real terms, you worked 2.95 hours a week for the taxman. Inflation adjusted, this is $14,232.51 today.

Sure, I could have picked a few years later on, but this was more or less near the end of good times, and when things started turning to shit.

Let's look at 1982, 30 years ago... just for laughs.
1982: Median household income: $18,422
1982: Poverty threshold (assuming a 2 person household, no kids): $6,487 
Earning 35.2% or less than the median was legally considered poverty.
Minimum wage in 1982 was $3.35 an hour.

To hit the poverty threshold in 1982 at minimum wage it would take 37.24 hours a week, 52 weeks a year.

1982 tax rates:

12%: $3401-$5500

14%: $5501-$7600

Standard minimum deduction of $3400 pre-figured in for filing jointly. FICA was 6.70% leaving $6,052 pretax and an income tax of $329. End of the day, in your pocket you would have $5,723 or an effective tax rate of 11.8%. Or, in real terms, you worked 4.38 hours a week for the taxman. Inflation adjusted, this is $13,609.35 today.

Of course, what's not being included in that inflation stat, are the actual costs of things like health insurance or education. CPI is also manipulated (obviously). In 1970, total health care expenses (average per capita) was $356. By 1980 it was $1,110.

Rent has outpaced inflation as well.

Poverty levels, in relation to the median have not tracked at all, they are off 6 percentage points from what it was before. To hit that poverty level, you also are working more at a minimum wage job. Working that 1976 minimum wage job for a full 40 hours a week. After FICA, taxes, and inflation, you'd be looking at the equivalent of $16,732.94 right now. Pre-tax, it's an equivalent of $9.28 an hour.

Compare that to today @40 hours a week.
1976: $16,732.94
2011: $14,232.51
That sound you hear is you being fucked out of 15%, right off the top.

Let's readjust poverty levels by those 6 points now eh, just bump it to the 35% to keep the figure nice.
Adjusted 2011 Poverty Level: $17,995
That results in you needing to work 47.73 hours a week to hit it at minimum wage, or $8.65 an hour at 40 hours a week.
So, cool.. let's factor for that. Post tax you're sittin' on $16,440 or $16,771.74 in 2012 dollars. Sure hope you got that raise to keep up with the inflation. Bust that hump for that extra $40 a year slave!

Let's look at college again eh?

This is looking at public, in-state, 4-year universities including tuition and all other fees. Average rate in 1976-77: $1,218 per year. That's a whopping 10.2 hours a week at minimum wage. Or essentially a solid summer of full time if you ignore taxes. In 1982-83 it was $2,139. Ok, it got bumped up to 12.28 hours a week now. Working all summer is gonna gap you about $500.

How about now? Well, in 2009-2010 it was $12,804. Obviously higher now, but what the fuck, let's use that number. Assuming no changes, a minimum wage job is going to demand 34 hours a week (ignoring taxes). Working all summer full time? Not even fucking close. You're only out? Loans obviously, which are all much higher than inflation even for the fed ones. The ones that don't fuck you as much are capped at $5500 a year for freshmen. You have been gapped, enjoy the fun of private loans and co-signers! You are now destined to graduate into an economy that increasingly does not need you and has been screwing you for 40 years.

What's really funny is looking at that 34 hour figure. To get through college, you have to work more than it took to get to poverty status for an empty nest couple back in 1976 (ignoring taxes of course). But let's look at taxes! Using standard deductions and the education deduction it's $13,925 pretax or 37 hours a week at minimum wage. Congrats! You are now doing 1982-levels of poverty threshold work for a empty nest couple! If you are not being claimed, you can snap up to $13,500 a year with no income taxes. That's still 36 hours a week.

So it totally makes sense now if you have boomer parents. Dad worked as a part-time janitor to pay for all of college. Grandpa did a little side-work to put mom through. No debts at all in the end. Why the hell can't you bootstrap your ass and do the same? After all, they were able to do it just fine.

Scholarships, grants... sure ya might get a few to help out. If you are lucky maybe you saved some cash up to pay for college. If you are lucky you have parents who are willing to foot the bill. But we're not looking at those, we're looking at poor average people. For the simple fact that being at a level of poverty back in the day wasn't as easy as it is now. A blue collar, minimum wage household could still find a little room to put a kid through college. Or the kid could, with a little work put themselves through at a decent place. I'm not talking about the gifted, the lucky, the talented here... I'm talking average realities.

Now if you want to talk median... $51,413 in a state with no income taxes and taking no credits or deductions beyond the standard is $43,822 a year or $3652 a month. How much is left after rent/mortgage+taxes+insurance/utilities, car expenses, medical and other insurance, food, etc? Now, do keep in mind, that it's the median, so 50% are below that number. 
And here's a nifty little thing for you consumer units to calculate with: 
How much is left over after all taxes and I do not believe that this covers loan payments.

And yet, people wonder why everything is fucked....

So, once you take all of this into account, you can see how everything is just barely (read "not at all") scraping by. Unwilling to face the reality of the situation, it's just far easier to yell about taxes, which would free up a tiny bit more money. When there's enough money already, taxes are not really a big issue. When money's tight, it feels like theft. Unfortunately, no one is really putting forth the question of WHY everything is fucked, but that really has more to do with who actually controls the national dialogue, and it sure as hell isn't the self-declared "middle class".