Mish's Global Economic Trend Analysis

Mish Fined 8,000 Euros for Quoting French Blog
Gambling On No Healthcare Insurance: Is it a Good Deal? Here's the Math; Obamashock! Work More, Get Less!
JPMorgan's $13 Billion "No Admission of Wrongdoing" Settlement (and a $7 Billion Tax Deduction)

Mish Fined 8,000 Euros for Quoting French Blog

Posted: 20 Nov 2013 04:05 PM PST

A few days ago I learned, via a French blog, that I was fined 8,000 euros for quoting a French blogger. I would have known earlier, but the letter notifying me of the fine was sent in French.

In an earlier express letter packet, I could make out a few of the words, in particular noting a summons to appear before a tribunal in France. Needless to say, I did not go.

Let's backtrack to my blog post that started it all.

On August 15, 2011, I posted BNP Paribas leveraged 27:1; Société Générale Leveraged 50:1; Sorry State of Affairs of U.S. Banks; Global Financial System is Bankrupt

In that post I quoted Jean-Pierre Chevallier on his Business économiste monétariste béhavioriste blog, that BNP Paribas leveraged: 27!
I also cited Chevallier's Société Générale leveraged: 50!

Société Générale took exception to the numbers and came up with its own set of numbers. According to SG, its leverage was 9.3%.

A day or so later, Chevallier redid his calculations and I added this addendum.

Addendum:

Société Générale disputes the numbers and new calculations using the banks' numbers are 28:1 or perhaps 23:1 not 50:1 as noted on Forex Crunch.

My position has not changed much. Something is seriously wrong at Société Générale. Banks do not plunge out of the blue on rumors. I do not know the precise leverage, but shares are acting as if Société Générale has severe capital constraints (which of course they will deny) and/or other major problems.

Société Générale was not happy to say the least. They wrote the SEC (in English) complaining about my blog.

The lengthy complaint went along the lines "I should accept as fact any numbers given to me by Société Générale".

French Banking Primer

On September 2, 2011, the Wall Street Journal chimed in with A French Banking Primer

The effects of a system that 'encourages excessive financial leverage'.

By its own account, Credit Agricole's tangible common equity is just 2.1% of its assets—which means its €1.6 trillion balance sheet is leveraged nearly 49-to-1. Credit Agricole argues that €500 billion of that should be netted out because of its hybrid banking/insurance business model, which still leaves it leveraged 33 times.

BNP Paribas and Societe Generale are somewhat less leveraged, at 24 and 23 times their tangible equity, respectively. As a group, these three banks have some €4 trillion in assets on their balance sheets, supported by €129.3 billion of tangible common equity. By contrast, J.P. Morgan Chase and Bank of America have nearly $4.4 trillion in assets between them, supported by $253 billion in tangible common equity. That's a leverage ratio of 17 for the U.S. banks versus nearly 27, on average, for the French big three.

An IMF report in July offered one explanation for why French banks remain so heavily leveraged compared to their U.S. counterparts. The authors note "the bias of the present system" in France, "which encourages excessive financial leverage, and contributes to a dearth of equity financing for innovative projects and an inefficient allocation of resources." Among France's peculiarities, the IMF cites France's high financial-sector corporate tax rates and generous credits and subsidies to debt-financed investments, which effectively reward borrowing over equity financing or retained earnings.

According to the Bank for International Settlements, the French banking system's total exposure to the riskiest euro-zone countries is $671.7 billion (€489.9 billion) as of March. That figure is equal to nearly 7% of all banking assets in France, more than a quarter of France's 2010 GDP and more than three times the combined equity of France's three biggest banks, which together account for 65% of the country's total banking assets.

Those facts did not stop Societe Generale from whining to the SEC.

My SEC contact said that he was obligated by agreement to pass on the complaint, adding something along the lines of "French banks were notorious about filing frivolous complaints".

Summoned to French Witch Hunt

I received one more express letter from France, in English, telling me subsequent letters would be in French and that I had to respond to the complaint in French.

I received a few more correspondences, totally in French, but did not scan them or translate them, although I could make out a few words in one of them, specifically noting that I was personally summoned to a witch hunt.

8,000 Euro Fine

The tribunal ruled "Mish is a Witch".

A few days ago I received an email about my fine, and an offer of support from the French blog Les-Crises.

Here is the email.

Hi Mish,

I'm Actuary, and I've created the blog Les-Crises.

My post of the day is to criticize our AMF, explaining why they are wrong: [GROS DÉLIRE] Quand l'AMF sanctionne les blogueurs plutôt que les financiers!

The decision if really incredible. I'd like to help you.

Regards

Olivier Berruyer
Paris, France

The title translates roughly to "Gross Delirium: The AMF sanctions bloggers rather than financial corporations!"

I asked my friend Pater Tenebrarum at Acting Man for a synopsis.
With thanks to Pater:

The French authorities accuse Chevalier of 'knowingly disseminating false information' about SocGen and you to have disseminated it further on 'Chevalier's urging', although you should have known better and it was your duty to check if his numbers were right (that is the basis for fining him 10,000 and you 8,000 euros).

Les-Crises shows that Chevalier wasn't 'falsifying' anything. He merely did not use the so-called 'risk weighting' of assets in his calculations (whereby e.g. Greek sovereign debt has 'no risk') . What he did was calculate a kind of leverage ratio, apparently following a standard for calculation very similar to one laid down by Alan Greenspan some time ago.

Les-Crises points out that Chevalier did not 'invent' any numbers - he used only data published by SocGen. Chevalier never asserted that his calculations represented a 'tier 1' ratio according to the Basel rules with their risk-weighting - it always was a 'Chevalier leverage ratio' so to speak, calculated using SocGen's publicly available balance sheet data.

Banksters Strike Back

Today a second article came out regarding the witch hunt, this time in English: France: Banksters Strike Back Against Bloggers

Societe Generale was not happy with Jean Pierre Chevallier's blog and lodged a complaint aith the the French financial market supervisory authority, Autorité des marchés financiers (AFM), and the AMF has now astonished Mr Chevallier and a lot of others, including this blogger, by upholding the complaint and fining Jean-Pierre Chevallier €10,000 for publishing "inexact" information which might influence the share price.

Mr Chevalier intends to appeal against the AFM verdict and says he is also planning to sue the AFP for making false and defamatory accusations against him.

The AMF has also fined Mike Shedlock €8,000, of Mish's Global Trend Analysis, published in the USA, for the same offence against Societe General. Shedlock reported the Chevallier analysis.

No Jurisdiction

The Witch hunt is now over and I was fined nearly as much as Chevallier. It's absurd enough to fine someone for a quote, and even more so when the facts are accurate.

The AFM has no jurisdiction over me, so they won't collect. As a US citizen living in the US, I am not subject to the absurdities of French laws, or French witch hunts. All they get from me is a vow to never go to France.

Best wishes to Chevallier in his fight against absurd fines and bureaucratic madness gone wild. Hopefully he can use the article from the WSJ in his defense.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Gambling On No Healthcare Insurance: Is it a Good Deal? Here's the Math; Obamashock! Work More, Get Less!

Posted: 20 Nov 2013 01:03 PM PST

The idea behind Obamacare is to make the young and the healthy overpay for insurance to subsidize everyone else.

In an effort to persuade individuals to purchase insurance, the law provides a scale of escalating penalties starting in 2014 and increasing in 2015, then again in 2016.

Actually, there are two penalty rates, and you pay the higher of the two, not both.

2014 Penalties

1% of your yearly household income. The maximum penalty is the national average yearly premium for a bronze plan.
$95 per adult ($47.50 per child under 18). The maximum penalty per family using this method is $285.

2015 Penalties

2% of yearly income
$325 per adult ($162.50 per child under 18)

2016 Penalties

2.5% of yearly income
$695 per adult ($347.50 per child under 18)

If you're uninsured for just part of the year, 1/12 of the yearly penalty applies to each month you're uninsured. If you're uninsured for less than 3 months, you don't have a make a payment.

No Enforcement of Penalties in 2014

By the way, Bloomberg reports ... "As Peter Gosselin, a senior health-care policy analyst at Bloomberg Government who worked on the early implementation of the law, explained to me before the change was announced, the IRS has already signaled in Senate testimony that it will use a light hand in enforcing the penalties in 2014. Gosselin says he interpreted the testimony to mean "there isn't a soul in this country that is going to pay an individual mandate penalty" next year."

Nonetheless, inquiring minds should be interested in a math table on penalties for all the years.

Income Table

Income	2014 Penalty	2015 Penalty	2016 Penalty
0	0	0	0
20,000	200	400	500
40,000	400	800	1000
60,000	600	1200	1500
80,000	800	1600	2000
100,000	1000	2000	2500
120,000	1200	2400	3000
140,000	1400	2800	3500
160,000	1600	3200	4000
180,000	1800	3600	4500
200,000	2000	4000	5000
220,000	2200	4400	5500
240,000	2400	4800	6000

The table shows that beyond a certain income range, you will be mathematically forced to buy insurance. But non-insurance in upper income groups was not a huge problem in the first place.

It is healthy low-wage to mid-range wage earners, working part-time, or multiple part-time jobs, that is the primary target of Obamacare policies.

In addition to penalties, one needs to consider cost of policies, subsidies, and factor deductibles into the equation.

Subsidies

The Henry H. Kaiser organization has a nice Subsidy Calculator that you can use.

Illinois Single Person

Condition will widely vary, but let's do an Illinois example, single person, age 25, non-smoking, no children, with income of $40,000. Here are the results.

Seattle Family of Four

Let's now try a Seattle family of Four, zipcode selected at random. with household income of $80,000, parents both age 25.

Out of Pocket Costs

Your out-of-pocket maximum for a Silver plan (not including the premium) can be no more than $12,700. Whether you reach this maximum level will depend on the amount of health care services you use. Currently, about one in four people use no health care services in any given year.

Deductibles

Bloomberg reports Obamacare Deductibles 26% Higher Make Cheap Rates a Risk

On California's state-run exchange site, the standard low-premium "bronze" plan carries a $5,000 deductible per person, a $60 co-pay to see a doctor and a 30 percent fee, known as coinsurance, on hospital care. In Rhode Island, Blue Cross Blue Shield's bronze plan has a $5,800 deductible while Missouri's U.S.-run exchange offers plans by Anthem Blue Cross with the maximum-allowable $6,350 in out-of-pocket costs.

Deductibles vary. Silver plan deductibles are more likely to be in the $2,000-$3,000 range.

Opting Out

The risk in opting out is a catastrophic healthcare need. Yet, that is precisely what some will do if they feel (and rightfully so), that the Affordable Care Act (Obamacare), is anything but affordable.

I wrote about one family of four already. Please see Reader Explains Why Her Family of Four (with existing coverage) Opts Out of Obamacare

Here is the email again.

Hello Mish!

My husband and I are both 28. (Healthy, non-smokers and no preexisting conditions) We also have two young daughters who are healthy.

Our plan was to sign up for another year of coverage through my husband's employer. Due to increase costs, they are only offering one plan with an HSA. However, these HSA deductibles are higher than I have ever seen. For our family it is $12,000 (in-network). The premiums are $720 per month. $720 a month for the privilege of getting worse coverage.

The exchange is offering similar coverage and premiums. Thus, we are making a tough decision. We are opting out of coverage. It is cheaper for us to use cash only clinics, eat organic food and continue to pay for our gym membership.

I believe the Obama administration thought no one with existing coverage would opt out. But when new "affordable" premiums are roughly 25-30% of a healthy, young family's total income, what do they expect?

Healthcare premiums should not be the same percentage as a mortgage payment.

Thanks for all you do,

Stacie

Several readers did not believe Stacie's math, but the math is easily explained.

Stacie said "premiums" when she meant to say "premiums plus deductibles" in reference to 25% of [potential] family income.

Stacie decided to opt out and take her chances. There are millions more like Stacie (as well as individuals) who may come to the same conclusion.

Opting Out in Washington and Oregon

In any one year, the odds that things go seriously wrong for healthy, young individuals and families are not very high. This is of course exactly why millions will opt out, possibly even in cases of huge subsidies.

Inquiring minds may wish to consider actual results in Oregon and Washington.

Washington: 57,730 Washington State Obamacare Sign-Ups, 51,368 of Them for Medicaid; Obamashock Theory and Practice

Oregon: Oregon Obamacare Success Rate: 0 for 18,000 Applications; Musical Tribute: Just My Imagination

What If Catastrophe Strikes?

What if you opt out and then get diagnosed with cancer. Is all lost?

Not necessarily. If your healthcare renewal is coming up, and you can wait, then you opt back in by purchasing insurance. You can do this easily because you cannot be denied for preexisting conditions.

You may have to pay a higher rate, but you will be able to get coverage.

You can also get insurance if you have a Qualifying Life Event.

QLE Examples

Moving to a new state
Certain changes in your income
Change in your family size such as Marriage, Divorce, Baby, Adoption, Legal Separation, death of spouse or dependent
Change to or from part-time status

More QLE details can be found at Changes You Can Make Outside of Open Season.

Obamashock! Work More, Get Less!

In regards to a change from or to part-time status, please consider Look out below! Work more, get less in Obamacare 'cliff'

Be careful you don't fall off the Obamacare "cliff" when the boss asks you to put in some overtime.

Working more could ultimately mean thousands of dollars less for you under a quirk in the new health-care law going into effect this fall. This could prompt some people to cut back on their hours to avoid losing money.

"Working more can actually leave you worse off," the price-comparison site ValuePenguin.com notes in a new analysis.

"It's sort of an absurd scenario," said Jonathan Wu, ValuePenguin.com's co-founder. "It's something for people to be aware of."

Value Penguin Math

"If your income is at or below the above 400% FPL figure for your household size, the government will subsidize your healthcare so that you spend no more than 9.5% of your income. Earn a dollar above the 400% FPL threshold and the subsidies disappear completely. This obviously creates a problem! If insurance costs substantially more than the capped premium for your family, that extra dollar may actually cost your household a huge amount in actual dollars."

So Screwed Up Even the Liberals and Socialists Hate Obamacare

I have one final parting thought: Obamacare is so screwed up that even the extreme liberals think it's worse than what we had before.

For example, please consider these comments by Michael Olenick, a writer on Naked Capitalism.

... This is the sorry state of the Affordable Care Act, the ultimate betrayal of the self-employed middle class who are supposed to magically produce income to single-handedly support those who are uninsurable. As I demonstrated in prior articles this promise, when objectively judged, borders on sadistic. Politicians must have looked towards the student loan system for inspiration and forgotten to tell the public this was their goal. In that system students from families of about the same "rich" income bracket – in Jessica's case a high-flying $62,000 a year for a family of two – are forced to take out loans so those slightly poorer can go to school for free, or to skip school altogether. ...

ACA supporters – among whom I counted myself until I saw the policies – oftentimes cite the "better" coverage but the facts of the real policies just don't support this. Mandating residential drug treatment may help some people doing so at the cost of making more mundane medical events affordable is just not fair. Maybe I'm more old fashioned than I thought but jacking up the price for a visit to cure strep throat, to subsidize a person's seventh stay in drug rehab, seems unethical. ...

We were led to believe that the political cost of the ACA was high, that Obama spent a lot of progressive chips to get it. Yet we ended up with something that is arguably worse than the current system.

Ultimate Betrayal

Indeed, Obamacare is the ultimate betrayal of Promises, Promises, all unmet.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

JPMorgan's $13 Billion "No Admission of Wrongdoing" Settlement (and a $7 Billion Tax Deduction)

Posted: 20 Nov 2013 08:43 AM PST

JPMorgan agreed to pay a record $13 billion following a probe of its mortgage operation, Washington Mutual bad loans, and mass waivers on misrepresented products.

Specifically, JPMorgan knowingly bundled toxic loans into packages sold to unsuspecting investors.

But all's well that ends well.

JPMorgan was assessed a $13 billion fine but apparently did nothing wrong. As an added bonus, $7 billion of that $13 billion settlement is tax deductible.

Please consider JPMorgan $13 Billion Mortgage Deal Seen as Lawsuit Shield

JPMorgan Chase & Co. (JPM)'s record $13 billion deal to end probes into mortgage-bond sales may save the bank billions more because of what the agreement lacked: an explicit admission of wrongdoing.

Employees of JPMorgan and two firms it acquired knew some of the loans included in bonds didn't meet underwriting standards, a fact not shared with buyers of those securities, the U.S. Justice Department said yesterday in a statement. That doesn't mean the company misled investors, said Chief Financial Officer Marianne Lake, disputing how some state and federal officials characterized the deal.

No Admission

"We didn't say that we acknowledge serious misrepresentation of the facts," Lake said yesterday in a conference call with analysts. "We would characterize potentially the statement of facts differently than others might."

JPMorgan acknowledged the statement of facts -- the settlement's official narrative of events leading up to the infractions -- without admitting violations of law, Lake said. The bank also denied any violations in an accompanying slide show.

Separate agreements with the Federal Deposit Insurance Corp. and National Credit Union Administration, both disclosed yesterday, and an accord last month with the FHFA all contained explicit denials of wrongdoing by JPMorgan.

Attorney General Eric Holder said in a statement. "JPMorgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm's behavior."

U.S. Attorney Benjamin Wagner in Sacramento, California, said a criminal investigation of the bank's conduct in the sales of residential mortgage-backed securities began less than a year ago, and while "active and ongoing," isn't far enough along to say whether anyone will face charges.

The six biggest U.S. banks, led by JPMorgan and Charlotte, North Carolina-based Bank of America Corp., have piled up more than $100 billion in legal costs since the financial crisis, a figure that exceeds all of the dividends paid to shareholders in the past five years, according to data compiled by Bloomberg.

Penalty for Doing Nothing Wrong

As compensation to homeowners for doing nothing wrong, JPMorgan will devote $4 billion to consumer relief for affected homeowners, including principal forgiveness, loan modifications and efforts to reduce blight.

Tax Deductions

JPMorgan's $2 billion penalty (also for doing nothing wrong) isn't tax deductible, but $7 billion in compensatory payments are, according to Chief Financial Officer Marianne Lake in the conference call.

Ongoing Investigations

Bloomberg notes "The firm is still the subject of Justice Department probes into its energy-trading business, recruiting practices in Asia and its relationship with Ponzi scheme operator Bernard Madoff."

Expect those (nothing to see here, so please move along charges) to be swept under the rug as well, also with corresponding tax deductions, and of course "no admission of wrongdoing" by anyone.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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