1. European Commission: To move on, and to put this matter behind me for at least the next few days so that I can focus on more productive and important issues, remembering that I have loss mostly only outsized gains in the ING and Aegon hybrids bought during prior meltdowns, I wanted to write one more post tonight about the EU Commission.
What do you expect from a bunch of Socialists anyway? "Share the burden" is their mother's milk, payment of a financial institution's debts is just some old fashioned anglo saxon crap that can be relegated to the dustbin of history. The events today do raise the importance of owning senior debt, where a deferral is a default. Deferring interest on a junior bond is sort of a "legal" default, as long as no payment is made to the holder of a junior security like common stock. No one really expects a deferral of interest as long as the firm is solvent and ready to pay its obligations, until now. Once it is deferred, besides the tax issues for a U.S. investor, the natural question to ask is whether you will ever be paid again.
I have mentioned many times that the elimination of the common stock dividends by both Aegon and ING placed the owners of these hybrid securities in an enhanced danger of deferral. Though, when I said that, I thought that deferral would be due to a solvency event, something concrete or understandable, rather than the imposition of some social and political view by bureaucrats under the rubric of "share the pain". That approach would only make sense to those unschooled in such base pursuits as commerce and finance, more like an idea generated by academic types, who never really held a job and do not have a clue about much of anything happening in the real world. Share the pain just sounds like a political slogan hatched by someone with the same financial sophistication of a Huey Long, and his Share the Wealth campaign in the 1930s. Share Our Wealth
What exactly is gained, of a positive non-political nature, by forcing the deferral of interest payments on debt by solvent financial institutions, when the deferred payments accumulate and earn interest in deferral? It will cause many to question the solvency of the firms that deferred payment, no matter what is said by anyone in a suit. And that is viewed as good? It is a natural process, when a firm defers debt payments, to assume there are cockroaches that no one is telling you about. To an American investor, someone like me, it makes no sense whatsoever, unless it is being promulgated by the European version of one of our brain dead politicians and then no further explanation is required. If the EU is successful, then the message sent to U.S. investors is both loud and clear.
I recently complained in this blog about how the European Commission acts as judge, jury, prosecutor and executioner, with minimal due process safeguards, in punishing successful U.S. firms like Intel, and part of that process is apparently sweeping exculpatory evidence under the rug to arrive a pre-ordained opinion. European Commission and Intel In effect, competing too hard and being successful are just bad things anyhow in certain parts of the world. Maybe, I should not have been so shocked today by the news that the EU wants to micro manage its large financial firm's obligations, cause them to defer debt payments, in pursuit of some political goal.
The RB said the LB has to let this go, and move on to productive pursuits tomorrow.
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