Continuing yesterday's thought under the appropriate visage of Hugo Chavez: Tom told me, "The preferred shares the government received did not represent an ownership position. Preferred shares are a type of debt instrument not equity." I was flabbergasted.
The chief difference between preferred shares and common shares is that preferred shares don't vote.
Preferred shareholders have to be bribed in certain ways for the denial of the franchise. The chief bribe is that, in the event of a bankruptcy/liquidation, the preferred shares are in a position just a notch better than the common shares. But both types of shares are at the bottom of the pile relative to anything else, relevant to any form of debt.
The fundamental equation of accounting, after all, is this:
Assets - Liabilities = Equity.
Those are non-overlapping categories. If you sell a bond, you have incurred a liability. If you sell a share of stock, common or preferred, you have redistributed the company's equity.
You don't have to take it from me, here's Cliffs Notes.
Should a company liquidate every owner of debt instruments will have to be paid in full before the owners of preferred stock get a dime. They are "preferred" to common stock in that context, [it is their reward for giving up the vote, so to speak], but they are not "preferred" to anything else. Because they are owners.
Tom then conceded that accountancy regards preferred shares as ownership interests, but he contended that in common sense and "the real world" they are debt. At this point the discussion came to seem way too much like trying to get a flat earther to acknowledge the curvature of the earth. Yes, the united position of the whole accounting profession since the days of the Medici is a real world sort of fact.
People who say, "ignore the accounting, focus on the real world" are in the real world either trying to pick my pocket or the dupes of somebody else who is trying to do so.
So: I was right and Tom was wrong. How does that speak to Jamesian pragmatism?
It illustrates how easily one goes wrong when using the soft contours of words to make a political point. This is why James didn't like to use the word "freedom" even while making the case for what many people, then and now, would call freedom of the will. He believed that the human will cannot be predicted, is not subject the iron rule of determinism. Yet he had learned that if you use the word "free" to make this point you run into the clutches of the soft determinists, who insist that they, too, believe in freedom, so long as they get the chance to re-define it as they wish!
James regretted the fact that even "a writer as little used to making capital out of soft words as Mr. Hodgson" would end up playing the word-grubbing game. So James sought to short-circuit the game by calling what he saw in human behavior not anything so eulogistic as freedom but, rather, "chance."
I'm afraid Tom is engaged in just such name-grubbing, seeking to re-define words like "debt" to get the government's preferred shares of banks and insurance companies etc. into that category.
But no: equity is equity, and what the Bush administration did was nationalization. End of lesson.
I'll close with a link to a memo from the Securities Litigation Consulting Group, just to make the point that this is not "merely" accounting, but a matter of how corporations as legal entities run.
Click on that link and you'll find the following wisdom: "[P]referred stocks' dividend payments are not a mandatory obligation of the issuer. Failure to pay preferred stock dividends does not constitute a default."
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