Jamesian Philosophy Refreshed

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...

Are accounting rules of any broader significance than just something for accountants to follow? do they themselves constitute data for the science of economics? or are they arbitrary, subject to erasure and thus re-writable at will? I've been thinking about this recently because of an argument I got into at a message-board site about the Bush adminsitration's bait-and-switch over the TARP legislation of 2008. As some of you will of course remember, the crisis-created coalition of Bush and Pelosi sold to the public and both houses of Congress a Troubled Assets Relief Program. The idea was that the government would buy up certain positions of the Wall Street banks, positions that typically involved both assets and liabilities, and that in the circumstances of the crisis involved way too much of the latter, too little of the former. But even as Congress was voting on TARP, on October 3, 2008 [a month before Obama's election, and less than a week after Congress had reje...