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Preferred Stock and Subordinated Debt

Posted on October 15, 2008

I sent an email the other day with some questions on the bailout plan (before the details of the plan were announced, so I didn't know about the 5% dividend that turns to 9% after five years, etc. that is part of the current capital injection plan). This an edited version of what I sent:I've never fully understood why an equity stake is better/different than a loan at a penalty rate (though maybe the 8% AIG is paying is too much). If the preferred stock promises a fixed dividend, that's like a coupon payment, and neither has voting rights. It's simply where the risk is carried, that seems the ...

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economic , regulations , regulatory