Buffett and the $3 billion in preferred stock
I was a long time holder of GE Stock until Thursday.  GE disappointed me with its deal with Warren Buffett last week. Everything is supposedly "fine" at GE according to the media yet GE must resort to obtaining the most expensive type of financing there is.... and that is issuing preferred stock!!!! with a 10% dividend no less. In my MBA program I was told that if a company has to issue preferred stock, that company is really having financing troubles.  Despite GE's reassurances that everything was fine and they still have a AAA credit rating, what they did not say was the real truth. If they still have AAA credit then they should borrow the money, You don't issue 10% preferred stock if you can borrow before tax cheaper. The 10% dividend is paid after taxes, the interest on AAA debt is paid before taxes. I would guess you can currently borrow far cheaper than 10% today if you really had an AAA rating. My guess is that GE can't borrow anymore. Needless to say the market order to sell my remaining GE stock went in right after I read the news.

Why weren't the current shareholders offered preferred stock at 10% before Buffett was? I'm sure plenty of investors would have loved to get the same deal that Buffett got. Anyway the stock really tanked the next day as the reality of the situation set in. If GE needed to conserve cash they could have stopped buying billions in stock back when the price was 50% higher than now and also cut the dividend. If they still had a real AAA credit rating, they should have borrowed it. GE doesn't want to be transparent here since the truth would spook the investors and cause further selling pressure on the stock, and that of course is against the motto of increasing shareholder value.   GE must now maintain the illusion that everything is ok so that the rats don't run away from the ship.    Was it better to dilute the shareholder value with Buffett's sweat deal, or to reduce or suspend the dividend to conserve cash?

Here is a question for GE.  Why should I borrow money at 10% after tax so I can continue to pay a 5.75% dividend? GE pays out over $3 billion in dividends a quarter (http://finance.yahoo.com/q/cf?s=GE) and they bought about $12 Billion in stock in the last year. Hello!!! They had enough cash flow, but did not save it for a rainy day.  Why dilute the shareholders value with the Buffett thing when they could make up the cash in one dividend payment?

What GE borrowed from Buffett goes up in smoke in one quarter in dividends. What happens in 6 months after all of Buffett's money is blown out in maintaining one dividend payment? Will they go back to the trough to get more? Will they cut the dividend then?

Just wait for GE to drop another 50% in price to $12 and if it is still paying the dividend, then you can make the 10% return that Buffett is guaranteed to make!

Has GE slipped in the US consumer borrowing mentality now?  Basically GE is willing to pay 10%+ interest on the money need to maintain one dividend payment.....How many GE shareholders would take a suspension of one dividend payment, and have that compound at 10% in return?  

Has GE turned into the typical American consumer who has to borrow money from a higher rate credit card to pay the minimum payment on another credit card?