Tough Choices

A little slice of the developing Citigroup rescue:

Regulators were debating various terms of the arrangement on Sunday, including whether the government would receive preferred stock or warrants, which are instruments that give holders the right to buy stock. Preferred stock would be more beneficial to taxpayers because Citigroup would pay dividends on those shares; warrants would be more attractive to Citigroup’s existing shareholders, since they would not immediately dilute the value of their investments as much as preferred stock.

What, exactly, is the nature of the debate?:

Regulator 1: Preferred stock would be beneficial for taxpayers, whose interests we represent.
Regulator 2: But warrants would be more favorable for existing shareholders, whose interests we don’t represent.
Regulator 3: This sure is a tough decision!

I’m confused.

UPDATE: Knowledgeable correspondents say the NYT‘s summary of these issues is wrong. Warrants could be more favorable to taxpayers under certain scenarios. In particular, if coming to Citibank’s aid results in Citibank shares being much higher five years from now than they are today, then warrants would be better for taxpayers. Basically, under a warrants scenario if the rescue works really well then the taxpayer makes a lot of money.