That's Taleb's whole point, mortgage securitization is the brainchild of portfolio theory. We all know that lending some random douchebag you don't know $100k to buy a house would be really dumb. We just wouldn't do it. But according to portfolio theory, if you pool your $100k with other investors, and then split the money between a large number of random douchebags, much of the risk disappears. Portfolio theory enabled the most conservatively managed (AAA bonds only) pension funds to lend huge amounts of money to douchebags with no job prospects to buy overpriced houses they couldn't afford.
This is totally irrelevant to the OP, but out of interest, how do you define "Preferred stock"? Debt or equity, or both, or does it matter? Or do you simple not buy into companies that issue it?
There is always some unprincipled ambitious (or stupid) academic who will come out with a theory to support some political agenda. The nature of science as encapsulated in 'science advances one funeral at a time' means that any BS can be supported if it comes from someone or somewhere prestigious enough.
e.g Trickle down economics? That justification for tax cuts for the super rich is negated by what I was told by a Director of a store chain in Indonesia that catered to the poor - he told me the poor spend every additional money they get immediately because hey have a permanent backlog of things they want to buy but can't because they don't have the money.
There's no obligation to pay the dividend, therefore it's equity. The crucial difference is that payments on debt have to be made, dividends on stock don't.
Under that definition, "Revenue Bonds" would be equity?!?! What I'm trying to point out, is that the distinction between debt and equity isn't as clear cut as you might think. From the issuing firm's perspective they are just different sources of capital with different associated costs.
Revenue bonds still obligate you to pay the debt, out of a specific revenue stream. Obviously it's debt. That word "obligate", you know. Also, this is only used for infrastructure type stuff, so I'm not even sure why you're bringing it up.
The editor left out the part that Dr. Taleb wants to turn it into a class action suit with a special pay out to ET members if Victorious...
But there's no obligation if the attached revenue stream dries up. ie the issuer doesn't necessarily go into default for missing a payment. I realize it's not exactly the same as dividends on common stock in respect to legal rights and obligations, but the payments of both are linked to revenue and are not guaranteed. ABS's (which are issued by listed companies) are more or less the same. Smells like debt, walks like debt, but quacks like equity. I maintain that there's a lot of grey.