Stock Buybacks Hurt Workers and the Economy. We Should Ban Them.

By William Lazonick, Professor of Economics, University of Massachusetts Lowell; President, The Academic-Industry Research Network. Originally published at The Hill; cross posted from the

Workers, innovation, and productivity all suffer when corporations spend their new U.S. tax breaks on stock buybacks.

The deceptively named Tax Cut and Jobs Act slashes the corporate tax rate from 35 percent to 21 percent on the theory that companies will use the extra after-tax profits to make productive investments that will create jobs for Americans. Yet it is clear that instead of helping to rebuild the vanishing middle class, corporate executives will funnel the tax savings to already-rich shareholders through stock buybacks and cash dividends, increasing their take from the stock market. As a result, the nation’s rampantly unequal income distribution will only become worse.

Corporate executives are not being secretive about what they intend to do with the corporate tax breaks. With Trump’s chief economic adviser Gary Cohn on stage at the annual Wall Street Journal CEO Council last November, a moderator asked the room full of executives, “If the tax reform bill goes through, do you plan to increase your company’s capital investment, show of hands?” When only a very few CEOs tentatively raised their hands, Cohn , “Why aren’t the other hands up?” Subsequent interviews made clear that, among the CEOs, it was already a foregone  that the tax breaks would end up as buybacks and dividends.

For the Republican corporate tax cut to result in job creation, Congress must follow it up with legislation to rein in these distributions to shareholders. There is a straightforward and practical way to accomplish this objective: Congress should ban corporations from doing stock buybacks, more formally known as open-market stock repurchases. As if more evidence were needed, here are three reasons to expect that corporations will use the Republican tax break to do stock buybacks.

First, the stock-based  of senior executives incentivizes them to do distributions to shareholders. Annual mean remuneration of CEOs of the same 475 companies listed on the S&P 500 from 2007 through 2016 ranged from $9.4 million in 2009, when the stock market was in the dumps, to $20.1 million in 2015, when the stock market was booming. The vast majority of this total remuneration, ranging from 53 percent in 2009 to 77 percent in 2015, was in the form of realized gains from stock-based options and awards.

Second, for more than three decades, executives of major U.S. corporations have preached, conveniently masking their self-interest, that the paramount responsibility of their companies is to “” for shareholders. Most recently, from 2007 through 2016, stock repurchases by 461 companies on listed on the S&P 500 totaled $4 trillion, equal to 54 percent of profits. In addition, these companies declared $2.9 trillion in dividends, which were 39 percent of profits. Indeed, top corporate executives are often willing to incur debt, lay off employees, cut wages, sell assets, and eat into cash reserves to “maximize shareholder value.”

Third, in recent years hedge fund activists have ramped up the pressure on companies to do buybacks. With their immense war chests of billions of dollars of assets under management, these corporate  have used the proxy voting system, “” collaboration among hedge funds, and direct engagement with management, which was once illegal, to participate in the looting of the U.S. business corporation.

Repurchases done on the open market, which constitute the vast majority of all buybacks, are nothing but manipulation of the stock market. So why are companies allowed to do them? Because of the 1980 election of Ronald Reagan as president on a platform of market deregulation. In November 1982, after Reagan had appointed Wall Street banker John Shad as chairman of the Securities and Exchange Commission (SEC), the agency adopted , which permits a company to do buybacks that can amount to hundreds of millions of dollars per day, trading day after trading day, without fear of being charged with stock-price manipulation. Rule 10b-18, which remains in force 35 years later, is a  to loot the U.S. business corporation.

The argument for rescinding Rule 10b-18 is overwhelming. As  I’ve done with the Institute for New Economic Thinking documents, buybacks wreak immense damage on households, companies, and the economy. The profits that major corporations reinvest in productive capabilities form the  for a prosperous middle class. Buybacks deprive companies of that investment capital, instead serving as a prime mode of making the richest households richer while eroding middle-class employment opportunities.

Moreover, the justification for buybacks rests on the faulty  that, for the sake of economic efficiency, companies should be run to “maximize shareholder value.” Agency theory, the academic thinking that underpins this ideology, assumes that only  take the risk of investing in the productive capabilities of companies. In fact, public shareholders do not as a rule provide financial capital to companies. They simply buy and sell  shares. The true investors in productive capabilities are “households as workers,” whose skills and efforts generate the company’s innovative products, and “households as taxpayers,” who devote a portion of their incomes to fund public investments in infrastructure and knowledge that companies need to be competitive.

Finally, the insidious Rule 10b-18 that for more than three decades has encouraged massive stock-market manipulation is just an ill-considered SEC regulation, adopted as part of Reagan “voodoo economics.” The justification for Rule 10b-18 has never been debated, nor have its provisions been legislated, by Congress. That may, however, finally be changing. A number of U.S. senators, including  (D-Mass.),  (I-Vt.),  (D-Hawaii), and (D-N.J.), have voiced criticisms of buybacks, as has former Vice President .

The most persistent challenge to this corrupt practice has come from Sen.  (D-Wis.), who in 2015  two highly critical  to former SEC Chairman Mary Jo White, and who has recently  the prescription drug lobby group PhRMA to reconcile its claim that the pharmaceutical companies need high drug prices to fund research and development with the fact that the major companies  virtually all their profits on buybacks and dividends.

Currently, Baldwin has letters outstanding to the two nominees for SEC commissioner, Democrat  and Republican , demanding that they make clear their positions on buybacks before their appointments are approved. In these letters, Baldwin observes that today our financial markets are “primarily used to distribute cash to shareholders. Ever more aggressive investors demand share buybacks and their allies in executive suites — their compensation increasingly dependent on stock price — are all too happy to oblige.”

Many more of the nation’s lawmakers must join this fight for America’s future by putting an end to the predatory corporate behavior of which buybacks are a significant part. A ban on stock buybacks would be a giant step in resurrecting corporate employment as a foundation for a prosperous and expanding middle class.

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52 comments

  1. Jim Haygood

    Companies decide when and if they want to launch initial public offerings or secondary offerings of stock. Likewise they can decide whether to issue debt, or retire debt if it’s callable.

    Why should equity issuance be a one-way roach motel — freely issued, but prohibited to buy back?

    Good thing purblind academics like Lazonick aren’t allowed anywhere near the controls of a modern corporation. They’d run it into the ground in record time, while trumpeting their virtuous solicitude for the workers — many of whom happen to be stockholders as well.

    1. diptherio

      Our resident mouthpiece for the beneficence of the status quo….

      You do know that 10% of stockholders own ~85% of all stocks, right? Yes, of course you do. But that won’t stop you from throwing out canards about how even the proles benefit from the machinations of the rich.

      Also, in case you haven’t been paying attention, running corporations into the ground while trumpeting their virtuous solicitude for workers is the MO of our current crop of corporate rulers. I really doubt Lazonick could out do them on those fronts. Just sayin’.

        1. pretzelattack

          not if the managers are running the business and manipulating it in favor of some stockholders, including themselves.

    2. Skip Intro

      Legalized stock price manipulation (read buybacks) creates perverse incentives and conflicts of interest for executives whose compensation depends directly and indirectly on the stock price.

    3. FluffytheObeseCat

      Why should equity issuance be a one-way roach motel?

      Because our capital allocation system worked better for the nation when that was the law. In a business environment like today’s in which C suite leaders invariably receive a large percent of their annual compensation in stock or options, stock buybacks are just a market distorting technique for defrauding the common investor.

        1. JTMcPhee

          First, who are “the stockholders” supposedly getting these buyback benefits? Methinks that presumes some comfortable vision of ma and pa or lots of Yuppies “investing in and owning (little bits of) companies that are wisely pursuing honorable business models.” Srocks and the stock market, including high speed trading and all the shenanigans of vulture capitalism and financialization and monetization, are nothing like that. It’s nothing like 1955, when I used my paper route money to INVEST (not “expose myself to risk”) buy buying a few shares of AT&T andvWrigley.

          If you have any ideas how to roll back or turn “the market” into something closer to the model I sense you are arguing from, we all would love to hear them. Re-regulation, maybe, as one small part? Undoing globalization and draining the shark tank? People who dominate the Casino ain’t gonna go skiing with any such silliness. Which I expect you know.

    4. PKMKII

      Then make it an all-or-nothing prospect. Either you lay out the funds needed to buyback the entirety of the stock and go back to being “private,” so to speak, or you don’t touch the stocks already issued and let the free market decide. Otherwise, what you have is a goosing of the system, and ultimately the business undermining the market economy.

      1. Raffler

        There is more money available for the special dividends and bonuses and greater flexibility in periodic action. One and done would disincentivize campaign donors.

      2. JTMcPhee

        “let the free market decide.” WHICH “free market, again? How tightly we cling to our chimaerical shibboleths.

        Even folks who know in their hearts that tho looting is somehow cancerous and “wrong” have to stretch and find some excuse or “case” for why the behaviors are “business-like” and should continue—albeit with one little tweak or caveat or another., “to preserve flexibility” or liquidity or so as not to restrain the genius of corporate management. Or to preserve opportunities to surf the curl of such looted-cash machinations? “Endless Summer…”

    5. John Wright

      I view stock buybacks as evidence of a failure of corporate vision.

      A corporation can choose to invest excess cash in a great number of ways such as expanding physical plant, increasing R&D, developing products faster, buying intellectual property, beefing up inventory, training employees or even possibly buying equity (stock) in another company other than their own.

      When a corporation’s executives view the best use of its excess cash is to buy its own stock, that is to me, announcing they have had a failure of imagination at the top as they have scoured the world looking for good uses of corporate cash and, remarkably, chosen buying their own stock as the best alternative.

      1. Kilgore Trout

        Excellent point. As the engineers and visionaries of the post-war era have been replaced in the c-suites by bean counter MBA types, the bottom line has become the bottom line. Short-termers all, with no loyalty to a company, except to do enough to keep stock prices high. Too often that means cannibalizing a company for short term gain, at the cost of long term R&D and sustained (and perhaps sustainable) growth.

    6. JW

      Stock buybacks as a policy or method is perfectly fine in a vacuum. Yes, owners should be able to do whatever they want. However, the situation is not a vacuum; there is a tax windfall being granted by the federal government…monies collected to benefit everyone and grease the wheels of commerce / employment / industry / etc. The intent of this tax windfall (or such benefits in other forms to corporations as mentioned in the article) is to stimulate the economy. Stock buybacks is a mechanism that acts as a sink drain, siphoning off all of the intended benefits/stimulus of this move by the Fed Govt…and redirecting funds from their intended purpose. Let’s be intellectually honest and not posture that you should have it both ways…a public windfall and private disposition.

  2. voislav

    The problem is not dividends and stock buybacks, it’s the combination of the public corporation governance model and large scale institutional investment. It creates incentives to increase the stock price through stock price manipulation rather than through growth as it demands predictable, constant returns on investment.

    The governance model, where board members typically represent the large investors, makes the executive committed to stock manipulation as institutional investors are focused on short-term fixed investment returns, quarter after quarter. Any variability in the performance is punished.

    This, rather predictably, translates into a management culture which increasingly relies on the certainty of stock manipulation, rather than the uncertainty of innovation, even at the expense of lower potential returns.

    This problem is largely absent in the private governance model, as there is no pressure of the predictable quarterly return. The only real solution is to reduce the influence of the large institutional investor, who act as absentee landlords with little interest in good governance. This is sensitive issue as these are large pension, sovereign and investment funds.

    1. Dirk77

      Unless you enjoy conglomerates spreading like cancer and such, another construct that needs to be thrown on the scrap heap is the LLC itself. Limited liability – what could go wrong?

    2. Dirk77

      What I mean is, that if LLC goes away then so does public governance. If the purpose of an LLC status is to reward risk, then it should be granted sparingly. I recall reading that it was initially only a temporary status?

  3. John k

    Yes! Great discussion. Buybacks distort the marketplace. Often debt fueled, the Corp weakens itself as it buys at the highest price just before the crash.
    Massive debt has fueled this rally. Another question is allowing individuals to borrow 50% against their stock. Fed should lean against this by reducing the percentage as price rises above, say, p/e of 18… easy to automate a sliding scale.

    1. JTMcPhee

      Foo on the marketplace,” and the sad notion that said “perfect structure” can be “distorted.”

      Same old stuff, over and over.

      And there’s so much opinionating about what “we” should do, but who is this “we” that’s going to change the laws and regulations and postulates of corporate governance preached in B School and those Kochian gathering and in the board rooms and C Suites and legislative offices?

  4. Altandmain

    The issue is that our society has lost all of the sense of noblesse oblige.

    The rich see us as mere peasants that they can plunder at their whim. We will not see any productive investment in the near future.

    The reason why is because most corporate executives are aware that they only have a few years to deliver on short term quarterly profits and frankly, most of them are quite ruthless themselves in their greed. Building a productive business takes time.

    Stock buybacks boosts earnings per share right away. So does labour cost cuts, cuts to research, and other productivity investments. By the time the effects are felt, often that CEO is gone.

    I am also highly critical in the MBAs that seem to govern the corporate world. I think that the rise of Harvard Business School and similar MBAs programs has been profoundly bad for our society. There is a focus on short term thinking and well, how they teach is purely around case studies. These case studies are often an inaccurate representation of some very sophisticated problems in society. The issue is that they are trying to resolve them. They are going to make them worse so that their MBAs can get rich.

    Then there’s the hedge funds, private equity companies, etc, which basically loot a company to get returns.

  5. Jeremy Grimm

    Now seems an odd time to worry about corporate stock buybacks. What is left in the barn to close the door on? I wonder how much ‘value’ remains in our corporations that isn’t already looted. How much longer can the stock market continue its rise as the corporations hollow themselves out? Is there unlimited ‘value’ to tap into? Is the time nearing when someone will step up to the corporate facade and look behind it to find nothing behind?

    1. Altandmain

      Trump just passed tax cuts, which will likely result in a wave of stock buybacks.

      The barn has bolted for the Bush tax cuts, but it will ignite a new wave for the Trump tax cuts.

  6. Jeremy Grimm

    Now seems an odd time to worry about corporate stock buybacks. What is left in the barn to close the door on? I wonder how much ‘value’ remains in our corporations that isn’t already looted. How much longer can the stock market continue its rise as the corporations hollow themselves out? Is there unlimited ‘value’ to tap into? Is the time nearing when someone will step up to the corporate facades and look behind and find nothing there?

  7. a different chris

    Corey Booker again! I have to admit he really is a True Leader, in that he is adept at getting out in front of any given parade.

    It is actually a good sign, I’ll call it the Corey Booker rule: if he’s associating his name with it, it must be serious.

  8. Scott

    One of the most interesting things about share buybacks is perhaps the most successful one in history was done by Henry Singleton in the 70s before 10b-18 was issued. His success is used to justify the actions of subsequent companies (ignoring the very different economic and investment climates).

  9. rfdawn

    Yes to voislav and most of the above. Buybacks are only plan A for stock price pumping and there are many more plans. Takeovers are more complex but equally unproductive. Even paying bigger dividends boosts shares. Its almost as if the government might (in theory!) ensure better use of some of that money by raising the corporate tax take somehow.

  10. Avalon Sparks

    In recent weeks I explained the ‘stock buyback’ process and the impact to at least 4 work colleagues whom I know are very intelligent, in high level roles at a major global company, and 3 of the 4 have MBA’s. They had never heard of the practice, and I myself only know about it from reading an article on this site a year ago. American’s are so uninformed about things that are happening right under their nose. I feel like I’m in an alternative universe all the time.

    thanks NC for keeping me informed!!!

    1. visitor

      MBAs do not know about share buybacks????

      So, an MBA is even more worthless than I thought possible.

      1. Avalon Sparks

        Well most of them are around 45-50 years old, so maybe they didn’t teach them about it in school or they forgot. Also, the company we work for is a foreign company and it’s not listed on the US Stock exchange, so I’m pretty sure stock buybacks aren’t a business practice where I work.

        1. Carla

          Stock buy-backs are in the mainstream news every day. I’m a middle-class, ordinary resident of flyover country, and I’ve known about them for years now. It strains credulity that anyone with a business degree — bachelor’s or MBA would be unfamiliar with the concept.

  11. Pat

    Why don’t we demand that our ‘leaders’ treat corporate heads and boards with the same disdain they treat the American poor and working class. You only get that benefit IF you do what we want you to do.

    In the case of corporate tax breaks – you pay the current tax rate on any monies used for domestic labor and/or R&D, You pay that rate an additonal 50% tax on any monies earned from products produced overseas. You pay that rate an additonal 60% taxes on any monies used for dividends or stock buy backs. That still lets them consider shortchanging the domestic labor market or upping their stock holdings but at a real cost to the companies bottom line.

    Think of it as the rule of Corporate SNAP benefits.

    Mind you I don’t think for a moment that such sensible retraining of the MBA class regarding right and wrong choice for the health of the American business community will ever be adopted. But frankly they have spent far too much on fast food globalization race to the bottom rather than a nutritious diet that should be going to buidling a vibrant America market place with real products and innovations.

  12. Chauncey Gardiner

    As CNBC has reported, $170.8 billion in corporate stock buybacks in only a month and a half YTD through February 15, 2018. The most ever for this period, funded with the proceeds of ever more debt and the massive corporate tax cuts.

    As Canadian fund manager Danielle Park points out, this has “been a non-productive waste of funds enabling asset bubbles, piling on reckless debt and financial alchemy at the expense of long term investment, innovation, strength and stability.  We have been down this destructive road before which led to the banning of buybacks as illegal market manipulation.  And very obviously, we need to ban them again.  This is a huge pillar of the change that must occur to get businesses focused on productive investment once more and stop the debt plague that ails us from metastasizing further.” 

    She neglects to mention the CEOs who have been personally enriched from their stock options due to the increase in share prices caused by these huge stock buybacks, even while they have responsibility for the financial health of the corporations they manage. She does note… “We have been down this destructive road before which led to the banning of stock buybacks as illegal market manipulation. And very obviously, we need to ban them again.”… “Until the early 1980s, stock buybacks were illegal in the U.S.”…

    $4 trillion in share buybacks by corporations since 2009?!… Wow! What was the amount of the Fed’s “Quantitative Easing” again? Coincidence?… “Correlation is not causation?”… Nice back loop, anyway.

  13. BrianM

    Stock buybacks can have affect shares through two mechanisms. The first is a value effect. In simple terms, if a stock trades below its net assets then the net assets per share can be boosted by buybacks. A similar case can be made for undervalued companies. Of course if the shares are overvalued then there is value destruction. I see the undervalued idea as a legitimate reason to return capital.

    The second is that by continually being purchasers in the market, the price is pushed up. This is objectionable and is the manipulative bit.

    I distinguish these as there is middle ground. If buybacks had to be by tender and limited to, say, one every quarter or six months, you could maintain the former benefit and remove the manipulation. Won’t happen, but just sayin’

    The other key is renumeration. When it is done through options, executives are disincentivised to pay dividends. No coincidence that the use of buybacks has risen with the increase in option usage.

    1. Yves Smith Post author

      Studies have found companies buy stock with the explicit objective of boosting price, and without any regard for fundamental value. In addition, the buys are badly timed, in that they are typically buying high (as in they refuse to accept that the current valuation is more than fair and just want the price to be higher for executive comp purposes).

  14. ocop

    My gut reaction is that the abuse of stock buybacks is one symptom (among many), not the disease. The disease being short-termist quarterly “shareholder value” as the metric of corporate success. You could eliminate buybacks but that’s just playing whack-a-mole.

  15. Protagoras

    I find this argument kind of bizarre. Stock buybacks seem to have tax advantages, which seems problematic to me, but for some reason none of the complaints seem to focus on the problems with our tax system. If the buybacks are inflating stocks to unsustainable levels, somebody should be selling short on companies that do buybacks and making a mint, so I don’t find the market manipulation arguments very credible. If the argument is that the company should be paying workers better, they were never going to do that; if it wasn’t buybacks, it would be one of the million other ways companies can spend money other than paying workers better. They’ll only pay workers better if there’s a shortage of labor or regulations forcing them to. If the argument is that they should be investing in strengthening their business rather than engaging in buybacks, well, if they had a good plan for how to invest and actually make money, they’d probably be doing that (such behavior still does get rewarded by the stock market). Lots of business have no such good plans on the table. If the managers are out of ideas, giving money back to some of their shareholders so the shareholders can go look for people who do have ideas seems like a perfectly sensible thing to do. Maybe they should do that through dividends rather than a buyback (it seems that tax reasons motivate them to choose the buyback approach), so if the argument were that buybacks should be banned to prevent tax evasion I might go for that, but it really seems like this argument is supposed to be against raising dividends as well, and I find it hard to take seriously a general argument that companies shouldn’t be paying their investors. Again, make an argument that the companies or the investors should be taxed more and I’ll probably agree, but that doesn’t sound like most of what is being said here.

  16. The Rev Kev

    This all sounds like the financial equivalent of eating your seed stock. Not because you are desperate for it but because you want a tasty snack. The CEOs can eventually leave with their big salary packages and the enriched shareholders with their dividends can eventually sell their stock but the company itself will be less competition against foreign companies.
    In any country a government can pick the ‘winners’ and the ‘losers’ through the judicious use of laws and regulations but it much harder to protect your ‘winner’ when coming up against a company that went through a business Darwinian firestorm that has made it lean and mean. Maybe that is the appeal of having a trade war. You get to put up barriers to protect your ‘winner’.

  17. Aaron C

    I’m an economic neophyte, and let me say that Cfdtrade has been quite the education!

    I have what might be a simple question regarding the prohibition of stock buy-backs: What is to stop companies from pouring their profits (or money received from mortgaging the “house”) into dividends instead? Would prohibiting stock buy-backs really do much to fix the problem if executives still have large portfolios of company stock, and still ascribe to the ethos of “stock value (and dividends) above all”?

  18. Ryan Iverson

    Buybacks aren’t unethical like many people in the comments are insinuating. Money is essentially transferring from the balance sheet to shareholders that are willing to sell their stock. Those shareholders that sell their stock and receive cash will find another place to deploy that cash, whether it’s another investment (that employs other individuals) or an expenditure (that pays other individuals for a good or service). Why does the company have to be the one that invests or spends the money and not the individual shareholders? One company spending/investing $1 billion is no different from 1 million people spending/investing $1 billion.

    1. John Wright

      >One company spending/investing $1 billion is no different from 1 million people spending/investing $1 billion.

      But people form companies to exploit business opportunities, so a billion spent by a company to develop a revolutionary product, using unique intellectual property, could result in a far different outcome for the company’s shareholders, and possibly, society, than the same corporation distributing 1 billion in cash to random investors via a buyback.

      In my view, a share buyback program, assuming it is a reasoned business decision and not a way for senior executives to dispose of optioned shares, could be viewed as an indication that a business sees limited growth possibilities and may be telegraphing its decline.

      But if the company’s executives exercise options and sell their stock into the buyback or upcoming buybacks, that could be viewed as unethical self dealing behavior as the executives are effectively acting as external “stock share” vendors hoping to extract a high price for their “product” from their employer, a buyer they, themselves, committed to be a buyer.

      Long term investors could well be disappointed when a corporation announces a buyback. The buyback could well be indicating a company may lack opportunities, or imagination, or vision, or corporate ethics.

    2. UserFriendly

      Because of mark to market they are taking profits and distributing it to the wealthy owners, including the top level staff who are often paid in stock options. It is this short term thinking that has stunted the growth of most companies. It has long been proven that . So they are cashing out now and leaving a weaker company for the workers to deal with down the line.

      1. JTMcPhee

        “Stunted the growth of most companies.” Assumes corp growth is a Good Thing and that corps are aimed at dong beneficial stuff, fostered by “competition” that itself is largely a myth in the world of agglomeration and M&A and vulture buccaneer looting. Like Exxon and Monsanto and Boeing and LockheedMartin and CIGNA and WellsFargo and Volkswagen and so many more “growths?” “Billions and billions served”? (for what definition of “served”?)

        The planet and us mopes are sick and dying because of the grand mythology of “growth.” And the blanket acceptance of the notion that corps and the Religion of Innovation are also “good things” can hardly be credited in the face of how all that “innovation” has been playing out. Although of course there are always shills and True Believers who will pump out rationalizations and justifications for all the “goodness” that innovations and disruptions have brought. Yah, the accident that resulted eventually in “marketable” penicillin was a Good Thing, until antibiotic overprescription and the “innovative use” in animal produced some unfortunate blowback… just as one example. Look to the sick business of “innovative weaponization” and Uber and Amazon for lots more.

        1. LyonNightroad

          And in the process of it all they’ve got the consumers so hooked on the stuff that is killing them…

          “But my iphone”

          It all seems so hopeless

  19. Duck1

    What about using leverage for those buybacks? If it was an “honest” transaction wouldn’t bottom line profit be used for the buyback? Oh, I’m kidding myself.

  20. Scott1

    When the intent of the stock buy back is to artificially raise the price of the stock, purchased at the high, opposite to an investors reasonable
    attempt to buy at a low, the rational for a stock purchase is violated.
    In all things there will be intended & unintended consequences.
    Yves said the intended purpose of a stock buy back is to raise the price of the stock without doing anything but buying back the stock.
    It was illegal before and things were better.
    Better was for the majority 1945 to approximately 1975, let us say,
    & it got less better a lot after Clinton Unit I & legalization for corporations of
    Meyer Lansky Financial Engineering and the shift from wealth generated
    by above ground industrial activities to the wealth of the parasitical
    tricks and traps of the Finance “Industry”.
    – mental reference of influence is “Reefer Madness” by Eric Schlosser
    P.S. Does it feel as if when Congress stopped regulating the Executive Branch abdicating its responsibility for War, it also stopped regulating Finance? How are these things connected? Engineers matter. Elon Musk spends time with his engineering staff. The company has his mission to save mankind and make the species a big time species able to survive in the ultimate of hostile environments.
    His operation is a throwback. As a aerospace engineer who pays you better
    Jeff Bezos or Elon Musk? Musk takes it for granted Earth people will destroy the planet doesn’t he. When would his company jump into stock buy backs? Most likely after he has left the planet. The people running matured industries in the US don’t really spend time with the people who sell their labor, the time of their lives to the company they run. They just mess around playing games with Finance, for Finance, essentially gone from the planet. How it looks to me anyway, today.

  21. James Trigg

    So if they do not buy back stock you think they are going to do something good with it. You have the ability to work and invest to make the world better. Get to work. Build a better and more just company with your spare time instead of being envious of someone else’s. When taxes were 90% did Howard Hughes pay taxes.
    If you’re a liberal design a better system. To think it is Socialism is losing proposition. Open minded free trade can be fair and workable. What happened to Silicon Valley doesn’t have to happen. You do not have to buy from Starbucks or Kroger. (Although both are hard to beat.)

  22. pat b

    how was direct engagement with management illegal?

    was it before that large share=holders only engaged with the board?

  23. James

    More and more I’m seeing parralells between companies (or at least their large hedge fund-type shareholders) control of their own stocks and nation states printing their own currency. They can control how many stocks/dollars are circulated as well as the value of these stocks/dollars.

    It doesn’t say so in the article and I may be going a bridge to far but to my mind, buybacks are a license to print money. Correct me if I’m wrong but they already own treasury stock which should be the same thing (but isn’t). It’s funny that a simple abstraction like “money is a store of value” makes the small step linguistically, giant step interpretatively to “money is value” which covers all manner of sins.

    Suddenly, I’m all for negative interest rates worldwide.

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