Sunday, October 8, 2017

Ralph Nader: How CEO Stock Buybacks Parasitize the Economy

Hyper enrichment of a handful of radical corporate state supremacists wasn’t what classical capitalism was supposed to be about.


Many companies are destroying themselves with the 'buy back' scam. The libertarians will argue that unfettered, unregulated capitalism and 'greed is good' will produce the largest growth and the greatest benefits for society, but we can see how this Ayn Randian selfishness only destroys companies. 


Excerpts: 

The monster of economic waste—over $7 trillion of dictated stock buybacks since 2003 by the self-enriching CEOs of large corporations—started with a little noticed change in 1982 by the Securities and Exchange Commission (SEC) under President Ronald Reagan. That was when SEC Chairman John Shad, a former Wall Street CEO, redefined unlawful ‘stock manipulation’ to exclude stock buybacks.

The corporate giants are also demanding that Congress allow the repatriation of about $2.5 trillion stashed abroad without paying more than 5% tax. They say the money would be used to grow the economy and create jobs. Last time CEOs promised this result in 2004, Congress approved, and then was double-crossed. The companies spent the bulk on stock buybacks, their own pay raises and some dividend increases.

There are more shenanigans. With low interest rates that are deductible, companies actually borrow money to finance their stock buybacks. If the stock market tanks, these companies will have a self-created debt load to handle. A former Citigroup executive, Richard Parsons, has expressed worry about a “massively manipulated” stock market which “scares the crap” out of him.

Banks that pay you near zero interest on your savings announced on June 28, 2017 the biggest single buyback in history – a $92.8 billion extraction. Drug companies who say their sky-high drug prices are needed to fund R&D. But between 2006 and 2017, 18 drug company CEOs spent a combined staggering $516 billion on buybacks and dividends – more than their inflated claims of spending for R&D.

Evonomics: Ralph Nader: How CEO Stock Buybacks Parasitize the Economy

11 comments:

Matt Franko said...

You cant say that this phenom of firms adjusting their capital accounts on their balance sheets effects the financial operations of the said firms and then say that what the Fed made the member depository institutions (also firms) do with their capital accounts on their balance sheets for the last 8 years doesnt matter to those depository institution's financial operations...

The capital account either matters or it doesnt... cant have it both ways...

Matt Franko said...

Egmont from the other thread:

"Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency "

Logical consistency here means the capital account either matters or it doesnt...

And I got news for you it does matter...

Neil Wilson said...

"The corporate giants are also demanding that Congress allow the repatriation of about $2.5 trillion stashed abroad without paying more than 5% tax. They say the money would be used to grow the economy and create jobs"

Let them leave it 'abroad'. They can't do anything to it, which means that in real terms it has already been taxed 100%.

In fact this should be the norm. Let the rich park their fiat currency abroad and tax them heavily if they bring it back. That allows them to count their coins and be 'rich' without ever affecting the real circuit.

Greg said...

Matt , I dont think its fair comparing balance sheets of a typical non bank firm to a depository institution. They are not affected the same way by fed policy.

For one stock prices are much more volatile and often have very little relation to any particular monetary aggregate which can be affected by fed policy whereas bond prices typically move in direct relation to the measured aggregates.

Stock buy backs are a very different operation and affect balance sheets much differently than QE/capital controls

Matt Franko said...

Well the capital accounts of non banks is not regulated by govt while that of banks is regulated...

Sets up an inequality that can be observed and analyzed...

So when you say "it's not fair to compare" that's simply the way one uses inequalities in analysis...

Rather than looking for equality...

Matt Franko said...

Nader: "Banks that pay you near zero interest on your savings announced on June 28, 2017 the biggest single buyback in history – a $92.8 billion extraction."

they are doing this because they are OVER capitalized wrt risk assets... as the Fed policy of QE has them with $4.5T of non-risk assets that they have to have capital against just like the risk assets... they are over capitalized agaisnt risk assets by about 10% of this or $450B...

Fed has this level of non-risk assets frozen here at 4.5T (they say they are going to reduce this month by paltry 10B) so they dont need to add to capital anymore... and they are over capitalized vs risk assets by 450B...

So anything they make is going to go to buybacks or dividends for now... rather than increasing the capital account...

Nader (lawyer) needs to take a few Accounting classes...

Noah Way said...

Sounds like a real problem. I sure wish I was over capitalized.

Tom Hickey said...

I sure wish I was over capitalized.

For a bank, this translates to leaving money on the table. It's funds not being used operationally to add to profit. This is a big reason that banks lobby to reduce capital requirements.

Greg said...

One big difference as I understand it, is that non financial firms can use their stock value as capital on their balance sheets, while banks cannot.... with good reason. The capital requirements the fed has for banks dont allow for appreciation of stock value to satisfy the requirements. They cant just say "Hey look our stock went up 10% we now have 10% more capital"

Matt Franko said...

Noah if you could go out and borrow more munnie than any you have already borrowed then you sort of are over capitalized...

Noah Way said...

Borrowing at zero interest, and protected from default .... what have you got to lose?