My first purchase:
"In the last two years, the wealthiest 14 people in this country increased their wealth by $157 billion. Meanwhile, US companies are buying back billions of dollars of their own stock in a way that manipulates stock prices, hurts the economy and, by the way, used to be against the law. Instead of putting resources into innovative ways to build their businesses or hire new employees, corporations are pumping their record-breaking profits into buying back their own stock and increasing dividends to benefit their executives and wealthy shareholders at the expense of their workers. It is a major reason why CEOs are now making nearly 300 times what the typical worker makes. We must demand an end to stock buybacks." -- The war on the middle class: "Today, 99% of all new income is going to the top 1%, while the top one-tenth of 1% own almost as much wealth as the bottom 90%
Thankfully, the Globe has bought in:
"Feast for investors sells workers short; As US companies spend billions repurchasing shares, employees and economy may pay the price" by Michael Kranish Globe Staff May 31, 2015
BOXBOROUGH — Bob Ordemann’s team of 80 software developers and engineers filed into a conference room here one day last September at the offices of the giant networking company Cisco. The room was deep within the company’s bucolic campus, nestled amid woodlands where employees brainstorm while strolling along tranquil creeks and ponds.
The news this day was anything but serene. Ordemann and his team were laid off, along with 100 others in Boxborough, part of a sweeping cut of 6,000 employees that hit 8 percent of Cisco’s overall workforce.
This, of course, at a time the government and corporate pre$$ are telling us the economic recovery is roaring, particularly because of jobs like this.
“Cisco was so easily willing to let us go; it just seemed mad to me,” Ordemann said in an interview, as he recalled the “dead quiet” reaction to the layoffs.
This was not, however, the case of a company cutting back because it was struggling to make a profit. To the contrary, Cisco’s chief executive officer, John T. Chambers, this month called the California-based company a “cash and profit machine.” Cisco has a cash stockpile of $53 billion, the fifth-largest among US companies, according to Moody’s Investors Service.
They are sitting on $53 BILLION, huh?
How Cisco spends that cash is another matter.
The Boxborough workers learned that at the same time they were being laid off the company was continuing to spend billions of dollars to buy back its own stock, a move designed to reduce the number of shares on the open market and perhaps boost its relatively stagnant share price.
In other words, the stock prices and Dow are all MANIPULATED! They DO NOT REFLECT TRUE or REAL VALUE!
And who benefits?
Many other major companies are similarly spending much of their profits repurchasing their own shares, making April the biggest month for buyback announcements in US history.
No wonder consumers are not following orders.
This stock buyback boom, while obscure to much of the public, has become one of the most pervasive and divisive practices in corporate America. It affects jobs, investment, and the health of the economy, all in the search for higher share prices. It is also a major driver of the widening economic divide in this country, which could make it a prominent issue in the 2016 presidential election.
Say again (forget the political $hit $how of politics; we've seen how that goe$)?
It boils down to a basic question being asked more and more these days, and not only by workers in Boxborough: Why are so many companies spending record sums of money buying back their shares instead of reinvesting more of their profits in their business and their workers?
The raw numbers are startling and revealing. Since the early 1980s, the nation’s top publicly traded companies have gone from having 70 percent of their profits available to reinvest in their business to just 2 percent in 2014.
The rest is being plowed into dividends and stock buybacks that mostly enrich a select group of investors and executives, according to William Lazonick, a University of Massachusetts Lowell professor whose research was published last fall by Harvard Business Review.
It's our $y$tem, and quite frankly, I'm getting tired of dogging our benevolent money-ma$ters
“Stock buybacks should be illegal,” Lazonick said in an interview at his Cambridge home. “They are manipulation of the market.”
Buybacks are booming because US companies have earned record profits and are hoarding a vast amount of cash.
So that is where all the money has gone.
The companies use buybacks to share some of that wealth with their executives and shareholders. Many CEOs were given record compensation, and shareholders may have benefited from higher stock prices.
But most stock is owned by the nation’s wealthiest 10 percent; about half of Americans don’t own a single share, directly or indirectly.
Where are you in that equation?
And buybacks can squeeze the economy in another way: Dollars not reinvested by a company in expanding their business can also mean fewer jobs in construction and other fields.
No, because my government and its mouthpiece media have been citing job growth month after month.
Supporters of buybacks stress that the nation’s top non-financial companies spent a record amount on capital expenditures in 2014 before declaring their profits. They say that the best way to benefit the average non-stock-holding American is to make sure companies are financially strong enough to withstand Wall Street corporate raiders who might have less allegiance to employees. And they say that shareholders spread wealth throughout the economy.
“The reason [companies] buy back their stock with cash is because they don’t have productive ways to invest the money,” said Peter Morici, a University of Maryland business professor who has written about buybacks. Boosting the share price through buybacks enables “individuals to reinvest in the economy more productively.”
What absolute blather considering all the social investments this country needs (as well as jobs).
"Although it ticked higher to 62.8 percent last month, the labor participation rate has been stuck for years near multidecade lows."
Meaning the TRUE UNEMPLOYMENT RATE is 37.2%!! Sure looks like a LOT OF PEOPLE that need INVESTING IN, but I suppose there are more productive ways to put the money to use.
But in recent weeks, Lazonick’s scathing criticism of the buyback trend has been echoed by a growing cast of politicians and business leaders.
They couldn't hear workers?
Laurence Fink, the head of the world’s largest money management company, condemned the practice as short-term thinking that often backfires.
Senator Tammy Baldwin, a Wisconsin Democrat, urged the Securities and Exchange Commission to investigate the practice. SEC commissioner Kara Stein, in turn, warned that many large publicly traded companies this year are in line to spend all of their profits on dividends and buybacks instead of reinvesting those funds in their businesses — possibly a tipping point in the nation’s history.
In other words, this economic $y$tem is rotted to the core and dead.
Cisco, which declined comment for this story, provides a road map of how the practice has skyrocketed, and how it affects executives, shareholders, and workers.
It is a tale of unforeseen consequences, one that began at the tangled intersection of politics and economics, with obscure rule changes in Washington that insiders and others saw and seized on.
Stage is set
Bevis Longstreth was serving as a commissioner on the Securities and Exchange Commission in 1982, when the rule change that launched the buyback boom came up for a vote.
Proposed by Reagan administration officials who favored deregulation, the change enabled corporations to repurchase much larger amounts of their stock on the open market.
That's when corporations took control of this government.
The measure was intended partly to offset stock options and awards granted to company employees and partly to pump up the stock market. Companies were assured that they would not be prosecuted for price manipulation, as they had feared, and the measure was approved unanimously.
It happened in a simpler time for corporate America, when investors typically held stock for the long term. Many companies viewed their commitment to their employees as a measure of their success. Profits were heavily reinvested into business expansion. If a company had excess cash to return to shareholders, it typically was paid out in dividends.
I don't need to be brought down memory f***ing lane!!!!!
Gradually, however, the freedom of corporations to make massive buybacks of their stock changed the calculation. The more stock that was bought back, the fewer shares were on the open market. The shrunken stock pool meant share prices often went up. Stock buybacks were now seen as a quick way to boost share prices — without the hard work of increasing investment in the company or coming up with a breakthrough product.
Meaning the valuation is just a pos number on paper.
Today, Longstreth is aghast at what the rule change has wrought. He is appalled that the S&P 500 corporations last year spent all but 2 percent of their profits on buybacks and dividends. He said none of that was anticipated when he voted for the proposal.
“It is a terrible thing for the economy because the growth of the economy and the growth of individual companies depends upon their reinvesting in their business and expansion into other lines of business, and paying 98 percent of your earnings out as dividends or stock buybacks implies that you have no future,” Longstreth said in an interview. “It is a stunning number no matter how you say it. It is pathetic.”
I'm not arguing. No wonder the U.S. government is trying to start or expand so many wars.
A second obscure rule, approved in 1993, played a key role. This one came on then-President Bill Clinton’s watch.
The more one looks back at that cancerous regime that set the table for all to follow....
Clinton railed against what he called “excessive pay of chief executives” in a way that now seems almost quaint, decrying CEO pay that reached $1 million or more. He urged Congress to pass legislation that he hoped would discourage high salaries by making amounts paid to executives above $1 million not deductible as a business expense.
But the measure, as it rattled through the congressional gantlet of politics and influence, gained a Wall Street-backed proviso that made any amount of compensation deductible if it was tied to a measure of the executive’s performance, such as stock price.
Thus was launched an era of sky-high CEO pay. Companies handed out enormous options and awards to CEOs that were tied to the value of their stock. Companies found that making a stock buyback, as allowed under the decade-old SEC rule change, could at least briefly boost share prices, perhaps increasing the value of stock options given to top executives. The result: CEOs now had a vested interest in buybacks that could quickly boost the value of their own personal options.
And f*** everybody else.
Today, thanks largely due to stock options, the 200 top-earning CEOs at large publicly traded companies made more than $12 million in 2014, and the top 20 made more than $33 million apiece, according to compensation analysis firm Equilar. That helps explain why CEOs today earn 354 times as much as rank-and-file workers, compared with 20 times as much in 1965.
Christopher Cox, who was a Republican House member at the time the measure was passed and who later served as SEC chairman, said the legislation should be enshrined in “the museum of unintended consequences.”
That always seems to happen with you guys in Congre$$ or with the current wartime dictator, which is why I want you guys doing not one damn thing!!!!!!!!!!
The best thing that could happen to the U.S. body politic and nation would be for the 1% and the $lavi$h political cla$$ to commit mass suicide.
“It was a populist impulsive act, a way for Congress to advertise that it thought that executives were overpaid and to apparently do something about it,” Cox said in a telephone interview. “In fact, even at the time, it was clear enough to some that this was not going to have a prayer of achieving its intended effect.”
(Clinton, for his part, got over his aversion to big paydays after leaving office, collecting $105 million in speaking fees between 2001 and 2013, including from many corporate sponsors, according to a Washington Post analysis.)
I'll save the criticism of that $cum for another day.
For many on Wall Street, buybacks are a natural outgrowth of an economic theory that says a company is run for the benefit of its shareholders — not its workers and not society. Under this “shareholder value” theory — pushed aggressively by hedge funds and activist investors who want quick returns on their money — stockholders pressure management to boost share prices regardless of the consequences for workers or their communities.
The theory holds that such pressure will ensure that companies are managed efficiently and dispassionately — that what is good for the shareholder will be best for the company, and society in the long run.
What's good for General motors, huh? That's how far back we are heading with the ideology knowing the end results? What a bunch of greedy bastards!
But critics say the theory has no basis and is a way of rationalizing excesses and inequities that threaten to undermine the nation’s long-term economy.
Threaten to undermine? It's been going on for 35 years! We are in the ENDGAME! The AmeriKan economy is now nothing but a hollow $hell of corruption benefiting those brought it to such a state -- but it is still the greatest economic $y$tem ever devised on planet Earth.
Bob Ordemann plans to begin his job search in earnest.
At least the SEC is on the job:
"SEC chief is latest target of Elizabeth Warren’s ire" by Annie Linskey Globe Staff June 02, 2015
WASHINGTON — Senator Elizabeth Warren took aim at the country’s top Wall Street regulator Tuesday in an unusually personal and blunt letter that complained about delayed reforms and lax enforcement, prompting a full-throated defense from the White House.
In a 13-page letter to Securities and Exchange Commission chairwoman Mary Jo White, Warren cited a “significant gap” between the promises White made during her Senate confirmation hearings and her subsequent performance leading the independent commission.
“I am disappointed that you have not been the strong leader that many hoped for — and that you promised to be,” the Massachusetts Democrat wrote. “I hope you will step up to the job for which you have been confirmed.”
She has only herself to blame; people can only disappoint you because you have unreal expectations for them. I never had any for White or this administration, so consequently I am not disappointed or surprised at all.
Warren launched her salvo as the fifth anniversary approaches this summer of passage of the landmark Dodd-Frank Wall Street reform law.
It still has not been fully implemented, and it is about to be proved a failure.
White House spokesman Josh Earnest brushed aside Warren’s concerns Tuesday afternoon, expressing confidence in White, who the administration nominated to the position two years ago.
Speaking from the White House briefing room, Earnest said the president believes the SEC chairwoman “shares his values and the priority that he has placed on promptly implementing Wall Street reform.” He also said that President Obama “does continue to believe that she is the right person for the job.”
The split over the SEC signals the latest rift between Warren, who is a leader of the liberal wing of the Democratic Party, and the Obama administration. It also is a sign that liberals and Wall Street watchdog groups are gearing up for a major fight over two vacancies that are expected on the commission, whose members must be confirmed by the Senate.
Suspicion among liberals about White accelerated last week when she appointed a top Goldman Sachs lawyer to be her chief of staff. The left has long complained that key financial regulatory bodies are stacked with staff that have deep ties to Wall Street firms.
It's not just the "left."
Dennis M. Kelleher, the president of Better Markets, a nonprofit that supports market reforms, said, “It’s bad enough that the rule-making is so far behind. It’s inexcusable that the enforcement has been toothless.”
Dodd-Frank was simply Congre$$ dicking around to make it look like they were doing something (as their stock portfolios were gaining).
Kelleher’s group took heat from the left two years ago for supporting White during her Senate confirmation hearings. He and others believed that her background as a federal prosecutor in New York would outweigh her later position as a partner and cochair of the litigation department at a Manhattan law firm with finance industry clients. At the time, he called her a “tough, smart, no nonsense” prosecutor. Since then, he said, he’s witnessed two “largely unproductive years” at the SEC and he is particularly disappointed that key parts of the Dodd-Frank law have not been implemented.
White defended her tenure at the SEC in a statement. “I am very proud of the agency’s achievements under my leadership, including our record year in enforcement and the commission’s efforts,” White said.
These people are so caught in their self-adulating delusion. They are believing their own public relations releases, and the sight is really quite disgusting.
An SEC official — who requested anonymity so as not to undercut the official statement — released a background memo outlining SEC accomplishments under White’s leadership. It notes that the commission has “proposed or adopted” 30 rules intended to protect investors and markets, brought more than 1,400 enforcement actions, and levied more than $4.1 billion in penalties.
Yeah, they are doing a great job, yup!
Obama sold her to Congress as a thick-skinned enforcer, noting that her time as a US attorney for the Southern District of New York included prosecuting terrorists.
Warren voted for White’s confirmation in committee despite reservations about her post-prosecutorial job as a defense lawyer.
The Senate Committee on Banking, Housing and Urban Affairs approved her 21-to-1, with the lone dissenting vote coming from Senator Sherrod Brown of Ohio. White’s nomination then sailed through the Senate in April 2013.
Relations between Warren and White reached a boiling point last month when the two met to discuss a long-delayed rule on chief executive pay. The rule would require public companies to disclose compensation for chief executives, the median pay for their workers, and the ratio between the two. It was supposed to be completed 21 months ago but has been postponed several times.
During the May 21 meeting, White pledged that the rule would be complete by fall 2015, according to Warren’s account. Yet hours after the two met, Warren saw documentation from the Office of Management and Budget showing the rule wouldn’t actually be done until April 2016.
“I am perplexed as to why you told me personally that the rule would be completed by the fall of 2015 when it appears that you were or should have been aware of additional delays,” Warren wrote.
Oh. Liz got mad because she was lied to. As a citizen, I can only say you get used to it and expect nothing less from this government.
White, in her statement, said Warren’s “mischaracterization” about the meeting is “unfortunate” but “will not detract from the work we have done, and will continue to do, on behalf of investors.”
The commission remains committed to finishing the rule by fall 2015, according to an SEC official....
My commitment to the article ended there.
Turns out there is some gray conflicts-of-interest between White and her husband.
"Warren decries stock buybacks, high CEO pay; Senator seeks overturn of rules" by Michael Kranish Globe Staff June 04, 2015
WASHINGTON -- Senator Elizabeth Warren this week called on the Securities and Exchange Commission to launch an examination of rules that allow US companies to buy back billions of dollars of their own stock, a practice that she said is undermining the economy.
Warren, citing a Sunday report by the Globe that detailed how California-based Cisco laid off 182 workers in Boxborough at the same time it was spending billions of dollars to repurchase its own stock, said that while buybacks may temporarily boost stock price for companies, they often hurt workers.
“Stock buybacks create a sugar high for the corporations. It boosts prices in the short run, but the real way to boost the value of a corporation is to invest in the future, and they are not doing that,” Warren said.
Candy is big bu$ine$$ in AmeriKa.
Under a 1982 rule change, the SEC assured corporations they wouldn’t be charged with market manipulation if they repurchased large amounts of their stock. Warren wants that rule changed.
“These buybacks were treated as stock manipulation for decades because that is exactly what they are,” she said. “The SEC needs to recognize that.”
Warren also said that she is co-sponsoring legislation called the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act, which would revise 1993 legislation that enabled corporations to tie an executive’s pay to a company’s share price and make such pay tax-deductible.
While the 1993 bill was touted by then-President Bill Clinton as a way to curtail annual salaries exceeding $1 million, it had the opposite effect, prompting many companies to repurchase shares in an effort to boost stock prices, which in turn boosted the value of executive stock options and awards.
“We need to close the loophole that gives corporations a tax break when they give CEOs the giant stock payments,” Warren, a Massachusetts Democrat, said.
All sounds nice, but like her Glass–Steagall legislation, it's going nowhere.
Buybacks have become one of the primary drivers of the stock market.
No wonder it is so divorced from reality.
US companies announced a record amount of buyback authorizations in April, and the trend is expected to continue this year. Many corporations say they buy back shares because they have excess cash and believe their stock is undervalued.
While the S&P 500 companies spent a record amount last year on capital expenditures before declaring their profits, they had far less of their profits available for investment in their business than in prior decades. In the 1980s, such companies had 70 percent of their profits available for reinvestment, with the rest spent on dividends. Last year, these companies spent all but 2 percent of their profits on dividends and stock buybacks.
The SEC last month was asked by Senator Tammy Baldwin, the Wisconsin Democrat, to examine the impact of its stock buyback rule, but so far the agency hasn’t delivered a response, according to a Baldwin aide.
The SEC press office said via email it would decline a request for comment.
They are working on it, you know.
"Tangle on rules led to Warren’s fight with SEC; Administration may see more friction" by Annie Linskey Globe Staff June 08, 2015
WASHINGTON — The brawl between Senator Elizabeth Warren and the nation’s top financial regulator has set up another flash point for liberals wary of the Obama administration and has roots in a breakdown of trust in one of Washington’s most dynamic relationships.
Liberals and the "left" just figuring out they have been betrayed by Obummer?
That trust frayed just after a May 21 meeting where Securities and Exchange Commission chairwoman Mary Jo White promised that a long-delayed rule would be finished this fall. Just hours later Warren saw a government notice indicating the deadline had really been delayed by six additional months.
In a highly unusual move for clubby Washington, Warren publicly escalated the matter. In a scathing 13-page letter, the Massachusetts senator accused White of providing her with “misleading” information about the date. The letter, shared with the media, also outlined Warren’s displeasure with a series of other long-simmering issues. White shot back that Warren’s “mischaracterization” of her statements was “unfortunate.”
Normally tensions over commission rule-making are expressed in internal e-mails, wonky policy speeches and industry newsletters. The Warren letter, and subsequent rebuttal by White, splashed a soured relationship on front pages of America’s newspapers.
The Globe's anyway.
It energized liberals to echo Warren’s charge that White is not the reformer she said she would be — and set the stage for another round of discord if President Obama picks an SEC regulator with Wall Street ties to replace a Democratic commissioner whose term expired on Friday.
“There was some expectation that we’d see some change in direction at the SEC,” said Marcus Stanley, the policy director at Americans for Financial Reform, a coalition founded after the 2008 financial crisis. “White has a working majority to go in a progressive direction, but in fact she’s been very status quo.”
What a $hock. A Wall Street insider being a $tatu$ quo regulator.
This disappointment on the political left in White’s tenure carries a particular sting for Warren because she could have made White’s ascension far more difficult. When President Obama nominated White in January 2013, liberal groups didn’t like that she had worked as a defense attorney at a firm known for its roster of Wall Street clients.
Instead of objecting, Warren voted for White in the Senate Banking Committee.
That left Sherrod Brown, the Ohio Democrat, as the lone voice bucking his party.
“I do question Washington’s long-held bias toward Wall Street and its inability to find watchdogs outside of the very industry that they are meant to police,” Brown said at the time, explaining his ‘no’ vote. Brown declined to comment last week.
It's a Wall Street government.
Warren and White made some attempt to forge a relationship early on. Just weeks after the new SEC chairwoman was put in place, the two met, according to White’s public schedule. They got together again the following month one day after White testified before Warren’s committee.
An SEC official said they have had two other face-to-face exchanges — including the May 21 meeting. And, in the four times that White has testified before the banking committee, the exchanges with Warren haven’t been testy.
But as White’s tenure progressed, chunks of the 2010 Dodd-Frank Wall Street Reform Act haven’t yet been instituted, causing growing concern among liberals. The commission hasn’t finished 34 rules from the 2010 banking reform package, according to a March 2015 tally by Davis Polk Regulatory Tracker, which follows the law’s enactment.
An official with the SEC said that under White it has promulgated some of the more complicated rules and has picked up the pace from the previous term. The official, not authorized to speak publicly on the issue, asked to remain anonymous.
Warren declined an interview request.
Warren, along with her allies in organized labor, has focused on a rule that would require public companies to disclose CEO pay, the median pay of workers and a ratio between the two figures.
When Warren brought up the rule in their May 21 meeting, White promised it would be done by fall 2015. Then Warren saw a notice from the Office of Management and Budget that showed the SEC had attached a very different deadline to the rule: April 2016.
“You provided me with what appeared to be misleading information,” Warren wrote about the date inconsistency in her letter. “I am perplexed as to how and why you would have provided me with this misinformation.”
I call it a newspaper.
An SEC official said that when the commission submits proposed dates for rules to the Office of Management and Budget, as is required by law, it typically will offer the latest possible date in a range. A Globe review of all 53 pending SEC rules found that “April 2016” was listed in all but three. The SEC remains committed to the fall 2015 time frame, the official said.
Warren’s camp maintains that the April 2016 date is consistent with an SEC pattern of delaying the rule.
The larger point in Warren’s letter focuses on the settlements that the SEC reaches with companies that break the rules. Warren wrote that out of 520 settlements only 19 resulted in a company admitting guilt. The SEC responded that prior to White’s tenure, the commission didn’t have a policy of requiring any admissions of wrongdoing.
Even less went to jail.
Lawyers who watch the SEC viewed parts of the letter as an attempt by Warren to buck up one of the Democratic commissioners — Kara Stein — who has been particularly outspoken on an obscure issue of waivers provided to large companies that get in trouble. Armed with their waivers, the companies maintain access to some privileges that their wrongdoing would have disqualified them from.
In this area Warren echoed Stein’s arguments — the SEC should be granting fewer waivers.
White simply disagrees, and has said the waivers were “never intended” to be used “as an additional enforcement tool.”
The most personal attack Warren made in her letter — that White’s vote on the commission could be “neutralized” because of her husband’s job as a Wall Street lawyer with cases before the SEC — is difficult for the public to track. The agency doesn’t post votes online, although they are available in files at SEC headquarters.
Warren’s concern, based on a February New York Times article, is that companies being hauled before the SEC might hire White’s husband, thus forcing the chairwoman to recuse herself and leave the five-member panel deadlocked.
A spokeswoman at his law firm, Cravath, Swaine & Moore, didn’t respond to a comment request. An aide to the SEC said that White has participated in more cases than any other commissioner, but couldn’t provide any data to back up the assertion.
Knee-jerk lying must be a qualification for government work.
Maybe you should just hold on to that stock:
"Ban the stock buyback binge, bring back the middle class" by William Lazonick June 13, 2015
Over the past decade, companies in the S&P 500 Index have wasted $4 trillion buying back their own stock.
I don't consider it waste if it enriched the greed-heads calling the shots. It's our $y$tem.
That is on top of about $3.9 trillion spent on dividends. Many companies routinely distribute more than 100 percent of net income to shareholders. Little if any corporate earnings are available for rewarding employees for their contributions to the company’s profitable products and for reinvestment in the company’s productive capabilities. The stock buyback practice must end.
The sole purpose of most stock buybacks is to manipulate the company’s stock price. Up to the early 1980s, before the buyback binge began, executives, economists, and regulators worried that high dividends alone might leave insufficient retained earnings for reinvestment in the firm. With the rise of the ideology that companies should be run to “maximize shareholder value,” however, that concern went by the board. Corporate executives, incentivized by stock-based pay that can be as much as 90 percent of total compensation, began to compete with one another to see whose company could get the most manipulative bang out of the buyback buck.
Dividends and buybacks are very different types of distributions to shareholders. Dividends provide shareholders with a stream of income in return for holding the company’s stock. In contrast, buybacks reward shareholders for becoming sharesellers. The main beneficiaries of buybacks are those sharesellers who can time the buying and selling of shares to capture the manipulated price boosts. Given that the public does not know the days on which a company is actually doing buybacks, the traders best positioned to take advantage of the buyback boosts are top executives who are privy to this information and professionals in hedge funds and investment banks whose business it is to get such information, time their trades, and reap the gains.
Stock buybacks bear major responsibility not only for the extreme concentration of income among the richest households but also for the erosion of middle-class employment opportunities. Most American households depend on employment with a business corporation. An employee earns an income that supports a middle-class living standard when, in return for supplying skill and effort, he or she gets stable employment and an equitable share in the company’s productivity gains. When most or all of these gains flow out of the business corporation to shareholders, middle-class employment opportunities disappear.
But don’t profits belong to shareholders? Only according to an ideology that defies common sense. People who buy corporate shares already on the market do not invest in the company’s value-creating capabilities. The value-creators are those who supply money and effort to sustain and augment the company’s capabilities to generate the competitive products that enable the company to survive and, hopefully, thrive. Public shareholders are merely portfolio investors, seeking a yield on productive investments that have already been made.
But doesn’t the cash that is disgorged to do buybacks get reinvested in new productive investments? The evidence is that the stock market has always been far more important for taking money out of the corporate economy than for putting money into it. Indeed, for the decade 2005-2014, net equity issues – new stock issues minus shares withdrawn from the market through buybacks and mergers/acquisitions — in the United States averaged minus $399 billion per year, largely because of buybacks. Corporations fund the stock market, not vice versa. Increasingly, the flow of cash out of companies pumps up the wealth of hedge-fund managers who then have even mightier war chests to go after the cash flow of target corporations.
Recently, prominent public figures, including Senators Elizabeth Warren and Tammy Baldwin, and SEC Commissioner Kara Stein, have recognized the damage that buybacks do. In May, the Service Employees International Union made opposition to buybacks central to its fight for a $15 minimum wage with protests against McDonald’s, which has spent $3 billion per year on buybacks over the last decade and is planning to ramp up that amount. Protesting workers began to see buybacks as the theft of their pay. The demand for no more buybacks needs to be central to the movement to bring back the middle class.
Meaning it has already been destroyed.
No selling on Sundays:
"S. Parker Gilbert, 81; former Morgan Stanley chairman" by Landon Thomas Jr. New York Times May 31, 2015
NEW YORK — S. Parker Gilbert, a former chairman of Morgan Stanley who led its public stock offering in 1986 and organized a management revolt at that storied investment house 20 years later, died Wednesday in Manhattan. He was 81.
Parker Gilbert said his father had been treated for pulmonary disease and died at NewYork-Presbyterian Hospital.
S. Parker Gilbert was a stepson and a godson of Morgan Stanley’s founders, and he came of age on Wall Street when family name and pedigree were often enough to land one a job at the elite partnerships of the day.
Like it isn't now!
But he also played a role in exploding this cozy world when he united a divided body of Morgan Stanley bankers behind the idea that the firm could grow and prosper only if it sold shares to the public.
Oh, he's the guy behind the IPO pump-and-dump scams?
That move, and the subsequent pressures that the business faced as a public company, led to Morgan Stanley’s merger in 1997 with the retail brokerage firm Dean Witter.
And when Philip J. Purcell, a former management consultant who had little patience for the egos and attitudes of the company’s investment bankers, took swift control of it, the stage was set for Mr. Gilbert — who was then deep in retirement — to alter his company’s destiny again.
In 2005, he lent his reputation, and finances to a searing guerrilla war that eventually forced Purcell from power on the assertion that his more conservative financial approach was ruining Morgan Stanley’s vaunted culture.
“Parker was the heart and soul of Morgan Stanley,” said Anson M. Beard Jr., a childhood friend who was a member of a group of eight retired Morgan Stanley bankers who led the fight against Purcell. “He was born into the firm, became CEO, retired, and then brought about a change in leadership. He was the firm’s DNA.”
Beard remembered calling Mr. Gilbert in January 2005 to grouse that the company they loved was changing for the worse. Beard told Mr. Gilbert that they had to do something.
Two months later, he said, they sent a letter to Purcell challenging his leadership. “He knew how to build consensus and get things done,” Beard said. “This never would have happened without Parker.”
"Seymour Parker Gilbert III (who never used the Roman numerals) was born in New York City on Nov. 15, 1933. His father was a financial wunderkind of sorts who in the years after World War I played a critical role for the United States government in the negotiations over German war reparations.
Mr. Gilbert’s father died at 45, and his mother later married Harold Stanley, who after the split with J. P. Morgan became the first president of Morgan Stanley. Mr. Gilbert’s godfather was the firm’s other founder, Henry S. Morgan."
More web adders:
Such was Mr. Gilbert’s belief in Morgan Stanley that even when it seemed that the company could follow Lehman Bros. and go bankrupt during the financial crisis, he consistently bought shares in it, even as the stock value sank to single digits.
Mr. Gilbert was educated at the Buckley School, Hotchkiss, and Yale. After a stint in the Army, he joined Morgan Stanley in 1960 and was elected partner in 1969.
Working primarily as a corporate banker, Mr. Gilbert was appointed to lead the firm in 1984 at 49.
At the time, Wall Street competitors like Merrill Lynch and Bear Stearns had already gone public, and Mr. Gilbert was facing mounting pressure from the firm’s younger bankers for Morgan Stanley to do the same to compete on larger, more lucrative banking deals.
The print made it sound like his idea!
Older partners feared that such a move would have a disastrous effect on the firm’s culture.
Mr. Gilbert was ultimately able to make the case that going public was the right thing to do, and the firm did so in 1986.
He retired in 1990 and devoted time and money to the Morgan Library and Museum, which he led from 1988 to 2011. He was also a longtime trustee of the Metropolitan Museum of Art.
Mr. Gilbert lived in Manhattan. In addition to his son S. Parker Jr., known as Parker, he leaves is survived by his wife, Gail; a daughter, Lynn Tudor; another son, David, a novelist; and eight grandchildren.
About a year ago, Gilbert made a rare trip to Morgan Stanley to give a speech to the company’s managing directors.
As was his style, his talk was brief but carried a powerful punch: Morgan Stanley’s culture was back, he said, a person who attended the event recalled.
The standing ovation lasted longer than Gilbert’s actual remarks, according to this person: about four minutes, with a number of bankers shedding a tear or two.
As I am about to for reading this apologist slop.
"The middle child among three siblings, Mr. Meltzer was born and grew up in Chicago, where his mother, Jean Sulzberger Meltzer, volunteered counseling disadvantaged youths. Along with teaching at the University of Chicago Law School, his father, Bernard Meltzer, had been a prosecutor in the Nuremberg war crimes trials after World War II. Mr. Meltzer’s uncle Edward H. Levi formerly was president of the University of Chicago and had been US attorney general during the Ford administration."
Also see: Memorial service for Daniel J. Meltzer
"In defense of stock buybacks" by Roger Lowenstein June 15, 2015
And you think I'm just being picky....
Stock buybacks are suddenly controversial, with critics arguing that they are hurting the American economy, killing jobs, and manipulating stock prices and therefore must be banned. Bernie Sanders, the Vermont senator running for president, has made slamming buybacks a theme of his campaign. And William Lazonick, an economics professor at UMass Lowell, has asserted that banning buybacks is key to reviving the middle class.
Is this ordinary corporate tactic really so bad? Actually, buybacks are both useful and benign — and in no way warrant restriction. Let’s start with the basics: stock buybacks are a converse operation to stock sales. Companies issue stock — that is, they sell slices of equity — to raise capital. They buy back stock to retire capital. These buybacks occur for two reasons.
Sometimes, a firm accumulates more capital than its business can profitably employ. Believe it or not, overcapitalization can be just as harmful as undercapitalization. Companies with an overabundance of capital tend to do stupid things. They become lazy about operating efficiently, or build a vanity headquarters, or make a foolish acquisition. Such pursuits may make the CEO feel important, but (often) they waste the shareholders’ capital. Retiring excess capital is smart business.
Why did the wasteful bloat of the U.S. government just come to mind?
The other common reason for repurchasing shares is that executives believe their stock is cheap — and indeed, cheaper than possible alternatives. This is not “manipulating” the stock. As with an investment you make in your 401(k), buybacks will pay off if — and only if — the executives’ calculation about value is correct. Suppose you had a 50-50 partner in a private business worth $1 million; one day your partner, feeling gloomy, offers to sell his half for only $250,000. Buying him out would increase the value of your equity. In just that way, buybacks of inexpensive stock raise the value of the remaining shares.
If the executives are wrong, however, and the stock is overpriced, no amount of stock repurchases will raise the share price (except perhaps in the very short term). Indeed, with every overpriced share the company acquires it becomes that much poorer.
(But the exorbitant salaries and bonuses based on stock prices will be paid out shortly)
Decisions about selling and retiring stock are part of the process of “capital allocation,” one of the most important functions of the capitalist system. It is the market’s way of directing society’s capital where it is most productive.
Except that is not what is happening. It's not being used for productive purposes. It's being stuffed into 1% wallets.
There are many things the capitalist system cannot do well — or doesn’t do at all. There is no market mechanism for restricting pollution or for prohibiting monopolistic mergers or for setting a reasonable floor on wages. We need government for that.
Yeah, and we have $een what kind of job corporate government does there.
But allocating capital is far better done by the private sector.
That I agree with.
No government office can decide how much capital each firm should work with, or where it should be deployed — and none should try.
Actually, they do it all the time. It's called TAXES and they take it right out of your LABOR!
Protesters of corporations such as McDonald’s have charged that buybacks represent a “theft” from the employees. However, the capital that a McDonald’s uses in share buybacks isn’t diverted from employees any more than it is diverted from beef producers, or ketchup distributors, or any of the company’s other vendors. Capital belongs to the shareholders. McDonald’s has a fiduciary duty to employ that capital profitably, hopefully at competitive rates of return. Lazonick has written that the idea that profits belong to shareholders “is true only according to an ideology that defies common sense.” I would like to see him devise a system in which investors put up capital without being entitled to the profits.
Look, I don't have an answer for you; I just know this $y$tem sucks.
Oh, he's wrote a book lauding the creation of the Federal Reserve, huh?