By Annie Lowrey – Stock buybacks are eating the world. The once illegal practice of companies purchasing their own shares is pulling money away from employee compensation, research and development, and other corporate priorities—with potentially sweeping effects on business dynamism, income and wealth inequality, working-class economic stagnation, and the country’s growth rate. Evidence for that conclusion comes from a new report by Irene Tung of the National Employment Law Project (NELP) and Katy Milani of the Roosevelt Institute, who looked at share buybacks in the restaurant, retail, and food industries from 2015 to 2017.
Buybacks occur when a company takes profits, cash reserves, or borrowed money to purchase its own shares on the public markets, a practice barred until the Ronald Reagan administration.
The regulatory argument against allowing the practice is that it is a way for companies to manipulate the markets; the regulatory argument for it is that companies should be able to spend money how they see fit.
In recent years, with corporate profits high, American firms have bought their own stocks with extraordinary zeal.
Federal Reserve data show that buybacks are now equivalent to 4 percent of annual economic output, up from zero percent in the 1990s. Companies spent roughly $7 trillion on their own shares from 2004 to 2014, and have spent hundreds of billions of dollars on buybacks in the past six months alone. more>
Posted in Banking, Business, CONGRESS WATCH, Economic development, Economy, History, Leadership, Regulations
Tagged Banking reform, Capital, Financial crisis, Government, Regulations, Stock buyback, United States
Makers and Takers: The Rise of Finance and the Fall of American Business, Author: Rana Foroohar.
By Rana Foroohar – Profits at big companies are down—but CEO pay is up.
For the last couple of years, corporate earnings have been flattening out, as Main Street has struggled along in the longest, weakest recovery of the post World War II era.
The key word there is performance. Performance pay is typically awarded in stock options, which have special tax benefits, thanks to changes in how executive pay can be doled out made in the 1990s.
And that gets us to the record number of share buybacks that have been pulled off by corporations in the U.S. over the last couple of years. Buybacks, which essentially involve companies buying up their shares on the open market, jacks up the price of the stock.
The result is a market that goes up, and enriches the 10% of the population that owns 80% of the stock (and particularly lines the pockets of the C-suite), but no real change in the underlying corporate growth story (witness those falling profits). more> http://goo.gl/oTja3c
Posted in Banking, Economy, Education, History, Leadership, Media, Regulations
Tagged Banking reform, Capital, Financialization, Leadership, Regulations, Stock buyback, United States
By Steve Denning – In a world in which corporate performance and executive compensation are linked to earnings per share (EPS)  and the firm’s share price, share buybacks are an easy way out.
A shortfall in earnings?
No problem! Executives can just have their firm buy a swathe of their own shares (generally in secret) and hey presto, the share price rises; they get their bonus and short-term investors make a quick buck. more> http://tinyurl.com/kbqwr7v
Posted in Business, Economy, Education, Leadership, Media
Tagged Business improvement, Capital, Industrial economy, Jobs, Leadership, Organization, Stock buyback, United States