Class Warfare Blog

July 11, 2018

It Figures

When the Trump tax cuts were imposed (you remember don’t you: the small temporary tax cuts for us and the large permanent tax cuts for corporations and the wealthy) it was claimed by the Repubs that the money saved by the corporations would end up spurring growth, even result in raises for workers. (Right, those results were to be delivered via unicorn, I believe.)

It was pointed out that the last time such a tax cut was implemented, corporations spent the bulk of the savings in buying back shares of their own companies. Well, surprise, surprise, the same thing happened this time. (Who’d have known it could be this complicated?) In a post on the Naked Capitalism web site (Michael Olenick: Update Confirms That Share Buybacks Are Still Corporate Suicide) extensive studies on the effects of such buybacks show that “not only do buybacks not lead to growth in a company’s market value, they are strongly correlated to a declining market value.”

In other words, the effect of their behaviors is not to “grow” the companies but actually to “shrink” them! To quote from the piece:

Corporate executives and directors are apparently bereft of ideas and the confidence to make long-term investments. Rather than using record profits, and record amounts of borrowed money, to invest in new plants and equipment, develop new products, improve service, lower prices or raise the wages and skills of their employees, they are “returning” that money to shareholders. Corporate America, in effect, has transformed itself into one giant leveraged buyout….

And since “everyone” is doing it …

The most significant and troubling aspect of this buyback boom, however, is that despite record corporate profits and cash flow, at least a third of the shares are being repurchased with borrowed money, bringing the corporate debt to an all-time high, not only in an absolute sense but also in relation to profits, assets and the overall size of the economy.

This not only burdens those corporations, but also drags down the entire economy.

So, if these buybacks are not what anyone might call the best use of those tax savings, why are they being done?

Okay, boys and girls, whenever anything political happens what are we supposed to do? (Follow the money!) That’s right! So, who benefits from these buybacks the most? It turns out that … wait for it … it is the corporation executives who actually benefit the most. You see the buybacks inflate the prices for the corporation’s stock. CEO’s and their ilk are now being remunerated largely via stock options. And, corporation executives constitute the largest segment of the 0.1% of “earners.” And that class of “earners” is the one making the bulk of political contributions currently. Does the picture now come together for you?

Think of the corporation executives as sort of modern pirates. (Can you see the eye patches and hear the “aaaarghs”?) These executives started out as treasure ship captains but, well the temptation was too great, and they stole their own ships. Well what is the government’s politicians to do? When they sailed into action to recapture the ill gotten gains, they received handsome “gifts” from the pirates to the extent that they have become dependent upon those “gifts” and now seek to facilitate the pirate’s behaviors. The government stopped pursuing the pirates for taxes and actually invited them to submit their ideas on how the government could be run better.

And all of the rich assholes lived happily ever after.

When are we going to wake up? Stock buybacks should be illegal or strictly regulated (as they used to be). They are tools to manipulate the stock market by insiders, for Pete’s sake! But when we ask our politicians what the intend to do all we get is “Arrgh!” and a wink from under an uplifted eye patch.

5 Comments »

  1. Of course, useless tax cuts is a perfect recipe for ballooning the national debut which will then be a perfect excuse to cut benefits for the middle class and working poor.

    Are we great again yet?

    Like

    Comment by James Cross — July 11, 2018 @ 8:17 am | Reply

    • Exactly. The GOP promoted this strategy decades ago and even gave it a name (Starve the Beast) and yet, people still vote for them. Amazing.

      On Wed, Jul 11, 2018 at 8:17 AM, Class Warfare Blog wrote:

      >

      Like

      Comment by Steve Ruis — July 11, 2018 @ 8:23 am | Reply

  2. Stock buybacks should be illegal … There are a LOT of things going on in the world of big business that should be illegal! But until the big money folks have a change of heart, something tells me it will continue to be more of the same.

    Is there any change of winning this game?!??!

    Like

    Comment by Nan — July 11, 2018 @ 11:45 am | Reply

    • Well, stock buybacks were illegal before 1996 (I think …) so there is a precedent. I think the strategy of paying CEOs with stock so they would operate with the company’s best interests at heart has clearly back fired. But then we cannot get a law passed that requires investment bankers to put their client’s interests ahead of their own, so, yeah, fat chance.

      On Wed, Jul 11, 2018 at 11:45 AM, Class Warfare Blog wrote:

      >

      Liked by 1 person

      Comment by Steve Ruis — July 11, 2018 @ 12:47 pm | Reply

  3. And we’re now also taught how piracy is a beneficial to all of us.

    Like

    Comment by List of X — July 13, 2018 @ 3:31 pm | Reply


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