The Stock Buybacks Swindle - Economic Update with Richard Wolff

Prof Wolff looks into the policy of stock buybacks: when a company buys their own stocks in order to enrich their wealthy executives and investors instead of creating more jobs or raising wages.

"The job of the mass of the people is to come to work, do the work, produce the goods, generate the profits and then shut up so that the tiny group at the top (the executives at the top, the major shareholders) can use that money to buy back their shares in the stock market and boost their wealth and boost their income. What a system. It's the most undemocratic imaginable." - Richard Wolff

This is a clip from S12 E36 of Economic Update: Rising Labor, Falling System

You can also listen to this show on our website or as a podcast on your favorite podcast player.
______________________________________________________________________________________
We make it a point to provide the show free of ads. Please consider supporting our work.

_______________________________________________________________________________________
Check out the NEW 2021 Hardcover edition of “Understanding Marxism,” with a new, lengthy introduction by Richard Wolff!

“Marxism always was the critical shadow of capitalism. Their interactions changed them both. Now Marxism is once again stepping into the light as capitalism shakes from its own excesses and confronts decline.”

_________________________________________________________________________________________
Want to help us translate and transcribe our videos?

Follow us ONLINE:

[riceburner]

Prof Wolffe, I first saw u on Thom Hartmann YEARS AGO. I love u, man! I wished u got "air time" on basic tv so other's could hear/see u! Thank u for what u do. I'm 70 & have great respect for u! 🇺🇸

[greenquake]

Inflation depreciates idle money. I'm in a privileged position to be able to save almost 65% of our net household income, as I placed it on safer investments. The key for us was not spending beyond our means. If you invest and have other sources of income outside of dividends then you will be able to live off dividends. Got north of $520K in my portfolio as I bought a lot of dividend stocks before, I'm buying more now, and I will buy more when it drops further.

[charlesputnam]

Stock buybacks should have never been made legal. Example of how derugulation only enables those at the very top to benefit at the expense of everyone else.

[frankcolumbus]

Then they give a shitty 2 percent raise.

[jarichardsutube]

An Old Concept applies here... It's Called, "PERVERSE INCENTIVES" : ( -StayWell Everyone

[spanky]

You forgot to mention that they are moving jobs to States who pay a less salary .Jobs moved from Detroit to North Carolina or South Carolina home outsourcing is what I call it .

[DerekFullerWhoIsGovt]

"Share Holder" is the closest thing to a slave holder today. The #Stock is live.

[Roxor]

Corporate executives should not be allowed to own shares in the companies they run. That is an horrific conflict of interest. Require that they sell them as a condition of getting the job. If they really want to own shares in that company after they leave, they can spend some of the millions in salary they got on buying them.

[GGLumberjack]

Tax the rich! They didn't sweat for that wealth, we did.

[jl]

Cancel ALL Student and Medical Debt!

Tax Millionaires, Billionaires, and Corporations!

Lower taxes on people making less than $250, 000

Free Access to Higher Education and Universal Healthcare for All!

[ConservativeInvestor]

You are forgeting the core fact that the duty of the executives of any given company is not to create jobs, increase wages and other unnecessary things, but it is to generate the SHAREHOLDERS, the people who really OWN the company, the most amount of profit now and into the future.

[renardleblanc]

Okay, but... what about dividends?
Let's say there's 100k shares of a company on the market... the dividends are split 100k ways, each share owner gets one share. If the company makes $10M that quarter, that's $100 per share.
SO: CEO's decide to do a buyback, say 90k shares out of 100k total, so now there's only 10k shares. which means that that $10M is being split 10k ways, and insted of $100/share, holders get $1, 000 per share.
They didn't even have to spend any of their own money to get it, either.
Unless I'm not understanding how shares, dividends and the stock market works.

[dr.detroit]

In my view, there is a very simple solution to this, since stock buy backs are unlikely to be outlawed. Keep a list of the corporations that do this, check it twice, and when the next crash hits, no taxpayer bailout for them. Let greedy, unviable businesses fail. If that causes a depression for 10 years or so, I say let the chips fall. It will be an opportunity to clear out this particular swamp for good.

[erigerontriteleia]

How cunning is the boundless-greed system of the filthy rich!!!

[jonetyson]

The host is very confused. When a company buys back shares, two things happen:

1. The number of shares outstanding is reduced.
2. The fundamental value of the entire company is reduced, because the company has less money in its bank account.

When the shares are bought back at the fundamental value of the company THERE IS NO EFFECT ON SHARE PRICE, because the above two events CANCEL EACH OTHER OUT.

If however, the market is mispricing the company, a buyback will effect the share price: If the market price is higher than the fundamental value, then a buyback will REDUCE the share price in the long run, because too much money went out for the number of shares retired. If the market price is lower than the fundamental value, then indeed a buyback will make the share price increase. If the stock price fairly represents the market value, then there is no effect on share price, and it is simply management saying they don't have anything to do with the money, so that the owners of the company (the shareholders) should take their money back.

Furthermore, it is a bit confusing to say "spent" on buybacks: The shareholders own the entire company, and so the money used for buybacks is already the shareholder's money.

[absw]

Why aren't the same criticisms given against dividends? The only advantage with buybacks are the lower taxes, but most criticisms Wolfe gives also apply to dividends.

[wyaolsen]

This makes no sense. It's as if you said you wanted to get rid of dividends because they return money to shareholders. The whole point about investing and having a business is to put money in today so you can get more money in the future.

[WileyCylas]

My parents used to work for General Motors in their Milwaukee plant (Delco/Delphi.) good pay. Union. No more

[emiebex]

My Personal Opinion Stock Buy Back are just a fancy way of saying Pump & Dump. Billionaires make billions pumping up a companies value, then sell shares with Insider Trading schemes.

[jmitterii]

This short term sugar rush of buying via stock buy backs only perk the price up long enough for stock options and warrants (pieces of paper that have claims of adding new shares to the float when a given stock price is achieved) to cash out all over everyone holding the shares for longer term heads'. After all these purchases are done, the gamma squeezes on call options sold naked by market makers, market makers suddenly forced to get into the buying frenzy to cover their call options add to the short term buying pressure, also you have short term traders who pile into buying the shares on a "breakout" trade, lead the stock price up higher and higher, you as an average median income investor in your 401K and/or personal brokerage account allocating some savings to investment dollar cost averaging or buying a few shares here and there, end up buying at wildly high bogus prices... that suddenly when all the idiocy is over, stock buyback period is done, the gamma squeezes of market makers and all the short term traders have cashed out, the momentum to the upside ends, and the prices fall back to normal trading pressure aligned with the fundamentals of the company... the stock prices plunges. And you may have bought a few shares on the pump only to hold them still during while the dump plunges the prices down.

Further more, this type of activity adds no value to investors or to employees over the long run. The funds from profits or borrowing to buy back stock didn't make the business more competitive: R&D or build more retail, or better machines, or pay workers better thus get more form workers to produce higher quality and/or more of something... it didn't even act to diminish in any meaningful way the float of shares like a stock 1 share for 2 share reversal, float 100 million shares outstanding turns into 50 million shares outstanding and all things being equal if traded for $25 a share, would immediately become $50 share... but your 100 shares at $25 or $2, 500 turns into 50 shares at $50 still $2500. These reversals or splits in stock float don't add value.

And certainly these buy backs also don't add any actual real value.. it's an accounting trick on the reversal and splits.
And on the buy backs, these buybacks usually account for as little as 0.1% to 1% of the floated stock outstanding.
Yet the immediate buying frenzy introduced in the short term can cause the stock price to jump significantly higher 10% to 100%... only to fall back down again erasing all that dubious momentum.

This type of activity was mostly prohibited until the 1980's. As it was known this pump and dump scam added absolutely no value to shareholders or workers or consumers alike.
It was only allowed if the business was interested in going private buying back all publicly trades shares floating, or buying back a significantly quantity 50% or so to reduce the shares outstanding rather than doing a stock reversal. And using leverage/debt to perform this task was often discouraged as this smacked at literally a pump and dump scam. Literally sadding the company up in a worse condition to pump a stock and sell into that pumped up price in a very short period, only to then have the share price fall back down, and the company be saddled with more debt liabilities, being in worse financial condition than before the pump the subsequent dump.

This is something that should be dealt with rather quickly. Among ending deposit banking and commercial banking involved with equity and options speculation As well as prohibiting elected officials to actively trade stocks when they often have exposure and close discussions with affiliates to or directly to public traded companies on news that isn't public yet, thus insider trading, as well as their conflict of interest, it is often their final decision on various contracts by the government or introducing and/or voting on a favorable law to any particular business.