Corporations Pleasuring Themselves
by Rick Boettger…
What are America’s corporations doing with their record profits, and why are their stock prices rising? The same answer to both: they are using their money to buy themselves.
That is, they use their record profits and cash reserves to buy back shares of their own stock on the open market. Instead of giving their employees raises, building new factories, researching new products, or even paying dividends to their shareholders, they are taking back the shares of stock they issued in the past.
This is a huge loss for the economy. Just last year corporations spent $700 billion, or 4% of GDP, to buy back their own shares—since 2004, more than $6.9 trillion, over half of their total profits. That is money that was NOT invested in people, buildings, research, making their products safer for the environment, customer service, charity, day care, parental leave, community service, etc. Instead, the money we gave them for their products and services they kept for themselves.
They, and especially the corporations’ top executives, are the only ones who benefit, and they do so tremendously. Taking their stock off the market means there are fewer shares to buy, and normal supply-and-demand logic pressures the stock price higher. With fewer shares outstanding, the earnings PER SHARE of course goes up. How are top executives rewarded? Pay packages are tied to increased earnings per share and higher stock prices.
Also, top executives own thousands of shares of their own stock, especially because of the options built into their yearly compensation packages. In the past, they printed so many new shares of their own stock to pay themselves that the stock market stagnated for a decade due to new supply outpacing demand.
But now corporations are buying back even more than they are paying out. It works like this: a corporation’s executives award themselves, say, 100,000 shares of stock worth at issue $50/share. The executives then decide to buy back on the open market 200,000 shares. The price goes up to $55/share. Hooray for the executives! A double win! And even bigger bonuses next year because they are making the stock price rise!
This used to be called stock prices manipulation and was illegal. But that law was one of the hundreds voided in the post-Reagan age of deregulation. Cay Clubs got in trouble locally for many reasons, one of which was to use its income to buy their own promised condominiums from themselves, at high prices to make it seem they were soaring in value. You go to jail for this in real estate, but get rich doing the same thing if you are a corporate executive.
A mantra of the drive to lower corporate and high-end tax rates is that the “job providers” will take their profits and hire more employees for better jobs, expand their businesses, develop new and better projects, and spend generously in their communities. And they don’t need regulations to encourage them to do so.
The facts put a lie to what has become a gold-plated version of Reagan’s “trickle down” fantasy. If corporations had indeed spent their $6.9 trillion on what they promised us when we lowered their taxes and killed the regulations they disliked, what a wonderful world this would be. Unemployment would probably be half what it is, and middle class salaries would be rising. In fact, through the wonderful feedback loop of “high velocity” money being spent, the corporations could have prospered the old-fashioned, Henry-Ford way, by having more customers able to buy their new and improved products.
But no. The money stays owned by the one percent, for the one percent, benefiting no one but themselves. And these are the rules the American people are voting for, so way to go, One Percenters, you got ’em hornswaggled. To the victors have gone the spoils.
Note: the source for the above numbers is unpublished 2014 data compiled by Mustafa Erdem Sakinç of The University of Bordeaux and Academic-Industry Research Network. I emailed Mustafa to see the raw numbers, but he is awaiting publication to share them. This is understandable, as they represent quite a career-making finding; so at this point I cannot verify his accuracy, though I am willing enough to bet that it is generally true to write this column relying on him.
as usual, Shaquille Boettgers’ display of financial acumen glows as brightly as a Dark Hole; so insightful and illuminating as to literally pull the light in after it, leaving even the most assiduous observer in complete darkness.
To begin, as a capitalist, Shaquille should understand the underlying paradigm of capitalism is self interest, and as such, no company would voluntarily administer altruism on either its own employees or the community in which it exists, sans self-benefit. So all the good things that Shaquille lists as lost due to these buy backs implies that they are an opportunity cost of said stock buy backs and that is simply not the case. Google does not provide free bus service to its employees out of the goodness of their hearts; they do it because it benefits their business and deem it a necessary expense.
Again, and predictably, Shaquille just looks at the book cover without opening it up and reading the pages. Yes, executive greed certainly plays a part, as do quarterly reviews, etc., etc. But the underlying reason stock buy backs occur is that it is a fundamental corruption of the system; an orchestrated and coordinated money grab by those that own and control it.
Yes Shaquille, it’s another part of my “megalomaniacal evil world order phantasm.”
Ever wonder why corporations are recording record profits while the employment economy is in the tank? How can they be making so much when all they are doing is downsizing their work force and infrastructure? Who is buying all their stuff?
No one and that’s a problem. Because now, more money can be gained by the nominal increase in stock price, than in engaging in their primary business. In the past several years we have all been exposed to the Central Bank of the U.S. and their various stimulus packages. We also see that this vast amount of money has not been injected into the real economy, but to the derivative markets to the tune of trillions of dollars. That created a virtual sea of ready cash and credit waiting to be exploited, and it was. With no viable outlets for investment, corporations leveraged themselves to buy into the stock market, inflate its value and buy back their own.
This is a total perversion of “capitalism” and far beyond the simple executive greed, or even the 1% greed that Shaquille defines as the sole motive. This was a systemic shifting of wealth by those that own the international monetary system, the .0000001%. It also defined a paradigm shift from pursuing business fundamentals (corrupt in their own right) to purely financial ones (corruption personified). And make no mistake; this was an intentional event.
There will be a stock market “correction” make no mistake about it; but that’s planned as well as these guys make money on the way down as well as on the way up. Anyone who believes that a free market exists, or that world events are “organic” and “just happen” is simply not paying attention.
And no Shaquille, voting won’t change a thing.
Keysbum, Forgive me my illiteracy, but you seem to be agreeing with Mr. Boettger. ciao, PCM
Mr. Grapel, please re-read my comment. Shaquille offered you the salad dressing; i gave you the salad. the superficiality of Shaquille’s article cannot be overstated. you find his economic edification simple to understand because he offers you simplistic dogma. the underlying cause and effect that allows schemes like stock buybacks to exist and flourish is the story. the fact is Shaquille does not have the erudition or sophistication to speak on financial affairs. he cannot get past the avaricious CEO greedily counting his money when that is the least salient part of the whole corrupt scheme. this is systemic fraud far beyond Shaquille’s ability to understand.
Mr. Keysbum,
Just because Rick is providing an abstract of the situation does not mean he lacks deeper comprehension. In fact, he could not provide the overview without first grasping the fuller picture. Just as your first comment on this article is only a summary of those concepts and not an in-depth picture of your full knowledge of the material.
Clearly, his references to the circular nature of the stock purchases and the contradiction it places on the concepts behind supply-side economics are accurate and demonstrate a deeper understanding by the author. The fact this is only one piece of the larger puzzle, as you point out, does not invalidate its factual nature.
Nor is there reason to cast aspersions, just because you disagree.
Have a nice day.
let’s see… shaquille first states that one of the opportunity costs of disengaging from stock buybacks is boatloads of money that would then be allocated to a company’s employees in the form of higher remuneration. you know, voluntary, benevolent trickle down economics at work. but then, shaquille comes back with a declaration that supply-side, trickle down economics is anathema to these same companies, and they’re just a bunch of lying, reneging scum buckets.
and there you have an example of the apex of the intellectual grasp, the “deeper understanding” shaquille has on the subject of economics and markets. analysis like that is not often on display Mr. Adler, and I can see why you are so mesmerized by it.
or perhaps, just perhaps Mr. Adler, shaquille displays a level of ignorance so profound as to be completely devoid of any substantive substance, any semblance to the reality that so clearly is not intellectually available to him.
shaquille discusses financial matters in the milieu of knowledge that is simply erroneous. attempting to apply orthodox economic theory and contemporary financial modeling to any current monetary theme is a fools play. the principle’s embedded in those disciplines simply do not apply, and any attempt to juxtapose them exposes ones naïveté and ignorance.
the fact that shaquille does not understand that free markets are a fiction, and certainly all national and international financial markets are fixed, regulated, controlled, certain, and OWNED, belies his utter incompetence to discuss any matter related to them.
but hey, he does use little words, so there’s that….
Mr. Keysbum,
Rick and you are making the same point, that the promised economic system is not delivering on its promises. The difference is that you are simply casting aspersions and offering opinions while he is listing facts and couching them within the context of the system that was defined, publicly, for us in order to display the contradictions. The fact that you are not seeing this is not an indictment of his intellectual acumen…
Mr. Adler…. you didn’t understand a word i said. shaquille and i are most certainly not prosecuting the same point. we are not even discussing the same economic system, i thought i made that clear. shaquille’s edification is limited to what he was exposed to in college; and that is surely a platform from which to ingest misinformation. he says employers will use their profits, simply because they have them, to hire more workers, and expand their businesses. do they? has that been your experience? or is shaquille just regurgitating what his text books said? where is a real world example of that? which is the promised economic system that you say shaquille uses to make his point? Keynesian? Classical? Chicago school? Austrian School? Market Monetarism? Marxian?
or how about none of them. there is no economic theory, or financial model that explains the privatization of money creation. that alone defines a paradigm free from the constraints of mathematical theorems or proofs. it is instead predicated on the calculated predetermined stratagems of the few people that own the central and retail banks of the world. a group you could comfortably seat at a large conference table. that is not opinion, that is fact.
your writing identifies you as a neophyte, in all probability a confused one.
as for casting aspersions… well, shaquille and other long time readers know why i cast them his way. he deserves all i can dish out and more.
Mr. Keysbum,
You missed the point entirely. Rick is saying that instead of utilizing funds to hire and/or expand, as trickle down economics promised, they are keeping their money.. buying their own company shares to bump up the price of their company stocks. That is the entire point of the article. He is using the details of the modern economy to display the fallacy of supply side.
see paragraphs 3 and 7
You are insulting and arguing with someone who is making the same point as you, only with facts and numbers.
The saying, “the system ain’t broken, it’s fixed”, comes to mind. These same criminals make the laws now that legalize their crimes. “Round And Round It Goes Where It Stops Nobody Knows…” Thanks, Rick!
Rick, I’ve read some Stiglitz, some Friedman, a lot of Noemi Klein, some others, but nobody makes economics more understandable than you. Thanks man, PCM
You don’t get rich by spending money, which is the basic reason trickle down economics is a lie, or “voodoo economics” as Bush Sr. called it when he was debating Reagan during the primaries.
Keysbum, Sorry, I read it again and I feel about the same. If self interest is the paradigm of capitalism (I agree), that is why there must be something there to referee it, to make it work for the most people. It is no secret that I am a friend of Mr. Boettger, and we have our differences, but we coincide in much. One of those things is to have mechanisms in place that can discourage the kind of behavior Rick rightfully abhors in this article. As for his credentials … they speak for themselves.
In 1993 I watched CSpan as US Representatives Al “Pothole” DAmato and “My God I’m Old ” Moynihan hugged each other on the House floor. They had just witnessed the passing of NAFTA, the trade treaty that was going to make all of citizens rich forever. Shortly after this event in time We all started witnessing the lowering of interest rates “to help the common man” . The ” common man and woman” started taking there worldly goods out of the banks and put them in the stock market . The stock market started to suffer “corrections” at an offensive rate and the common man and woman lost a lot of there hard earned money which by the way was not insured by any government program. The rape of the “common and man and woman” has persisted ever since. There is only one correction that can cure the possession of the rest of us by the 1%s . Unfortunately it is against the law to preach this cure. Isn’t that coincidental?
mr adler… really now, you must READ the comments. it is obvious from your response to a comment on your article that you have a limited exposure to financial and economic matters. the only part of shaquille’s article that i agree with is that some executives are making out. but that is just the tip of the story, the least important part as i have tried in vain to point out. you are a journalist of sorts are you not? does not the what why when where interest you at all? i am trying to explain to you, unlike shaquille, that economic THEORY plays no role in this fraud. when you have a monetary system based on private ownership, market concepts become irrelevant and do not apply. that is the story. it is one of systemic fraud and corruption masqueraded as orthodox business principle. if all you care about, or can understand, is that some minor players are getting rich, then so be it. what i am saying is that this is a systemic fraud, a corruption and manipulation of the entire “market” to once again transfer wealth on a scale that dwarfs the pittance these executives are siphoning off that shaquille is so worried about. it is not the 1% that is making out, it is the .000001% that is making out. it is not the executives and CEO who are getting rich, it’s their owners. it is not a defect in the system that allows this to occur, it is the system, it is the plan. so no, shaquille and i are not discussing the same thing.
This is becoming a circular discussion.
you keep pointing out that the problem is greater than this one issue, without offering any supporting facts, and then insulting people for no reason.
I keep trying to explain that Rick’s article is about one piece of the puzzle your are describing, and that the dichotomy between the actual facts and the claimed economic theory is what gives proof to the fraud you are pointing towards.
But clearly this discussion is not going anywhere because you are just trolling. So, have a nice day.
what is it about “a monetary system based on private ownership” that you do not understand?
what, do you guys all meet at Harpoon Harry’s for breakfast to decide who the attack dog of the day is?
you are clearly out of your league here. stick to covering parades and festivals.
even for a small town like Key West, you guys surely can’t be the best it has to offer. i’ve received far more insight and intelligent discussion from the 15 year old kid who cleans my boat.
Keysbum, I reiterate, I do not mind your “aspersions” because I consider it a weakness not a strength. There is something insecure involved in your attitude. If you believe you are so superior to the other people commenting here, then why bother? Personally, I use that theory when talking to my cat, who I do not try to engage intellectually. Such lower life forms like us should not interest you. As for it being the “system itself”, I couldn’t agree with you more. But certain changes in the “game” have made it worse, which means it can be made better, regulation, etc. It has been better in the past. ciao, PCM
the only thing that makes me insecure is my inability to get through to any of you. i have dumbed down my commentary so much in an effort to make it palatable to you guys that i fear my writing skills have degenerated. it isn’t that i am superior to you people, it’s really that none of you are very bright, sorry to say. case in point; you mention the “system” as though we are speaking of the same thing. i have been trying to tell you that the system you refer to is not the system i am referring to, and yet none of have picked up on it though it has been a constant theme in my comments. so you cannot agree with me because we are speaking of two separate things. so while i would never dream of calling anyone a “lower life form”, i don’t have to; you just did.
I must thank bum for martialing such distinguished gentlemen as Mssrs. Adler, Symington, and Grapel to rally to my defense. I am honored.
When I had my 25-state talk radio show, there was a temptation to hire people like bum to phone in, saying such crap the decent folk would hit the phones to speak some sense. An unethical ratings boost. I never did it. But I appreciated the volunteers.
hey, professional author, investigative reporter, and popular radio host; the word you want is MARSHAL, not martial.
ya know, you guys should really be thanking me; if it wasn’t for my commentary driving most of the comments, no one would show any interest in the prosaic tripe that you guys churn out. just as i predicted some time ago, your arrogance and dismissive attitudes toward your readers would leave only you guys commenting on each others articles and offering up pats on the back.
looks like i was right again.
you believe in the market shaquille, and the market says your work is worth one penny. that about says it all, don’t you think?
so wallow in your ignorance gentlemen, and give each other those pats on the back. continue wrapping yourselves in the flag of progressiveness and enlightenment, while you cite sources such as the NY Times, Wall St. Journal and Forbes, while utterly failing to fathom the hypocrisy and irony in doing so.
i will continue to comment on stupidity and misinformation when i see it see it. so i guess i’ll see you in the next issue!