The Stock-Buyback Swindle
American corporations are spending trillions of dollars to repurchase their own stock, Jerry Useem reported in August. The practice is enriching CEOs—at the expense of everyone else.
I was an institutional investor in the 1980s and ’90s. Share repurchases were a fraud then and they are a fraud now. When companies take cash away from good investment opportunities, it is a sin. When they use debt to finance share repurchases, it is even worse.
American companies would have a bright future if they put money into innovation and research and development, invested in their workforce instead of pushing real wages down, and took responsibility for how their business affects the community. It’s unfortunate that many companies would not spend a dime to ameliorate the negative impacts they have on their community—polluting the environment, failing to create jobs while demanding tax breaks, and putting strains on infrastructure.
Future economic historians will look back on this period as one when greed combined with really bad financial engineering led to a decline in America’s economic strength.
The way I was taught long ago is that when there are no better uses for a company’s excess capital and the price of the company’s stock is “undervalued,” it’s okay to repurchase company shares, especially by a company in the mature stage of its product life cycle. Given the rise in stock prices, it’s disturbing to see so much stock-buyback activity.