Another Big Loophole

[Dave Roberts]

Robert Reich posted this which is certainly shows another of our loopholes favoring those at the top.

"A big reason why CEOs are about to rake in big year-end bonuses even though their sales are lousy (after all, America’s vast middle class and poor aren’t earning enough to buy much) is CEOs been using their companies’ cash, plus whatever they can borrow at rock-bottom interest rates engineered by the Fed, to buy back their own shares of stock. This maneuver raises the price of the remaining shares, thereby giving the CEOs – whose pay is tied to share prices – huge rewards. This year, the 30 companies listed on the Dow Jones industrial average authorized $211 billion in buybacks, lifting the Dow (and CEO pay) to record heights. This $211 billion could have gone instead to American workers in the form of higher wages – which would have come back to companies in the form of higher sales. McDonald’s, for example, spent $6 billion on share repurchases and dividends last year, the equivalent of $14,286 per restaurant worker employed by the company. It’s a vicious cycle as long as CEO incentives are directed toward raising share prices rather than sales, and as long as the economy is organized around the stock market rather than good jobs."

[William Thornton]

Why are companies doing this? In part due to gummit actions. The Fed, ACA and others contribute to this.

Companies have no incentive to sit on cash, they would rather invest it where $ can be made. If the bidness climate is such that reinvestment in new products, services, or territory is positive, they would do that. If not then a stock buyback is good for shareholder value, what CEOs are paid for.

[Tim Bonney]

[Dave Roberts]

This is another case of the laws being written to favor the rich. The laws are not neutral. They favor the richest Americans (and some of the poorest) at the expense of the Middle Class.

[William Thornton]

[Dave Roberts]

It appears that this only really benefits the top management, unless I'm completely misreading this. It's another example of laws stacked in favor of the 1%.

[KeithE]

[William Thornton]

All shareholders benefit from a stock buyback, since the pool of total shares is reduced and each share's ownership of tiny slices of the corp is increases a tiny amount. The CEO may benefit both directly and indirectly. If the company BOD believes that move not to be in the shareholders best interest they would certainly sack the CEO, since most board members are major shareholders.

I don't know if Reich made a strong case for CEOs acting not in the best interest of the company.

The gummit could certainly bring guns and seize the money and then benefit some favored group.

I don't suppose reisch explained how he would reorganize the economy around jobs rather than the stock market. Seizing businesses and socializing them would accomplish the latter but the track record of wealth creation and job creation argues against such accomplishing the former.

[Dave Roberts]

[KeithE]

[ET]

[William Thornton]

It is properly understood as red meat for those who wish to engage on class warfare. Oh those evil rich CEOs.

I would encourage Dave to find some of reisch's "tweak" items and put them up.

[William Thornton]

[Dave Roberts]

[William Thornton]

[ET]

[Haruo]

Yeah, what this country needs is a decent war...