The Destructive Power of Deregulation – Exhibit B - Share Buybacks

When you give a select group of super wealthy corporations and CEO’s a bunch of money they don’t need, as the current GOP tax plan proposes to do, a lot of them use that money to engage in a process to manipulate the market known as share/stock buy backs. A company with a lot of cash and no ideas to develop business or drive growth will use that cash to buy up bundles of their own stock for the sole purpose of driving up the value of that stock in order to increase the wealth of their Wall Street shareholders.

Up until 1982, share buybacks were ILLEGAL. They were, and still are, a means to manipulate share prices and boost earnings per share (EPS). Share prices and EPS are used regularly as the metric at which CEO’s compensation structures are driven. When a CEO has a choice between investing in a new business opportunity that might grow the company ten years down the road or buying back company stock to boost EPS, they elect to buy back shares and reap the enormous compensation packages. This market manipulation is great for CEO’s and Wall Street shareholders, but in the long run it is bad for their company, it is bad for their employees and it is bad for the overall economy. It is a very shallow and shortsighted way to increase the wealth of select few elite members of society while offering no benefits to the rest of us.

Since 2010, companies have bought back more than $2 trillion of their own stock. That is $2 trillion that could have gone to R&D, new factories, new employees, or new green technologies. Instead it was used to manipulate stock prices. We are sacrificing our future economy to enrich a few individuals in the short term.

This market manipulation serves no economic utility. It is time to make stock buybacks illegal again or at a minimum heavily regulated.