2017-10-09 — evonomics.com
The monster of economic waste--over $7 trillion of dictated stock buybacks since 2003 by the self-enriching CEOs of large corporations--started with a little noticed change in 1982 by the Securities and Exchange Commission (SEC) under President Ronald Reagan. That was when SEC Chairman John Shad, a former Wall Street CEO, redefined unlawful `stock manipulation' to exclude stock buybacks... What could competent management have done with this treasure trove of shareholder money which came originally from consumer purchases? They could have invested more in research and development, in productive plant and equipment, in raising worker pay (and thereby consumer demand), in shoring up shaky pension fund reserves, or increasing dividends to shareholders.
To make matters worse, companies with excessive stock buybacks experience a declining market value. A study by Professor Robert Ayres and Executive Fellow Michael Olenick at INSEAD (September 2017) provided data about IBM, which since 2005 has spent $125 billion on buybacks while laying off large numbers of workers and investing only $69.9 billion in R&D. IBM is widely viewed as a declining company that has lost out to more nimble competitors in Silicon Valley.
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