Reprinted from Counterpunch
Let's say you lend your brother-in-law, Pauli, 5,000-bucks so he can get his fledgling construction business off-the-ground. Then, you find out a week later that "good-old Pauli" has shot the wad playing the horses at Long-acres and buying cocktails for his loafer-friends at Matt's Mad Dog tavern? Would you feel like you'd been ripped off?
Sure you would. But when some slick corporate fraudster pulls the same scam, no one even raises an eyebrow.
What am I talking about?
I'm talking about the way that corporate bosses are allowed to take the hard-earned money from Mom and Pop investors and divide it among their freeloading shareholder friends via stock buybacks. You see, buybacks have been driving the market higher for the better part of six years, and every year the amount of cash diverted into this swindle gets bigger and bigger. According to Research Affiliates:
"In 2013, S&P 500 companies...spent $521 billion on buybacks. In 2014 that amount rose to $634 billion and moved higher still to $696 billion when total repurchases by all publicly traded companies in the U.S. market are included." ("Are Buybacks an Oasis or a Mirage?" Research Affiliates)
And, here's more from an older article at the Wall Street Journal:
"Last year, the corporations in the Russell 3000, a broad U.S. stock index, repurchased $567.6 billion worth of their own shares -- a 21% increase over 2012, calculates Rob Leiphart, an analyst at Birinyi Associates, a research firm in Westport, Conn. That brings total buybacks since the beginning of 2005 to $4.21 trillion -- or nearly one-fifth of the total value of all U.S. stocks today." ("Will Stock Buybacks Bite Back?" Wall Street Journal)
Whatever the exact figure may be, we're talking serious money here, something in the neighborhood of a half trillion dollars per year. And it's all being used for the sole purpose of jacking stock prices so voracious CEOs and their shareholders can make a killing. Not one dime of this money is going into expanding operations, hiring more employees, Research and Development or improving productivity. The lone objective of this farce is to inflate stock prices to Hindenburg proportions in order to line the pockets of filthy-rich one percenters.
And that's just the half of it. The part I've left out is the part about how much debt these corporations are loading onto their balance sheets in order to feather their own nests. Take a look at this from Bloomberg:
"It's official, using proceeds from debt sales to send cash to stockholders has never been more popular.
Standard & Poor's 500 Index companies listed buybacks or dividends among the use of proceeds in $58 billion of bond deals in the past three months, the most on record, according to data compiled by Bloomberg and Sundial Capital Research Inc. More than $460 billion in repurchases were announced during the first five months of 2015, on pace to top last year's record." ("Debt Gone Wild" -- Debt Funded Stock Buybacks Soar," Advisor Perspectives)- Advertisement -
$58 billion here, $58 billion there. Pretty soon you're talking real money.
So let's do the math: $58 billion in three months translates into $232 billion per year, which means that a heckuva a lot of the money that's being given back to shareholders is being borrowed from -- you guessed it -- Mom and Pop, the suckers who'll be left holding the bag when the whole system goes bust again in the not-too-distant future.
And why have Mom and Pop been buying all these crappy corporate bonds that are just adding to executive compensation instead of building stronger companies for a brighter future??
Because of the damn Fed, that's why. The Fed has been holding rates underwater for seven years to keep the money flowing to Wall Street and to force smalltime investors (who have been trying to scrape by on their withering retirements) to look for a higher return on their savings than they're getting on their risk-free fixed-income investments. In other words, the Fed has put a gun to their heads and forced them back into the Wall Street sharktank.
It's all a question of incentives, right? If you keep rates low enough, long enough, "they will come"...and get fleeced again for that matter. Which is exactly the way the system is designed to work. Low rates mean more pigs to the slaughter. Period. Now check this out from the Fiscal Times: