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OpEdNews Op Eds    H4'ed 8/13/22

The "Share Buyback" Rape of American Business

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Reprinted from hartmannreport.com

How CEOs pulled off their coup, ending the Golden Age of growth for the middle class while beginning the current era of the CEO as modern-day superyacht-owning Emperor"

Want to get rich without doing much work? Insanely, fabulously rich? Private yacht, country estate, private jet rich? So do America's CEOs.

They began hustling for an old-time scam to accomplish this when Ronald Reagan was elected president in 1980. Soon thereafter, they got their way. This is the story.

Corporations buying back their own shares was a crime for which corporate executives could go to prison until 1982. It was outlawed after wild manipulation of the stock market led to the Great Crash of 1929 and the subsequent Republican Great Depression. Joe Kennedy (JFK's father), in fact, was the guy who made it a crime.

President Franklin D. Roosevelt created the Securities and Exchange Commission in the wake of that Great Crash, and put Kennedy in charge of it. As FDR told Gloria Swanson at the time, "It takes a crook to catch a crook."

Kennedy and his Wall Street buddies at the SEC knew the tricks companies would use to manipulate the price of their stock, and was intimately familiar with the old trick of shrinking the number of shares a company had outstanding just to jack up share prices.

Here, in super-simplified form, is the backstory of how CEOs pulled off their coup, ending the Golden Age of growth for American corporations and the middle class while beginning the current era of the CEO as modern-day Emperor.

Say you work for a company that is worth $1 million and has 100,000 shares of stock out there circulating in the marketplace. Each share of stock is worth roughly $10 ($1 million company value à · 100,000 shares = $10 per share).

Historically, when a company wants to increase the value of their stock, there are really only two paths, one legal and appropriate, the other once considered an outright stock manipulation scam until Reagan changed the rules.

The first and legal way to increase the stock price is to grow the company, to "increase business activity." Develop new products, build new factories, open new sales territories, hire new people, open new locations in other parts of the state or parts of the country.

As the company grows, so does its value. If you could double the size of the company this way so it's now worth $2 million, its stock value will have doubled.

Assuming there are still only 100,000 shares of stock issued, each share is now worth $20 ($2 million company value à · 100,000 shares = $20 per share) instead of the original $10.

This is how and why American business grew so quickly and in such a healthy fashion from the creation of the SEC in 1934 until the Reagan Revolution of the 1980s. We led the world in business growth, creating real value that increased the wealth not only of shareholders but of the entire country as new products, new employment, and new industrial efficiencies were continuously brought to life by American businesses.

But what if the CEO doesn't want to go through all that hard work of building the business, but still wants to jack up the price of the shares? What if he's really a bit of a grifter and doesn't like the hard work of running the company, but just wants to manipulate its share price to enrich himself and his drinking buddies in the executive suite?

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Thom Hartmann is a Project Censored Award-winning New York Times best-selling author, and host of a nationally syndicated daily progressive talk program on the Air America Radio Network, live noon-3 PM ET. www.thomhartmann.com His most recent books are "The Last Hours of Ancient Sunlight," "Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights," "We The People," "What Would Jefferson Do?," "Screwed: The Undeclared War Against the Middle (more...)
 

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