
Vanishing the People’s Wealth to Make the Bosses Richer - zeeshanm
https://blog.nader.org/2016/07/11/vanishing-the-peoples-wealth-to-make-the-bosses-richer/
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rm_-rf_slash
The only situation where buybacks are generally considered a good idea is when
the company is undervalued and has sufficient profitability and cash reserves
to buy back a portion of outstanding stock. This shores up the share price in
the short term, and once the company is trading at higher values it can raise
much more money on additional stock offerings since investors are already
willing to pay a premium for the scarcer shares.

Unfortunately, asking a CEO whether their company is undervalued is like
asking a barber if you need a haircut. That's how you run into situations
where companies with absurd cash reserves like Apple and Microsoft are buying
back their own stock, but for what purpose? _They already have boatloads of
cash! They don 't need to raise any more!_

There are plenty of simple options to deal with this. A law could require
stock buybacks to be matched with dividends or taxed at a punitive rate.
Alternatively, it could be mandated that buybacks require a majority of
shareholder votes, thereby aligning shareholder needs with company activities.

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AnimalMuppet
I think with Apple and Microsoft it's like this: They've got tons of cash.
They don't have any idea where to invest it to provide good returns for their
shareholders. But a stock buyback also provides a return to shareholders,
so...

The historically-more-normal way of doing this is via dividends (which
Microsoft also started doing).

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pilom
Stock buybacks have gotten popular over dividends because Shareholders ask for
it not management. For the average long term institutional investor, dividends
are taxed while increase in inherent value (as opposed to market value capital
gains) is not taxed at all. So most large shareholders have been pushing
companies to do share buybacks instead of increasing dividends for exactly
this reason.

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gmarx
I was struggling to think of how buying back stocks could fail to increase the
value of the remaining shares. It would have to be that the cash was valued
the same whether inside or outside the stock. Wouldn't paying massive
dividends then decrease the value of the stock?

Shouldn't we also be asking why unusually (I'm guessing this is unusual) so
many companies are earning so much money yet see few worthwhile investment
opportunities for the future of the company?

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rm_-rf_slash
My unsubstantiated theory is that neoliberal free-market propaganda is
discouraging public investment in ventures that private industry would not
risk on its own (like renewable energy), at a time when research is more
important than ever to handle the needs of a larger-than-ever global
population and rapidly advancing climate change.

Some of the best technologies of the last 100 years have been born out of
public investment. The need for intense number crunching during the Manhattan
Project and the Apollo Program turbocharged computer research. The
government's desire to have a self-repairing information network that could
largely survive a nuclear attack led the development of what we have as the
internet today.

It is unfortunate that the free-market-at-all-costs crowd balks at the idea of
the public spending a portion of their money on R&D because they cannot
generate a private profit, even though public investment can create new
platforms for investment, lower costs for consumers, and ultimately create a
larger and wealthier customer base to sell more things to.

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shawnee_
An interesting delve into some of the deeper nuances of the Business Judgment
Rule:
[http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=10...](http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=1058&context=wmblr)

In the article, Nader is objecting to the extraction of wealth by _management
that doesn’t know how or want to deploy it to increase the value of the
company and its stakeholders. The money flows from consumers, taxpayers
(corporate welfare) and from the sacrifices of workers whose needs and
increased productivity could be rewarded with better pay and pensions._

So the key distinction (at least in my mind) is the inclusion of stakeholders
vs. just shareholders.

Any company that wants to change the world should include a pledge of duty to
stakeholders (the "Corporate Social Responsibility" Model), as well as to
shareholders. As an investor, I'm more apt to invest in a company that
acknowledges it is a part of the society that enables it to profit.

Granted, companies that do this are less likely to be able to hide behind the
Business Judgment Rule; but then again if you're an investor that's probably
exactly what you want.

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jonah
More companies need to restructure as benefit corporations with their triple
bottom-line responsibility for financial, environmental, and social factors.

[http://www.nytimes.com/blogs/boss/2012/03/14/for-b-corps-
a-n...](http://www.nytimes.com/blogs/boss/2012/03/14/for-b-corps-a-new-
corporate-structure-and-a-triple-bottom-line/)

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gonvaled
Capitalism is eating itself. It just happened to survive the first round
against comunism, and go unchecked for some 30 years. Now inbalances are
becoming obscene, and a breaking point will be reached.

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freshhawk
I wouldn't say it "just happened" to survive against communism, that was
because Edward Bernays [1] provided the framework to produce modern propaganda
(PR) to the west while the communists were still producing fairly simple and
naive versions.

I'd say the race right now is between new methods of distraction and keeping
the collapsing system going just a bit longer with increasingly insane
economic tricks. I'm not sure a breaking point is inevitable, there might just
be a reasonably smooth slide into neo-feudalism.

[1]
[https://en.wikipedia.org/wiki/Propaganda_(book)](https://en.wikipedia.org/wiki/Propaganda_\(book\))

~~~
AnimalMuppet
You don't think that _being a superior economic system_ had anything to do
with it? You don't think that _being a more humane social /political system_
had anything to do with it? You think it was just superior propaganda?
Seriously?

Gorbachev noted that the USSR had a military that could have gone toe-to-toe
with the US, but they couldn't provide toothpaste for their people. Everyone
else noted the lines to buy basic necessities. Communism simply didn't work
very well, economically. That wasn't propaganda; that was simply obvious
comparison of the experience of living on different sides of the Iron Curtain.

Then there was the whole "freedom of speech" thing in the west and the whole
"gulag" thing in the east. That was real. The difference was real. (Yes, I
know the US seems to be rapidly eroding actual freedom, but it was a real
thing at the time, not merely propaganda.)

~~~
dragonwriter
> You don't think that being a superior economic system had anything to do
> with it?

Not much -- the initial economic conditions at the beginning of the Cold War
pretty much dictated how, even if the systems had been _equal_ , a spending
war that _didn 't_ erupt into a full-scale armed conflict _had_ to end, unless
one side capitulated in fear of a full-scale armed conflict.

That's not to say that the economic system of the developed West _wasn 't_ a
better one than that of the Soviet Union and its satellites, or that their
political systems weren't better, from a moral standpoint. Just that that's
not why they won; the victory was overdetermined by other factors.

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kristianp
No mention of Apple's mounds of cash that its holding without using it
profitably.

