US Companies Buy Back $273 Bn Shares This Year

[thriftyandboringinohio]

This article at Washington Post

http://www.washingtonpost.com/wp-dyn...l?hpid=topnews

Arithmetic shows that if the money spent to buy back their shares this year ($273 billion) had instead been spent paying wages to people at $50,000 / year, we would have 5.4 million people with a good job, something like 1/3 of all the unemployed Americans, at darn near twice the median wage (i.e., $26,514 / yr in 2008).

Brings a sense of scale and perspective -amounts that are unremarkable in big finance (a few hundred billion) could employ everyone now out of work for all of next year at a living wage.

Of course, it's not like the money spent buying back shares was wasted; it bought something useful. I can't come up with what it was -not roads, not buildings, not new inventions...but it must have been something.
Right?

[Fiat Currency]

Re: US Companies Buy Back $273 Bn Shares This Year

Of course, it's not like the money spent buying back shares was wasted; it bought something useful. I can't come up with what it was -not roads, not buildings, not new inventions...but it must have been something.
Right?

Big Executive Bonuses ... is the answer you're looking. An unintended consequence of ZIRP. Borrow lots of cheap money, buy back your stock, and wait until January to get a fat bonus & option payout.

[flintlock]

Re: US Companies Buy Back $273 Bn Shares This Year

$273 billion huh? What do those wars cost again?

[GRG55]

Re: US Companies Buy Back $273 Bn Shares This Year

This article at Washington Post

http://www.washingtonpost.com/wp-dyn...l?hpid=topnews

Arithmetic shows that if the money spent to buy back their shares this year ($273 billion) had instead been spent paying wages to people at $50,000 / year, we would have 5.4 million people with a good job, something like 1/3 of all the unemployed Americans, at darn near twice the median wage (i.e., $26,514 / yr in 2008).

Brings a sense of scale and perspective -amounts that are unremarkable in big finance (a few hundred billion) could employ everyone now out of work for all of next year at a living wage.

Of course, it's not like the money spent buying back shares was wasted; it bought something useful. I can't come up with what it was -not roads, not buildings, not new inventions...but it must have been something.
Right?

In a "normal" world companies issue stock to raise capital to expand their businesses...which presumably means creating more employment too. So when the opposite is happening...companies are buying back stock and shrinking their capital base...it implies to me that they are also shrinking their businesses - or at the very least not expanding them.

The problem I see with your thesis is that the money would have been spent "paying wages" if there was any market for the expanded output. Having watched this for many years my firm conclusion is that almost every company that chronically engages in buying back stock is no longer in an industry or economic sector that is growing...and the shrinking of the stock float is intended to foster the illusion, through increasing earnings per share, that the company is still "growing".

[thriftyandboringinohio]

Re: US Companies Buy Back $273 Bn Shares This Year

...The problem I see with your thesis is that the money would have been spent "paying wages" if there was any market for the expanded output...

No market because too few buyers. Buyers gone because no paychecks, many people unemployed.

It's a checken-and-egg situation; a sort of mexican standoff.

Business won't hire people until the 14 million unemployed dramatically increase their spending.

[GRG55]

Re: US Companies Buy Back $273 Bn Shares This Year

No market because too few buyers. Buyers gone because no paychecks, many people unemployed.

It's a checken-and-egg situation; a sort of mexican standoff.

Business won't hire people until the 14 million unemployed dramatically increase their spending.

I agree with you partially. I think you are describing a typical cyclical situation. That's what the White House and the Fed think too. That's why they think the fiscal and monetary stimulus will eventually work if they just keep at it.

Every recession is the result of a mismatch between output capability and demand in selected economic sectors. This time it's not merely cyclical though. Take auto manufacturing or new home construction. There's way too much overhanging capacity to produce [not to mention excess accumulated inventory, which a short term cyclical problem] in these sectors compared to any reasonable forecast of future demand, even in a "full employment" economy. Some of those resources [capital and people] just have to be reallocated to other sectors of the economy where there is, or will be, demand in excess of current production capability. That's going to take time...a lot of time given current policy prescriptions.

[jtabeb]

Re: US Companies Buy Back $273 Bn Shares This Year

That's going to take time...a lot of time given current policy prescriptions.

Which is why vastly expanded unemployment benefits are a critical part of making the labor reallocation successful. Take your pick, support people now and still have a chance for them to be productive later or risk having a large group of formerly employable people become permanently unemployable. Given the price of the "Wall Street Bailout", this seems a pittance by comparison in terms of cost and a much more useful allocation of "stimulus".