How the stock market destroyed the middle class

[ErikJ]

http://www.marketwatch.com/story/how-the-stock-market-destroyed-the-middle-class-2015-04-24?mod=mw_share_twitter

Share buybacks encourage executives to loot companies, stall innovation and depress wages

Rex Nutting 4/24/15

WASHINGTON (MarketWatch) — There’s something seriously wrong with an economy that nurtures a few billionaires but can’t sustain the middle class. Many factors have been blamed for the plummeting fortunes of the American middle class: globalization, technology, deregulation, easy credit, the winner-take-all economy, and even the inevitable tide of history.

But one under-appreciated factor is a pervasive business model that encourages top managers of American corporations to loot their company for short-term gains, depriving those companies of the funds they need to build and enlarge, and invest in their workers for the long haul.

How do they loot their company? By using large stock buybacks to manage the short-term objectives that trigger higher compensation for themselves. By using those stock buybacks to manipulate the share price, which allows them to use inside information to time their own stock sales. By using buybacks to funnel most of the company’s profits back to shareholders (including themselves).

They use the stock market to loot their companies.

“The ‘buyback corporation’ is in large part responsible for a national economy characterized by income inequality, employment instability, and diminished innovative capacity,” wrote William Lazonick, an economics professor at the University of Massachusetts at Lowell in a new paper published by the Brookings Institution.

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[guillaumeb]

1. Just one example:

Walmart investors committed to long-term firm performance would benefit from reallocating resources. If Walmart redirected the $6.6 billion spent on share repurchases in 2013 toward investment in human capital, it could give its 825,000 low-wage employees a raise of $5.13 per hour, boosting productivity and sales.
the link:
http://www.demos.org/publication/higher-wage-possible-walmart-2014-update

[NoJusticeNoPeace]

3. Walmart are criminals, when we are willing to treat them as such we will be on our way

Just because it is legal to fuck over millions of people, doesnt mean it isnt a crime against humanity, and it is

for every person who works for Walmart another 20 are harmed by them.

same for Target and so on

[ErikJ]

13. And coincidentally, Walmart employees get $6 billion in govt aid

which tax payers subsidize Walmart for.

[guillaumeb]

18. thanks. Fantastic graphic.

[NoJusticeNoPeace]

2. 98% of ALL corp CEO's in america are sociopaths.

Half of them are psychopaths.

[guillaumeb]

4. can we throw in most GOP politicians at the national level?

[NoJusticeNoPeace]

6. That was assumed

talking to a filthy fuck con on a board now who is excited to see ACA destroyed as he hates poor people

[hifiguy]

7. That sounds just about right.

Business schools manufacture assholes, as noted in another thread, and sociopaths/psychopaths.

[blkmusclmachine]

5. http://klatta.wikispaces.com/file/view/POLITICAL_CARTOON4.jpg/279964504/482x199/POLITICAL_CARTOON4.j

[appalachiablue]

14. +1

[PowerToThePeople]

8. guillotines. n/t

[Doctor_J]

10. That popped into my head as well

[hifiguy]

15. They're what's for dessert

for the tenth-percenters.

[1StrongBlackMan]

9. Great article describing a phemonena that has a (well, several) relatively easy fix(es) ...

1) Require executives to hold all company stock in trust ... preventing them from trading.

2) Tax executives, trading on company stock held less than "X" {number of years} at 100%.

3) Eliminate the deductibility of stock issued as compensation.

4) Activist Investors punish companies that adhere to the "buy-back" strategy ... there are legitimate reasons for stock buy-backs, manipulating share price, in the short-term is not one of them.

5) Any combination of the above.

[ErikJ]

17. Their stock options sales are now only taxed at 20% which is big incentive

to get the stock as high as possible in the short run by down-sizing, buybacks and mergers (market monopoly). So at the least #2 would be a good option.

[former9thward]

11. Stock buybacks are not "inside information".

They are announced publicly well in advance. They are often the result of investor activists pressuring the company to get the stock price up to a proper value. The OP is 100% wrong.

For example investors have pressured Apple for years to do stock buy backs with some of their cash. They recently have begun to do that. Stock buy backs do not guarantee that the priced of a stock will go up. It is just one of a hundred or thousand factors that affect price on a daily basis.

[A HERETIC I AM]

12. Stop....just......stop.

These type threads are no place for rationality.

I'm curious how da folks feel about one of our beloved companies when IT does a stock buyback?


http://www.thestreet.com/story/13118028/1/costco-cost-stock-rises-today-after-upping-dividend-reauthorizing-4-billion-buyback-program.html

OHHHHNOOOOO!! NOT COSTCO, TOO?!?! THE SHAME!!

[lovemydog]

19. Yes, stock buybacks aren't illegal insider trading

& often arise from investor activists pressuring the company to get the stock price up to a proper value. I agree stock buybacks are one of many factors that affect price on a daily basis. Institutional investors, hedge funds, bloc trading play a big role, as does international trading.

What's your take on these questions:

Why isn't the middle class benefitting from the stronger stock market the way it has in the past?

Can or should the feds / SEC do anything to help the middle class benefit from such gains?

[former9thward]

21. I have little hope for the middle class.

However that may be defined. The middle class became great in this country because post-WW II the U.S. was the only dog left standing. Gradually other nations rebuilt or built infrastructure and improved literacy. Now they can do what we can but cheaper. This globalization has been great for the world -- literally billions have been lifted out of poverty -- and great for multi-national corporations but lousy for our middle class. We can't compete in the long run with a huge world labor force that works at a much lower standard of living. You will not hear any answers from the political parties. They have none, just rhetoric.

[KG]

16. the middle class destroyed the middle class.

[fadedrose]

20. Too-low interest on Savings Accounts

hurt the lower and middle class. The only way to make money is to buy stocks, and with low incomes, people are afraid to take the risks that millionaires take in buying stocks.

You pay high interest rates on charge purchases, but nothing when the bank holds your money. Back when the banks paid 4-5% on saving, 10% or more on Savings Certificates, and 6-7% on mortgages, people could spend a little, save a little...

Not now.

[senseandsensibility]

23. Almost no one talks about this,

but you are right.

[LuvNewcastle]

25. I guess we'll never see those days again.

It's depressing as hell to look at the world and think the best days are behind you, but that's the way I see things sometimes.

[Jefferson23]

22. Recommend. n/t

[cascadiance]

26. And who now is paying heavy 10% penalties to cash out their IRAs and 401ks?...

... NOT the rich! They don't need to like the rest of us who have had our savings and other assets blown away when the housing market crashes, credit card interests are allowed to balloon and we're all pushed out of work and have our salaries go down instead of up.

And if you study the manipulative rules on who can get away with foregoing the 10% penalty and who can't, you can see how manipulative a process this has become. Many who've just joined the club last year in having to get money in this fashion like myself have discovered this mess the last few weeks during tax time.