Comments on: A conspiracy against the public

A conspiracy against the public

The Whelk — Thu, 16 Aug 2018 09:10:14 -0800

"Despite their many shapes and forms, these different anticompetitive plots have one thing in common: a commitment to strengthen the firm's hold over market, consumers, and workers. Consumers pay for this concentration of power at the checkout line. This is because firms tend to decrease production numbers after merging. Having few to no competitors gives them even less reason to lower their prices. Market power also stymies innovation and quality, as competitors are thwarted from supplying better, affordable products. Sometimes, the outcome is mere inconvenience. In others, it's the difference between life and death. " THE RULES OF MONOPOLY by Vanessa A. Bee - mergers, stock buybacks, market control, price fixing and other strategies of anti-competitive behavior. (Current Affairs)

By: Space Coyote

Space Coyote — Thu, 16 Aug 2018 09:24:05 -0800

I've been really impressed with all of the Current Affairs regulars from their podcast which Vanessa is one. A lot of them see to have legal backgrounds so they do well at challenging each other on various points.

By: pwnguin

pwnguin — Thu, 16 Aug 2018 10:38:15 -0800

stock buybacks Buybacks are anti-competitive?

By: JackFlash

JackFlash — Thu, 16 Aug 2018 12:21:32 -0800

Buybacks are anti-competitive? Well, they are a financial engineering gimmick that allows companies to avoid distributing dividends to shareholders to deploy for investment in other companies. They are a mechanism for stock price manipulation and tax avoidance for high income investors. Buybacks should be banned as they were for over half a century.

By: bookman117

bookman117 — Thu, 16 Aug 2018 12:45:35 -0800

Buybacks are a form of corporate masturbation.

By: Poldo

Poldo — Thu, 16 Aug 2018 13:48:27 -0800

There was a discussion about the problem with share buybacks on Hidden Forces talking about volatility. It might be best to listen from the beginning but the buyback part starts around 18 minute mark.

By: pwnguin

pwnguin — Thu, 16 Aug 2018 13:50:53 -0800

Well, they are a financial engineering gimmick that allows companies to avoid distributing dividends to shareholders to deploy for investment in other companies. I get why people might not like them -- but to specifically call them anti-competitive is odd. It's just a tax dodge. Money is still flowing out of corporate coffers into shareholders hands, it's just a different set of investors.

By: Absolutely No You-Know-What

Absolutely No You-Know-What — Thu, 16 Aug 2018 15:06:46 -0800

Stock buybacks enrich the very wealthiest who have the most stock. They're also a major tax dodge, which again increases inequality. If a company is sitting on a cash pile in a tax haven, rather than inshore it (and pay tax on it) they can use it to boost their share price. Or take on cheap debt and spend it on a buyback. Either way, it bumps the share price for those who can afford to hang on to them (and sell later). Execs love it because increasing the share price helps them meet bonus targets, and they usually have fat share portfolios too, so they benefit disproportionately. Stock buybacks show the company has literally nothing else they'd rather do with the money, such as increasing production or paying better wages. So at first blush, they're a symptom of anti-competitive company execs cashing in, rather than an anti-competitive move in its own right. But a big chunk of anti-competitive behaviour is manipulating the markets. A boosted share price makes the company more attractive for new investors. Not paying taxes means they are at an advantage over smaller national companies who do have to play by the rules. A stronger share price makes takeovers of smaller competitor companies easier - which then makes things like raising prices easier, and you can see how we're now deeply in anti-competitive behaviour. Then, for example, you can just load that new subsidiary you just bought with a stock swap, load it up with debt, extract the money (perhaps by transferring your original stock buyback debt to the now doomed subsidiary, or 'intellectual property' leases) and other residual value (such as underfunding the pension scheme, harsher new contracts for workers and suppliers, selling land etc etc), and let the husk of a once steady company collapse under the unsustainable debt load while insurers, suppliers, workers and government pay the price and you can walk away. And now they have one less competitor, a boosted stock price (since they're now in a stronger position) and a nice tax-free cash pile to do it all over again. Market manipulation is inherently anti-competitive because only the strongest can pull it off. The bigger the monopoly or monopsony, the easier it is to grow yet bigger via anti-competitive means, and profit from it as a business and personally for the c-suite. Just spending the cash on dividends doesn't manipulate the stock price anywhere near as much, nor does it help dodge taxes so easily.

By: daq

daq — Thu, 16 Aug 2018 17:21:06 -0800

Absolutely No You-Know-What has it. I think the worst part of it is the perverse incentives that are created by this type of transaction as well. The reduced scope of spending by corporations is causing not only wealth inequality to sky rocket, but the lack of innovation and narrowing of scope for potentially good market moves is harrowing. The worst part is that it is so short sighted. This is going to cause a huge rift internally for a lot of companies, since most of these machinations are coming from sub-C-Suite departments, looking at ways to boost thier numbers on a spreadsheet, versus actual benefits to the organization, let alone the standing of the market. Expect tragedy from this farce.

By: The Whelk

The Whelk — Thu, 16 Aug 2018 22:01:39 -0800

The Shareholder Revolution Devours Its Children "During the 1960s, shareholders took about 1.7 percent of GDP in the cash paid in dividends and in the net number of stocks that were bought; now it's around 4.7 percent of GDP. This is a shift of about 3 percent of GDP, or $567 billion a year. This is a staggering number, and it can easily overwhelm our sense of proportion. Three percent of GDP in a single year is enough to give every working adult a nearly $3,500 bonus. Three years of this increase could wipe out all student debt. "

By: pwnguin

pwnguin — Thu, 16 Aug 2018 22:26:38 -0800

If a company is sitting on a cash pile in a tax haven, rather than inshore it (and pay tax on it) they can use it to boost their share price. I don't think that's true? Offshore companies are separate entities, and I don't think you can retire shares until they're owned with the parent company, right? Though, obviously they're effectively retired at that point. Stock buybacks show the company has literally nothing else they'd rather do with the money, such as increasing production or paying better wages. Dividends signal exactly the same thing, so your consistent position should be the Berkshire Hathaway approach of 'no dividends ever'. But a big chunk of anti-competitive behaviour is manipulating the markets. A boosted share price makes the company more attractive for new investors. I don't see why changing the number of shares outstanding is de facto manipulative. It doesn't strike me as any more manipulative to retire shares than it does to issue a certain number of shares in the first place, or issuing shares to employees on an annual basis. Moreover, buybacks don't increase a company's market cap, they lower it. A company the day after a buyback operation is the same company it was before, just more cash poor, and therefore less valuable. Just like a dividend. Then, for example, you can just load that new subsidiary you just bought with a stock swap Nor do I see why the price of a share matters fuckall in a stock swap sale. If you want to sell your unicorn startup for 1 billion dollars, does your board care if you get a thousand shares valued at a million dollars each, or a million shares valued at a thousand each? I hope not. And the buyer surrenders the same percentage of the company's market cap either way, no matter how many ways the company is divided. they usually have fat share portfolios too, so they benefit disproportionately. Just like they would if a dividend were issued. tl;dr: Just campaign on eliminating the capital gains tax treatment. It matters way more than how money leaves corporate coffers to shareholders.

By: Absolutely No You-Know-What

Absolutely No You-Know-What — Fri, 17 Aug 2018 00:10:23 -0800

Moreover, buybacks don't increase a company's market cap, they lower it. A company the day after a buyback operation is the same company it was before, just more cash poor, and therefore less valuable. Just like a dividend.

You're assuming companies don't do both. Dividend payments keep shareholders happy. Stock buybacks are more manipulative. Both reduce the company value, and thus should reduce the market cap. But it's not that simple. Converting cash (or cheap debt leveraged against it) into fewer shares increases the earning-per-share, a key marker for investors. More demand for shares leads to a higher valuation, and thus P/E and ROE. It's often a marker that a company thinks its shares are currently undervalued (i.e. they can reissue later at a higher price) which again increases demand. Buybacks indicate the company has no need to invest further in productivity improvements or research, which indicates competition is weak, which is also attractive to investors. So stock prices go up, not down, when big companies do stock buybacks. Lowering dividend payments hits EPS and annoys existing shareholders, so does tend to lower share price. Reducing buybacks doesn't have the same effect when you need to hang onto more cash.

And the buyer surrenders the same percentage of the company's market cap either way, no matter how many ways the company is divided.

Same % of market cap at the time, but less shares in total. If you're trying to control share price by quantity of shares in the market, then that matters. Diluting existing ownership (by issuing new shares) matters. Thing is, we're arguing one small point and I'm no corporate accountant. Read the article, it covers it in far more depth as part of the overall manipulation of the market, workers and customers.

By: mark k

mark k — Fri, 17 Aug 2018 00:11:24 -0800

100% what pwnguin said. There's something about stock buybacks that's like a tar baby for leftists. As evidenced in part by the fact that it's dominating a thread based on OP article that pointed out real problems, none of which were stock buybacks. In addition to the monopoly abuses mentioned (and because of that) capital grabbing more money is a real problem whether it's dividend, buy backs or growth, and if you focus on the specific fad that investors like today you spend your energy on the wrong place. As a start we need to equalize taxes for earned and unearned income (and I don't know why the left ever let the phrase "unearned income" fall out of favor.) A boosted share price makes the company more attractive for new investors. Not paying taxes means they are at an advantage over smaller national companies who do have to play by the rules. A stronger share price makes takeovers of smaller competitor companies easier - which then makes things like raising prices easier, and you can see how we're now deeply in anti-competitive behaviour. With all respect just about none of this is true. For example, expensive shares are *unattractive* for investors, all else being equal (which it isn't). Companies (large or small) who simply want to "manipulate" share price can do a reverse split--without spending anything. They just declare everyone has half the shares now and the shares go up 2x. But it doesn't make it easier to buy other companies (I assume you are thinking mean by issuing shares) because with the smaller base the shares they issue now dilute them further. I think there's a Trading Places level of understanding of stock buy backs which steers people wrong. Even the "bid up the price" idea is basically wrong except in the very short term. The real reason it's supposed to increase price is because earnings and growth per share are higher once there are fewer shares.

By: JackFlash

JackFlash — Fri, 17 Aug 2018 08:36:22 -0800

Stock buybacks aren't the only problem with Wall Street but they are certainly symbolic of the way the system is rigged for the rich. There is literally no excuse or economic reason to support buybacks over dividends except that it advantages the rich. Buybacks allow the rich to receive their profits from a company without paying taxes until they decide to or, if inherited, never pay taxes. But the majority of stock is owned by non-taxpaying entities in pension, institutions and retirement accounts so buybacks are of no advantage to them. Therefore executives are making a decision toward buybacks over dividends for the interests of a minority of shareholders. Buyouts are preferred by company executives because their stock options don't receive dividends, but the value of their options goes up with a buyback. So they are self-dealing. Stock buybacks were illegal for half a century. They should be made illegal again. They serve no useful purpose except tax avoidance for the rich.

By: Kadin2048

Kadin2048 — Fri, 17 Aug 2018 11:43:02 -0800

Buybacks make sense when you look at equities through the lens of their original purpose—raising capital in exchange for ownership or control over the firm. It's simply the reverse of that process: the distribution of capital in exchange for concentrating control and ownership. That they can be used for tax avoidance is a bug/feature of the tax code, which could be fixed by making the treatment of capital gains and dividends the same, to eliminate the incentive to shift one to the other. But the idea of buying back equities from the market is a legitimate one, and the inability to do it would have some ugly effects: it could make it easier for Gordon Gekko-style "corporate raiders" to target and take over firms and liquidate them, destroying them as productive, functioning entities (liquidation almost always involves destruction of productive capacity). As targets go, going for buybacks doesn't seem to be a particularly good idea. Though, looking at why companies do buybacks, instead of investing the same cash into expanding the business organically, is a valid question. After all, having so much cash on hand you don't know what else to do with it besides buy back stock, is on its face a pretty nice position to be in—insofar as business is traditionally seen as being constrained by lack of, or access to, capital. My personal theory (not especially controversial or exciting) is that this is attributable to the discount rate and misplaced incentives. (With an open question about how much is being driven by an aging population not giving a shit about anything that happens after they're dead, and pillaging whatever they can now. That's actually an optimistic theory, since it inevitably self-corrects.) Policies that would either affect the discount rate (hard, given the already low interest rates by central banks), or even more direct stimulus/subsidies to make longer-term investments preferable to either distributions or buybacks, would get at the problem better than trying to simply regulate a particular mechanism used for distributions (of which there are several). But anyway, enough about buybacks; mark k is correct about it being a tar baby and largely a distraction from other issues. Restrictions on, or even just more scrutiny of, mergers seems like a defensible policy prescription, and one that would play well with voters. It's not exactly a secret that a large number of corporate mergers are destructive of value and don't make a lot of rational sense. Preventing these "vanity mergers" (because they seem to be driven largely by the irrational considerations of vanity and ego; empire-building by those in control) would be positive on all fronts: it would prevent the further concentration of economic power, and would also prevent the negative economic impact that these mergers are associated with, insofar as they're value-destroying. And the regulatory frameworks to control mega-mergers already exist, they're just waiting for people to pull the right levers.

By: mark k

mark k — Fri, 17 Aug 2018 19:26:19 -0800

Stock buybacks aren't the only problem with Wall Street but they are certainly symbolic of the way the system is rigged for the rich. That is correct. But if we didn't have stock buybacks then something else would be symbolic of this, because the system would still be rigged. I personally became aware of the financial world in a vague sense in the early '80s, when dividends were still the rage. The complaints then was that they forced companies to think about the short term, no one could think long term because they had to keep cash flow going to investors, we were skewed away from anything that made life better for the employees, etc., etc. First company I worked after college (early '90s) was an old-school one and we kept giving dividends out right through our own funeral.

By: The Whelk

The Whelk — Sat, 01 Sep 2018 06:16:08 -0800

A graph showing bank mergers 1996-2009