Weekend thoughts on Corporate stock buy-backs




At the end of his interview segment on the coming corporate tax “holiday,” Matt Taibbi tells Keith Olbermann that the money saved because of the tax forgiveness “holiday” won’t go for jobs (natch), but for things like corporate tax buy-backs. (That comment is near the end of the interview.)

Here’s why corporate buy-backs matter to you:

1. It’s just a fact that today’s corporations exist to pass as much money into the pockets of their chief executives as possible. With the top marginal tax rate near historic lows, why wouldn’t they? The incentives almost demand it. In that sense, CEOs are predators who feed on company revenue — not an inaccurate statement, as you’ll see below.

2. There are several ways for predator CEOs (yes, some aren’t) to bank that cash — the chief being (1) direct compensation, (2) bonuses, (3) stock and stock options. In most cases, direct compensation is the least lucrative of the three.

3. This makes it personally important to keep company stock prices as high as possible — in many cases, it’s simply job one.

Yes, all shareholders will benefit some (though not for long, since the company ultimately loses), but that’s just a side-effect. The only shareholders that these CEOs care about is themselves and their (hoped-to-be dynastic) children—the ones they can now get into Sidwell Friends School, for example.

(This is why I recently predicted, by the way, that the recent 500-point fall in the Dow may be a blip, in dog years anyway. Ultimately, the CEO class has just too much money parked in their company’s stock to let the Dow fall below that scary 10,000 mark.)

With all that in mind, let’s say that our (very simplified) company:

■ Has 1 million shares outstanding @ $10/share

■ Therefore has a market capitalization of $10,000,000

■ And with repatriated minimum-taxed (or untaxed) profit, buys back 10% of those shares

The market capitalization (# of shares × price-per-share) goes down briefly, but then the stock price rises because earnings haven’t changed (in our example, anyway). In a clean world, the increase in stock price brings the market cap back to $10 million.

That’s an immediate 10% increase in value of the corporate stock holdings of the CEOs who made that (entirely self-serving) decision. Voilà—instant net worth, bought with corporate money, repatriated at low tax by retainer politicians on the take, campaign-contributions-wise.

See why I call these people “predators”? They really are the biggest meat-eaters in the jungle, and everything else is either servants or food, sometimes both.

So you should notice the phrase “stock buy-back” every time it’s mentioned. It’s a prime way for self-dealing CEOs to hand themselves a whole mess of company money at the expense of both the company itself and the welfare of the workers.

Hopefully, “corporate stock buy-back” doesn’t sounds so innocuous any more. It’s not; that’s why the CEOs want it so bad.

Will Barack Obama support this corporate tax holiday? What’s a retainer to do? It will certainly be a major indicator of where his priorities lie. If he does support it, the lost revenue will drill a monster hole in the budget, about which I hear he deeply cares.

Place your bets.

GP


Gaius Publius is a professional writer living on the West Coast of the United States.

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