Behind Wall Street’s favorite scheme: What is a stock buyback?

Corporations are buying…themselves??

Companies are buying back their stocks at an eye-popping rate. They recently set a new record with over $1 trillion spent on these “stock buybacks” in 2022. Chevron, Exxon, and Meta have each announced plans to massively increase their buyback plans this year by tens of billions of dollars. But what exactly do these buybacks do? What purpose do they serve?

Stock buybacks are a strategy that corporations use in order to artificially increase the value of their stock. When a company buys its own shares, it reduces the amount of shares available to the public while the value of the company itself remains the same. Because there are fewer shares on the market, the value per share increases. Not only this, but the shareholders’ stake in the company necessarily increases with fewer shares available. 

This benefits both the company itself and those who own large shares in a company – which just so happen to be executives and ultra-rich investors. In other words, the rich and powerful are the only ones who benefit from this scheme. 84% of all stock shares are held by the richest 10% of the population. Executives, unlike workers, often are paid in shares of the company. 52.3% of CEO compensation in 2022 at the biggest companies was in the form of stock. 

But just how much money is being used for these stock buybacks? Between 2003 and 2012, companies used 54% of their total profits to buy back their stocks. This amounts to about $2.4 trillion. Companies are using a majority of the wealth they squeeze out of our labor in order to create more money for themselves. In most cases, this money remains untaxed as well! 

This is money that could be going to us – used to increase our wages, or invested for the benefit of society in things like better housing, schools, roads, etc. These same corporations are constantly exclaiming that they must freeze or lower wages in order to survive, yet they never seem to run out of money for their stock buyback schemes. During the most severe period of the pandemic, a time when most people in society were struggling just to get by, corporations spent $521 billion on their own stock. Yet during this time, employers laid off over 100,000 workers. This is a key example of how inequality under capitalism continues to grow more and more rampant.

It is important to note the role that the government played in sanctioning this. Prior to 1982, stock buybacks were illegal in most cases, correctly identified as market manipulation. But then, the Securities and Exchange Commission issued a new rule allowing that practice. The effect of this change in policy was massive. Before 1982, only 2% of corporations’ profits were spent on buybacks. 

The officials in Washington write the rules for the benefit of the rich and powerful. These record stock buybacks – and the very existence of this outrageous practice in the first place – are another reminder of this fact.

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