Dung Of The Devil: Share Buy-Back’s

Speaking to grassroots organizers in Bolivia on Thursday (July 9), Pope Francis made headlines for using the phrase “the dung of the devil” in reference to today’s world economy. “Today”, he said, “the scientific community realizes what the poor have long told us: harm, perhaps irreversible harm, is being done to the ecosystem. The earth, entire peoples and individual persons are being brutally punished. And behind all this pain, death and destruction there is the stench of what Basil of Caesarea called “the dung of the devil”. An unfettered pursuit of money rules.” (1).

He continued:

“The service of the common good is left behind. Once capital becomes an idol and guides people’s decisions, once greed for money presides over the entire socioeconomic system, it ruins society, it condemns and enslaves men and women, it destroys human fraternity, it sets people against one another and, as we clearly see, it even puts at risk our common home” (1).

Perhaps the Pope had the stench of economic short-termism – personified by share buy-backs – in mind when he made his comments. Certainly, the consequences for the planet and people resulting from their impacts are potentially catastrophic.

The policy by which the CEOs of major corporations buy back their own shares resulting in the particularly rapid and unsustainable rush towards feathering their own nests at the expense of everybody else, is a relatively recent phenomenon. These unscrupulous but legal business practices are predicated on short-term planning decisions that usually trump any commitment to long-term investments in other areas of the business. Instead, these giant corporations use their huge influx of cash to buy back shares in their own companies. This subsequently increases the short-term value of the stock of these companies. They then reap bigger bonuses because their remuneration is tied to the value of these stocks.

All the money that we, the tax-payers, poured into the banks on the premise that the money accrued would be lend to small businesses, was in reality kept by the elite bankers. These bankers then bought back stocks in their own banks with the money resulting in a jump in the value of these banks. As their values increased so did the amount of bonuses for those at the top. This is because these bonuses are reliant on the value of the stock.

The practice of stock buy-back essentially destroys the long-term future health of the companies’ that the CEOs, who grab the bonuses in order to feed their immediate greed, are being paid to run. This is a reflection of what is happening in society at large. In other words, humanity is in effect plundering the resources of the planet so as to satisfy the insatiable appetite of the elites – and to hell with the consequences.

This is not a small problem but an extremely huge one. For instance, in America the top 500 companies spent a massive 95% of their operating margins (profits) on their own shares or in dividend payouts to their own shareholders. In more rational times, the kind of sums previously described were spent on things like research and development, investing in new products and the training of new staff for the long-term health of the company. But hardly anybody appears to be remotely interested in anything long-term anymore. Buy-backs are on course to exceed 100% of profits. At that point major corporations and banks will be borrowing money to buy their own shares. As the share price increases, the elite within those organisations will receive even larger bonuses.

This is not how it’s meant to work. Stocks are supposed to be issued to companies in order to increase future growth – that’s the whole point of them. But with buy-backs the opposite is happening. Capitalism has been transformed from a system in which it was possible for the masses to engage in the game of money where the potential to win was real so long as you took part. Now the game is rigged whereby only a handful of have’s are able to grab even more for themselves while the public pot of cash for the rest of humanity continues to shrink.

Larry Fink, head of Black Rock, is the biggest asset manager in the world. He shifts 4.6 trillion dollars of other people’s money. As a leading capitalist, he is clearly wise enough to grasp that the modern brand of capitalism that buy-backs typify, represents the rope to capitalism’s hangman. This is a man who presumably knows a thing or two about the destructive impact of buy-back’s. This is what Fink had to say:

“The effects of the short-termist phenomenon are troubling both to those seeking to save for long-term goals such as retirement and for our broader economy. “Such moves”, he says, “were being done at the expense of investing in innovation, skilled work forces or essential capital expenditures necessary to sustain long-term growth” (2).

What Fink describes is akin to a farmer eating the seeds that he needs to plant during the following years crop. He’ll feel full now, but next year he’ll starve. Except in business the management won’t be there when the results of their short-termism are realized – instead, they’ll likely be lying on a beach in the Bahamas.

Larry Fink’s critique of share buy-back is beginning to gain traction with other leading capitalists, most notably Nick Hanauer who has grasped the necessity of government regulation to prevent companies buying their stock back. Hanauer defines the strategy of stock buy-back as:

“Plain and simple stock manipulation – a pernicious gain of generating increasing amounts of money for people at the top while giving short shrift to employees and the country as a whole. Thirty years ago, corporate CEOs earned thirty times the average wage, now it’s three-hundred to five-hundred times. This practice of buy-backs is at the heart of it” (3).

This is how the elite constantly get richer while at the same time refusing to pay their staff a living wage which the rest of us help top up. Many leading capitalists (Hanauer is one of them) agree with politicians’ from the left like Jeremy Corbyn who insist there needs to be a substantial increase in the minimum/living wage across the board to counteract the public underwriting of those CEOs who pay poverty pay while simultaneously enriching themselves through stock manipulations.

Progressive capitalists like Fink and Hanauer don’t argue for a substantial increase in the living/minimum wage and for regulations to prevent stock buy-backs because they are altruistic, rather they recognize these actions are necessary in order to save capitalism from itself.

References:

1. http://www.news.va/en/news/pope-francis-speech-at-world-meeting-of-popular-mo

2. http://www.nytimes.com/2015/04/14/business/dealbook/blackrocks-chief-laurence-fink-urges-other-ceos-to-stop-being-so-nice-to-investors.html?_r=1

3. https://www.youtube.com/watch?v=5ebh-v_mVPo

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