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**MAY 17, 2023**
Kuttner on TAP
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**** How Wall Street Feeds Itself
Stock buybacks hit new records last year. They should be banned
outright.
Stock buybacks hit a new record last year. According to a report in the
**Financial Times**
<[link removed]>, the
world's 1,200 largest publicly traded companies spent $1.3 trillion to
buy back their own shares. Another study shows that U.S. corporations
lead the world in buybacks
<[link removed]>.
Almost 80 percent of American firms have engaged in buybacks, compared
to about 45 percent in the rest of the world.
This practice is a scam intended to pump up share prices. Companies
often borrow money in order to buy their stock, in a kind of arbitrage
play that adds nothing of value to the economy but enriches insiders.
It's often forgotten, but stock buybacks were illegal until 1982, as a
flagrant form of stock manipulation. In that year, Reagan's SEC
adopted Rule 10b-18 to allow them.
Ironically, this shift was promoted as a way of combating corporate
raiders using leveraged buyouts for hostile takeovers. Buybacks made the
shares more expensive to purchase. But this was really a case of one
kind of financial-engineering abuse, that should have been prohibited
outright, creating yet another abuse that should have been banned.
Executive compensation is often tied to the share price, which creates a
conflict of interest. Corporate money that should be invested in
innovation goes instead for financial engineering that does nothing for
the economy.
Lately, there have been efforts to discourage buybacks. The CARES Act
prohibited companies receiving financial aid from the government from
using it to buy back their own stock. But since money is fungible, that
prohibition had little impact. According to the FT report, buybacks did
decline in 2020, but bounced back to a new record of almost $1.1
trillion in 2021 until that record was broken in 2022.
The Biden administration also succeeded in enacting a 1 percent tax on
buybacks. But corporations have treated it as a cost of doing business,
and the buyback trend continues.
SEC Chair Gary Gensler is one of the most public-minded and
uncorruptible SEC leaders in decades. He has criticized buybacks, and
last week strongly supported a new SEC rule increasing disclosures
related to buybacks
<[link removed]>.
But this is also weak tea. Like the 1 percent tax, it is not likely to
affect the buyback trend. The SEC has the power to restore the pre-1982
absolute ban. Gensler needs to get that done.
~ ROBERT KUTTNER
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The Narrative Shift of the Debt Ceiling Fight
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On today's X-Date, how passing a bill gave Kevin McCarthy a momentary
advantage that has yet to be counteracted BY DAVID DAYEN
The IRS Takes a Welcome Step Into the 20th Century
<[link removed]>
Maybe by 2100 America can have a proper tax authority. BY RYAN COOPER
Rahm Emanuel's Gas Pipeline
<[link removed]>
The Biden administration is promoting a new liquefied natural gas
complex on the Pacific Coast, with expanded subsidies from the
bipartisan infrastructure bill and Inflation Reduction Act. BY LEE
HARRIS
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