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'Hedge Fund Managers Bleed Companies of Their Capabilities' Janine Jackson ([link removed])


Janine Jackson interviewed the Institute for New Economic Thinking's Lynn Parramore about hedge funds vs. the Green New Deal for the April 30, 2021, episode ([link removed]) of CounterSpin. This is a lightly edited transcript.

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INET: Meet the "New Koch Brothers" – the Hedge Fund Activists Wrecking America’s Green New Deal

Institute for New Economic Thinking (3/4/21 ([link removed]) )

Janine Jackson: A new Green New Deal was announced ([link removed]) last week, though you might not have noticed based on media coverage. Corporate media coverage of climate change is disorienting, in that journalists acknowledge that it's happening, it's life-endingly important; but then when it comes to what to do about this not imminent but already-happening crisis, we go back inside the Beltway again. And Senator So-and-So says, “Any change to our energy systems will kill your job and force you to eat only lettuce.” And that opinion needs “respectful space.”

What if media turned the corner and acknowledged that anyone serious about averting the most devastating impacts accepts that major societal changes have to be made, now; that those who are harmed will need help, and those who continue to harm will need to be shown off the stage? Then we can have necessary conversations about our possible livable future, including naming the actors and the processes that stand between us and the changes we need to make.

One critical piece of that conversation would include realities recently explored by our next guest. Lynn Parramore is senior research analyst at the Institute for New Economic Thinking ([link removed]) , and author of the piece ([link removed]) , and maybe I'm tipping her hand here, “Meet the ‘New Koch Brothers’–the Hedge Fund Activists Wrecking America’s Green New Deal.” She joins us now by phone from here in town. Welcome to CounterSpin, Lynn Parramore.

Lynn Parramore: Thank you so much for having me.

JJ: When we think about converting the economy to reflect the realities of climate disruption, we think, “The government should ([link removed]) ,” and we think, “US companies could.”

LP: Yes.

JJ: So my question is: Who and what stands in the way of what government should, and companies could, do?

LP: Yes, well, there is a group of Wall Street financiers, they are typically called “activist shareholders,” which kind of sounds like maybe it's a good thing--activism is good, right? But these guys are actually the descendants of the corporate raiders that we used to hear about in the 1980s, who would go in and buy a company, strip it down, fire all the workers and head out with a bunch of cash.

These hedge fund managers of today, and we're talking about guys like Carl Icahn ([link removed]) , they are billionaires many, many times over, very, very powerful men (and I say men, because they seem to be always men). They are able to buy shares of a company, like Apple, say, and then they can start telling the company what to do. They buy the shares, and then they line up proxy votes, and then they might start pressuring the CEO through letters, or maybe on social media, or in other public forums. And they'll spend millions of dollars putting pressure on the CEOs and executives of a company to do what will enrich the shareholder in the short term.

So what that usually means is something called a “stock buyback.” Now, what is a stock buyback? That's when a company buys outstanding shares of its own stock, thereby reducing the number of shares, which makes each share worth more money.

JJ: Right.
Lynn Parramore

Lynn Parramore: "The money that the company spent on buying those outstanding shares in the stock buyback could have been used to develop new products, it could have been used for innovation, it could have been used to maintain and attract talent."

LP: So the hedge fund managers like that. It gives them a quick return: They buy the shares, they force the CEO to do stock buybacks, or they pressure the CEO. And now their shares are worth more and they can dump them, head out of town with a quick bundle of cash, and leave the company to deal with the repercussions.

Now, what are the repercussions for the company? Well, the money that the company spent on buying those outstanding shares in the stock buyback could have been used to develop new products, it could have been used for innovation, it could have been used to maintain and attract talent. All the kinds of things that you want happening in the case of a company that might be able to work with the government on a Green New Deal.

You know, the government can't just snap its fingers and make electric cars, or semiconductor chips, or all of those products and technologies that are needed to create a sustainable future. It needs big companies with the know-how, the capital investments, to get these things done.

Let me just give you one example: Intel is a company that makes semiconductor chips. You need these for all kinds of computer systems. You would need them to upgrade any electric grid. They're found in almost everything: your phone, your car, whatever. Not many companies have the capital investment capability to make semiconductor chips. Intel is the one American company that does. The leaders in this industry, actually, are in China, mostly in Taiwan. But the US has Intel.

Any Green New Deal is going to involve semiconductor chips. But Intel, instead of investing in its manufacturing, it has been pressured by a hedge fund manager to use its resources to jack up the stock price, and, actually, it's been pressured to get rid of its manufacturing arm, and just be a designer of chips, in which case the United States wouldn't have any company that made semiconductor chips.

So you can see how these hedge fund managers, in the interest of making a quick short-term profit, really bleed companies of their capabilities and their resources, so that they can't be leaders in technology.

And guess who doesn't have this problem? China does not have this problem. Its companies don't do stock buybacks. So Chinese companies are free to use their resources to invest in research and development, pay the talent, create manufacturing plants, do all the things that we wish our companies were doing if they weren't caught up in these Wall Street games.

JJ: Let me just confirm: All of this is legal; none of this is breaking the law, but it's still something that…. It's still not transparent, exactly, you would say. There’s skullduggery, and yet it's perfectly legal.

LP: Well, it used to be unlawful. Prior to 1982, stock buybacks were considered stock manipulation, and they were not legal.

JJ: OK.

JJ: But the Reagan administration came in, which was very friendly to Wall Street, and the law was changed.

Now, there are a lot of people—including economist William Lazonick ([link removed]) , who has worked on this issue extensively—who think that stock buybacks should be made illegal once again. I happen to agree with that.

And there are more and more people in the political sphere who are beginning to understand this problem. Tammy Baldwin ([link removed]) is a very good example. And Biden ([link removed]) himself has a pretty good understanding of stock buybacks and the damage they cause. And he, for example, I think would be open to banning companies from doing this kind of Wall Street casino game playing, if they enjoy government contracts in any kind of big Green New Deal project or infrastructure project.

So that's a start: banning companies from doing it as long as they are partnering with the government, and getting taxpayer money to partner with the government on these projects; that would be a very, very helpful thing.

And, eventually, it would be nice to just ban them altogether, because these stock buybacks really do nothing except pump up the price of stock shares temporarily. It's really an illusion. A company's stock price isn’t going up because suddenly it's making better products or it has some wonderful vision for the future. It's just a temporary boost that enriches wealthy executives and these hedge fund managers who, again, are already wealthy enough, and they really don't need another superyacht.

JJ: We've been speaking with Lynn Parramore, senior research analyst at the Institute for New Economic Thinking ([link removed]) . Thank you so much, Lynn Parramore, for joining us this week on CounterSpin.

LP: My pleasure. Thank you for having me.






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