BUSINESS WEEKNew York, NY
Your columnist, Christopher Farrell, alleges that "The (stock) buyback boom is mostly a boon" (BW, 4/13/98). And it is. For the top executives of the nation's largest companies and their Wall Street cronies. As for the rest Americans, it is a scam; a con, a Ponzi scheme - take your pick. Which is why it is surprising that someone who refers to himself as a writer "from America's heartland" (Minnesota) would participate in the duping of America's Main Street.
Here's a simple common sense test. How many Main Street jobs did Corporate America create by spending $180 billion (your figure) in 1997 buying back its stock? Answer: Zero!
In other words, several dozen European countries'-worth of GDPs have been poured down the drain by Corporate America without creating a single job or a product!?
Ah, but some "experts," such as economist Mark Zandi, quoted in your story, argue that stock buybacks are a way big companies (like IBM) return cash to "millions of shareholders" who "get money going... to thousands of Yahoos."
The statement is pure and undiluted hogwash! Which only a Wall Street hog or a whore could swallow as truth. First, because it is factually unsupportable. Second, because it is highly speculative.
It is factually unsupportable because less than one-third of Americans play at the Wall Street Casino despite its long "bull run" and decades of financial hype. Of those, about three percent account for three-quarters of the individual investment portfolios' value.
It is also factually unsupportable because even those three percent of individual shareholders' portfolios fade in comparison to those owned by institutions. The major stockmarket players are the Wall Street cronies of the "blue chip" companies' CEOs. In IBM's case, institutional investors account for more than half of its stockholders and for a huge share of its trading volume.
The Main Street investors - implied by Zandi's "millions of shareholders" comment - are the patsies who pay for the privilege of watching the Big Money changing pockets. Kind of like the tennis match spectators' heads turning left and right, as Wall Street's "buy side" and its "sell side" trade shots over the NYSE "Intranet" using the target company's cash as the ball.
IBM's stock, for example, has doubled in price in the last 20 months even though most of its business fundamentals are either down or declining. Like a hot air balloon, the Big Blue shares rose on Wall Street analysts' hot air-fueled forecast, supported by an $18 billion-and-counting share repurchase program. Just in case the magnitude of this Big Blue scam is lost on the BW readers, that's about four Albanian GDPs-worth. Yet IBM is only one of the many Wall Street hucksters.
Your claim is also highly speculative because there is no evidence whatever, of which I am aware, which supports your columnist's and his "expert" source's claims that IBM's stock buyback money ended up in Yahoo's IPO shareholders' pockets, for example. If BW possesses such proof, you ought to make it public. Or else retract such statements and refrain from hyped-up propaganda in the future. Unless you want to be charged as accomplices when the sky falls in, and Main Street America takes Wall Street and its corporate cronies to account for their Ponzi schemes.
Unlike the above, shooting-from-the-hip BW speculation, a solid case can be made that the Big Business executives raked it in Big Time. To the tune of tens of millions of dollars (each). It was a "boon" indeed, to borrow your lingo.
No, I am not talking about IBM chairman's $91.5 million which he took home in 1997 as direct compensation, according to a New York Times Apr. 5 report. Nor about Walt Disney's CEO, Michael Eisner, who got about $576 million last year, according to the Washington-based Multinational Monitor.
I am talking about the insider trading - the flip-side of Wall Street's stock buyback scam.
It goes like this... A "blue chip" company "invests" billions of dollars buying back its stock while its top executives exercise their stock options (read SELL their shares as their company BUYS).
Incest? Maybe on America's Main Street. But not on Wall Street. Wall Street is well past incest, and into cloning of the next generations of moral degenerates.
In IBM's case, seven insiders, including its chairman, Lou Gerstner, sold about $28 million of the Big Blue stock in the second quarter of 1997 alone (i.e., "exercised their stock options" - per the Wall Street lingo) for an estimated pretax profit of about $13 million. This followed a $33 million IBM executive selling spree in the previous two quarters which had yielded an estimated pretax profit of almost $15 million for the Big Blue's brass.
Guess there is no such thing as a conflict of interest in a world ruled by Greed?
But there is at least one aspect of Farrell's column, which rings true. It's the part which says that "companies are saving their shareholders billions in taxes by buying back stock rather than simply increasing the dividend" (in which EVERY shareholder would equally participate). "Dividend payments... are taxed twice," he said. "In sharp contrast, shareholders who decide to sell their stock are often taxed at the much lower capital gains rate."
The preceding allegation should merely serve to indict our lawmakers in the court of public opinion as co-conspirators in this Wall Street scam. Because if corporate investors are getting off lightly on their taxes, guess who has to pick up the slack. Heartland America, of course.
Which makes Mr. Farrell's claim - that he is one of us - merely another con.
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