Courtesy of Pam Martens
Sanford (Sandy) Weill, the Man Who Put the Serially Charged Citigroup Behemoth Together
Last Wednesday something noteworthy happened on Wall Street. Four of the largest Wall Street banks, each holding trillions of dollars in derivatives, hit new 12-month lows in intraday trading. The banks are Bank of America, Citigroup, Goldman Sachs and Morgan Stanley. The banks recovered a little ground by the end of the week. These banks have two other things in common: they have been spending billions buying back their own stock and they all received bailouts during the 2008 crash.
Over the past six years, publicly traded companies in the Standard and Poor’s 500 Index have bought back $2.7 trillion of their own shares according to Bloomberg data. There are four major problems with this strategy: much of the buybacks are financed with debt; some of the buybacks simply offset insider selling or stock awards to executives; none of the money goes to growing or innovating the company; the timing of the buybacks could lead to stock market manipulation.
In the September 2014 issue of the Harvard Business Review, William Lazonick sized up the share buyback phenomenon like this:
“Given incentives to maximize shareholder value and meet Wall Street’s expectations for ever higher quarterly EPS, top executives turned to massive stock repurchases, which helped them ‘manage’ stock prices. The result: Trillions of dollars that could have been spent on innovation and job creation in the U.S. economy over the past three decades have instead been used to buy back shares for what is effectively stock-price manipulation.”
The SEC has a very lax rule, known as 10b-18, which provides a multitude of openings for stock price manipulation. As we previously reported, Wall Street banks can even carry out buybacks in their own dark pools as the self-regulators on Wall Street look the other way.
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