Wednesday, April 08, 2020

Is There A Single Peasant Living Who Failed To Grasp That The Odds Are In The House's Favor?

wsws |  Like every great crisis, the coronavirus pandemic has laid bare everything rotten and degenerate in capitalist society.

Nowhere is that exposure more pronounced than in the case of the stock market—that vast institutionalised mechanism through which the wealth of society, produced by the labour of the working class, is siphoned to its highest echelons at the expense of the mass of the population.

Corporations are now lining up to receive a portion of the Trump administration’s massive $2.2 trillion bailout. They are employing an army of lobbyists, lawyers and financial advisers (all taking a fat fee for their services) to maximise their gains as they plead that they are strapped for cash and must be provided with money to “save the economy.”

But a report published in the Wall Street Journal at the weekend reveals that one of the main reasons for the cash shortage is the trillions of dollars spent by major corporations on share buybacks, particularly over the decade since the global financial crisis.

According to Brian Reynolds, the chief market analyst at the research firm Reynolds Strategy, upon whose research the article is based, corporate buybacks have been the “only net source of money entering the stock market” since 2008.

The sole purpose of buyback programs is to enhance the wealth of the executives who sit atop the major corporations as well as hedge funds and other traders in shares. By cutting the number of shares on issue, the stock of the corporation rises. Executives and others can then exercise their stock options to make a killing while hedge funds strike at the opportune time and rake in billions.

The buybacks are financed by using the accumulated profits of the company or, in some cases, by the raising of debt, taking advantage of the ultra-low interest rate policies of the US Federal Reserve.
According to the economist William O. Lazonick, the proportion of corporate buybacks funded through the issuing of bonds went as high as 30 percent in both 2016 and 2017.

By Reynolds’ calculations, since the beginning of 2009, buybacks have added a net $4 trillion to the stock market, an amount equivalent to one-fifth of the total $20.9 trillion market value of the companies in the S&P 500 index.

Calculations by Lazonick put share buybacks as equivalent to 52 percent of all corporate profits, with dividends on shares accounting for another $3.3 trillion.