In recent years, corporations deciding to buy back their own stock has become an increasingly popular strategy. At a basic capitalist level, the idea of a company buying back its shares in order to reassert control over the entire company would be kind of a standard Monopoly-type of move. However, that is not what is going on. What is happening is that:
a_ the decision to buy back shares is made by corporate board members and management
b_ the board and management give themselves a ton of stock options (shares) just for working for the company.
c_ they buy back the company shares, so that the stock price goes up, and then make themselves even more money for when they sell the options they gave themselves.
As such, Stock Buybacks may possibly be looked back on as one of the most colossal wastes of money ever in the United States. Instead of spending money on their employees… Instead of investing the money in growing the company… corporate board members and company management are taking profits to help enrich themselves.
The unprecedented rise in the U.S. stock market has been helped enormously by these planned stock buybacks. That is because:
d_ the biggest Wall Street banks like Goldman Sachs help the companies buy the shares. A company, say Apple, announces something like they will purchase over $40 billion worth of their own shares during a 6 month period (story, yeah 40 billion dollars!?). The banks know when they will be making these purchases and so it becomes a Wall Street bank and hedge fund money-raining parade.
Thus, Chuck Schumer and Bernie Sanders are on to something with a proposal here to restrict corporate buybacks. There are probably 1,000 better ways to accomplish the objective, but for the points above, if the market were to start dropping, corporations have taken tons of profits and vanished them into the pockets of their richest owners, Wall Street banks and… thin air. Money that could have instead been used to build a new building, pursue a business expansion, hire more employees, increase salaries and on and on. Even Forbes magazine, story here, agrees this is a problem!