The $7 Trillion Stock Buyback Scam——-Washington Politicians Are Finally Getting The Joke

By Andrew Ross Sorkin at The New York Times

Should corporate stock buybacks be regulated? Or made illegal?

Those are the questions not-so-quietly being floated in Washington by a group of elected officials and others trying to get elected, including most recently, Hillary Rodham Clinton.

Is the government really going to outlaw buybacks, which over the past decade have become one of the business world’s favorite corporate finance tools?

On its face, the issue may seem like a nonstarter. But a growing debate has emerged around the topic of buybacks that increasingly has Wall Street and corporate America worried.

Goldman Sachs sent out a note to its clients earlier this summer, warning that Washington was raising concerns over buybacks. “Some lawmakers have linked share repurchases with stagnant wages and a lack of business investment,” the note said.

Since 2004, companies have spent nearly $7 trillion purchasing their own stock — often at inflated prices, according to data from Mustafa Erdem Sakinc of the Academic-Industry Research Network.

That amounts to about 54 percent of all profits from Standard Poor’s 500-stock index companies between 2003 and 2012, according to William Lazonick, a professor of economics at the University of Massachusetts Lowell.

The buyback craze, in which virtually every big company from Apple to General Electric to Walmart has participated, has led to a backlash from some investors and government officials, who have questioned whether such use of profits is a productive way to deploy capital rather than reinvesting in businesses and jobs.

Laurence D. Fink, the founder of BlackRock, the largest asset manager in the

Originally appeared at: