Record year for stock buy-backs, at the expense of future growth

[Jhhnn]

We've had 5 yrs of "turning the economy around", basically it's going in a circle (i.e., going no where).

I think govt policy is to blame. Onerous, inefficient and counter-productive regulations (e.g., Dodd Frank) and income tax scheme.

No, I don't think interest rates should be raised. But I do suspect that the handout of 'free money' could likely be done much better. About all I'm seeing now is it profiting big banks and businesses. E.g., banks now in the commodities market.

Bad govt policy. Period.

Fern

How quickly we want to forget how we got here-

http://dorkmonger.blogspot.com/2008/11/cutting-red-tape.html

Yeh, and taxes so onerous that the govt subsidizes low wage workers instead.

There's also this bit of information-

http://www.businessinsider.com/7000-millionaires-paid-no-income-tax-2012-9

 

[Fern]

How quickly we want to forget how we got here-

http://dorkmonger.blogspot.com/2008/11/cutting-red-tape.html

Yeh, and taxes so onerous that the govt subsidizes low wage workers instead.

There's also this bit of information-

http://www.businessinsider.com/7000-millionaires-paid-no-income-tax-2012-9

How we got here?

Well then, that's the wrong picture. The one of Clinton signing the repeal of Glass Steagall would be the correct one.

And go ahead and link up to a picture of Obama signing Dodd Frank. We'll need to see it when the affects of that law are finished. It was to prevent "too big to fail" but has had the exact opposite effect.

Fern

 

[Jhhnn]

How we got here?

Well then, that's the wrong picture. The one of Clinton signing the repeal of Glass Steagall would be the correct one.

And go ahead and link up to a picture of Obama signing Dodd Frank. We'll need to see it when the affects of that law are finished. It was to prevent "too big to fail" but has had the exact opposite effect.

Fern

Yeh, it's all Clinton's fault. Why, Repubs were always great champions of financial regulation, raised holy hell when the Ebil Dems passed the repeal in Congress, right?

Which would be total bullshit, of course. Serial deregulation from the Carter era forward had rendered it largely ineffective, anyway, Glass-Steagal only being part of a broader New Deal system. It's repeal was part of a broader budget deal with Congressional Repubs.

Clinton has admitted to mistakes, particularly not regulating derivatives. What mistakes have Repubs admitted to when it comes to the economy? None at all.

The Bush admin enabled the housing bubble as the ownership society in many ways, some of which include preaching it from the bully pulpit, letting the shadow banking system leverage up to 30:1 & even 40:1, invoking a civil war statute to stymie state regulators, & a lot more. Even when it was collapsing, the pundiits of the right tried to cheer it on.

Dodd-Frank? Check the date- July 21, 2010, after Repubs took back the HOR, rendering more effective measures impossible. Left up to them, we'd have even less. We'd have the same non-protections of the Bush era.

So far as it goes, the problem with Congressional Dems & the Obama Admin is that they're too much like Repubs, not too different.

Or will you just blame Barney Frank for the whole looting spree?

 

[MagickMan]

Pearlstein has an interesting take on the big "job creators" in the U.S. economy. Half a trillion dollars of stock buy-backs this year, significantly more than the amount of money companies are investing in future growth. And a telling statistic is that the "insiders" at companies with the most aggressive stock-buyback programs are the most likely to be selling their own stock portfolios - not exactly a vote of confidence in the future growth of the U.S. economy. Furthermore, these are the same companies that refuse to share their record profits with mainstream employees and who move to tax havens and avoid trillions in taxes.

I think it's reasonable to ask the question: Given that companies are so focused on increasing shareholder value and dodging taxes, and so little focused on investment in the future, why should we believe that these companies are in fact the "job creators" that righties claim them to be. And instead of re-enacting the R&D tax credit ($156 billion) as was done last week (but which may well get vetoed by the President), why shouldn't Congress PUNISH companies for diverting their profits away from more productive use?

Stock-buyback mania

Fuck. The US federal gov't is the worst run "business" in all of the USA, they shouldn't be telling anyone how to run their company. Dipshits.

 

[fskimospy]

Fuck. The US federal gov't is the worst run "business" in all of the USA, they shouldn't be telling anyone how to run their company. Dipshits.

The government isn't a business. It is not run like one, nor should it be run like one. They do not have the same goals.

 

[Fern]

Yeh, it's all Clinton's fault.

I'd say it was primarily Rubin's.

The Bush admin enabled the housing bubble as the ownership society in many ways, some of which include preaching it from the bully pulpit, letting the shadow banking system leverage up to 30:1 & even 40:1, invoking a civil war statute to stymie state regulators, & a lot more. Even when it was collapsing, the pundiits of the right tried to cheer it on.

So sub prime housing loans as Bush's fault?

LOLOLO

Or will you just blame Barney Frank for the whole looting spree?

I'm not sure what looting spree you're referring now. But Dodd frank is a horrible bill that has done the opposite of what was intended (as well as additional collateral damage).

Fern

 

[Jhhnn]

I'd say it was primarily Rubin's.




So sub prime housing loans as Bush's fault?

LOLOLO



I'm not sure what looting spree you're referring now. But Dodd frank is a horrible bill that has done the opposite of what was intended (as well as additional collateral damage).

Fern

Are the events I cited untrue? Where did that chainsaw come from, anyway, & why was one of GWB's chief regulators using it?

The looting spree was the greatest financial flimflam of all time, the transformation of enormous amounts of middle class wealth in housing into profits for the perps that are still being paid off on the installment plan. It was classic insider manipulation of a speculative market.

And, uhh, what exactly has Dodd-Frank done that you find so onerous? Spell it out.

 

[LegendKiller]

Why would it be "catastrophic"? The recovery has been catastrophic for a lot of the middle class.

The "recovery" is 5+ years old. How long should it take? Low intrest rates don't seem to be working.

Will the economy fail if "life support" I.E. low intrest rates was turned off and the "feeding tube" I.E. QE removed will the patient pass on?

Is it really a recovery or is it a coma?


.

So if low rates aren't growing the economy fast, what do you think would be happening if the low rates didn't exist?


As far the buybacks, it's a huge tax scheme for the uber-wealthy. Tax capital gains at the same rate as income and watch it disappear.

 

[Kwatt]

So if low rates aren't growing the economy fast, what do you think would be happening if the low rates didn't exist?

I don't know. I was asking a question.
I can't seem to find any examples of it being tried before. My search abilites are lacking. I have found few examples of a recovery that lasted 5+ years either. It is OK though just today on TV. A commentator said she is expecting a real acceleration in GDP soon. And that the corner has been turned... again🙂

As far the buybacks, it's a huge tax scheme for the uber-wealthy. Tax capital gains at the same rate as income and watch it disappear.

OK.

 

[LegendKiller]

I don't know. I was asking a question.
I can't seem to find any examples of it being tried before. My search abilites are lacking. I have found few examples of a recovery that lasted 5+ years either. It is OK though just today on TV. A commentator said she is expecting a real acceleration in GDP soon. And that the corner has been turned... again🙂




OK.

It was a rhetorical question. The economy would absolutely suck if rates weren't so low. I know, since I see the effects of it every day. Low rates have been passed on to consumers and businesses of all corners of the economy. They are finding cheap financing and growing, maybe not in the best spots, but they are growing.

The difference between this recovery and every other recovery before it is that we had manufacturing to lead us out then. Due to the Chinese cheating, we don't have that.

OK?

 

[Kwatt]

It was a rhetorical question. The economy would absolutely suck if rates weren't so low. I know, since I see the effects of it every day. Low rates have been passed on to consumers and businesses of all corners of the economy. They are finding cheap financing and growing, maybe not in the best spots, but they are growing.

The difference between this recovery and every other recovery before it is that we had manufacturing to lead us out then. Due to the Chinese cheating, we don't have that.

OK?

I see.

If there has been no recoveries where "low" rates where used to get the job done. How does anyone know this is the right way to do it? Is this is the only thing that might work? I understand that if there is no known guideline to go by something should be tried. But, I would like some timeline to go by.

.

 

[LegendKiller]

I see.

If there has been no recoveries where "low" rates where used to get the job done. How does anyone know this is the right way to do it? Is this is the only thing that might work? I understand that if there is no known guideline to go by something should be tried. But, I would like some timeline to go by.

.

First, there is plenty of history where low rates (and other monetary stimulus) have helped hurt economies. The Great Depression is a good example, when the Fed withdrew some measures, it reignighted the depression, causing a double dip.

My point was that if growth is 110, recession is 90, and flat is 100, an economic cycle would be 90 ->100 ->110 ->100 -> 90. Anything below 100 is contraction, anything above is expansion.

Now, since this recession is a little different, we look something like this...

80 ->90 -> 100 -> 105 ->105 ->105...etc.

We had a huge dip, a slow crawl out, and now we're kinda stagnant with some small growth.

What would happen if we had no monetary stimulus?

80 -> 85 -> 90 -> 95 -> 95 -> 95 -> 100 ->....

So while the stimulus isn't leading to 110 growth, it is leading to SOME growth, but more importantly, it is STILL leading to growth rather than contraction.

This is what is silly about some of the "studies" that say that QE and low rates haven't "helped". Sure, it hasn't led to 6% GDP growth, but it also has likely prevented us from dipping far lower and staying in contraction.

 

[DucatiMonster696]

Interest rates are at record lows. CEOs would be doing their company a disservice if they didn't get some of that cheap money for buybacks. Will there be future pain because of all the borrowing? Yes a little, but many of this loans are 30 year loans. They will be paying these low interest rates for many years to come.

Not just companies, but people should be getting in on this cheap money. Always wanted land or a house? Still time to get low interest rates.

Got re-inflate that housing bubble for people living paycheck to paycheck right? What could go wrong ???

 

[LegendKiller]

Got re-inflate that housing bubble for people living paycheck to paycheck right? What could go wrong ???

Yeah, homeownership rates are so low due to everybody living paycheck to paycheck.


http://www.census.gov/housing/hvs/files/qtr413/q413press.pdf

Ohh, wait.

 

[Kwatt]

First, there is plenty of history where low rates (and other monetary stimulus) have helped hurt economies. The Great Depression is a good example, when the Fed withdrew some measures, it reignighted the depression, causing a double dip.

My point was that if growth is 110, recession is 90, and flat is 100, an economic cycle would be 90 ->100 ->110 ->100 -> 90. Anything below 100 is contraction, anything above is expansion.

Now, since this recession is a little different, we look something like this...

80 ->90 -> 100 -> 105 ->105 ->105...etc.

We had a huge dip, a slow crawl out, and now we're kinda stagnant with some small growth.

What would happen if we had no monetary stimulus?

80 -> 85 -> 90 -> 95 -> 95 -> 95 -> 100 ->....

So while the stimulus isn't leading to 110 growth, it is leading to SOME growth, but more importantly, it is STILL leading to growth rather than contraction.

This is what is silly about some of the "studies" that say that QE and low rates haven't "helped". Sure, it hasn't led to 6% GDP growth, but it also has likely prevented us from dipping far lower and staying in contraction.

Thank You. I understand what you are saying.

If the labor participation rate is lower with flatting wages and unemployment is higher than usual. Would not the economy be smaller if the economy is ~70% consumer spending? Fewer people spending less equals smaller economy.

Would it not be better to accept a smaller GDP than use low rates to fit a square peg in a round hole?

When manufacturing was declining in the US the employees had to adapt to the changes. Wether or not the loss off manufacturing got us here. Here we are. Sounds like it is time for the economy to adapt.

I am a boomer. After the example set in the market collapase of 08-09. I learned my lesson. Even though my stock account is back up and even gained some ground. I am not spending on much if I can do without. And I certainly don't finance it. I don't replace things unless they break and I can't repair them. Up until the last few years if something quit I called someone or replaced it. Not any more. I have repaired clothes washers and dryers, dish washers, heaters and AC's, water heaters, refrigators, and plumbing.
At my house, my parents and my three sisters houses for the last 5 years.
It is kinda fun reading all the manuals and schemtics.


Seems to me that for a while people were spending there savings I.E. equity in there house on doo-dads. Now that a lot of that equity is gone and they are reluctant to spend what is left. Where is the spending going to come from?

Student loans amounts to spending the equity in a house that hasn't been bought yet. It will keep some from buying a house for a while. Even though I have seen articles that seem to say that housing loan requirments are being lowered.

SubPrime auto loans don't seem like a long term solution either.


.

 

[Fern]

-snip-

And, uhh, what exactly has Dodd-Frank done that you find so onerous? Spell it out.

One example is that Dodd-Frank was ostensibly designed and enacted for the purpose of preventing 'too big to fail' banks.

But the regulatory compliance burden is o onerous it has had the opposite effect. In fact federal regulators were advising smaller banks that they wouldn't be able to afford compliance and that they should sell out to larger banks. Following Dodd Frank bank mergers and acquisitions shot to the highest levels in history (IIRC).

Dodd -Frank also seems ineffective in separating routine banking activities from investment activities, something that Glass Steagell did. Not too long ago someone posted an article explaining how banks are taking the 'free' money from the fed and using it to invest in commodities. While they are making a good profit it does nothing but drive up prices for the rest of us since the banks don't add any value etc.

Fern

 

[realibrad]

If we want to stop too big to fail, you have to stop bailing out the banks. If you want the government to stop bailing out the banks, you have to get the bankers money out of government. If you want the bankers money to be taken out of the government, you have to make the government smaller so it cant bail out the banks.

Pro tip, you cant regulate the money out of the government. The reason those who have money spend it on the government, is because it gets them what they want, and that is more money. Make the government smaller and it becomes less profitable than doing shit in the private sector.

 

[Zaap]

^ B-but if we don't have a cash-starved bloated government that's entirely beholden to rich people... our grand 100 year scheme of making it turn on its benefactors in order to support its liabilities from cradle to grave will fall through!!!! </liblogic>

 

[fskimospy]

If we want to stop too big to fail, you have to stop bailing out the banks. If you want the government to stop bailing out the banks, you have to get the bankers money out of government. If you want the bankers money to be taken out of the government, you have to make the government smaller so it cant bail out the banks.

Pro tip, you cant regulate the money out of the government. The reason those who have money spend it on the government, is because it gets them what they want, and that is more money. Make the government smaller and it becomes less profitable than doing shit in the private sector.

You don't have to stop bailing out banks to end too big to fail, you can just regulate them so they aren't too big to fail.

Not bailing out the banks in 2008 would have gone down in history as one of the dumbest economic moves of all time.

 

[realibrad]

You don't have to stop bailing out banks to end too big to fail, you can just regulate them so they aren't too big to fail.

Not bailing out the banks in 2008 would have gone down in history as one of the dumbest economic moves of all time.

Ah, but here is the thing, you cant regulate because the people in government are beholden to the bankers who fund their elections. Bankers fund elections, so regulators turn blind eyes. When Fannie and Freddie were looking to sell their goods to investors, everyone knew they were backed by the government. They knew this because of what the government had done before.

Savings and Loan crisis proved what the government was willing to do. The reason it got to the scale it did is because it went on longer than they expected.

More regulation will not solve the problem. Make no mistake, I'm not saying let them run free. They must uphold their contracts, and if they dont the government can step in. I just believe you set up a system that punishes banks for the risks they take, instead of bailing them out. If investors were afraid a bank was going to lose money, they will not over invest.

The issue can be debated on what would have happened if the banks were not bailed out. The thing we should focus on is how did it get to where it did in 2008. The banking industry had and still has massive amounts of regulation. There is a reason that in the past banks were smaller, and it has nothing to do with regulation from governments.

 

[fskimospy]

The reasons banks were smaller in the past had a lot to do with government regulations.

 

[ElFenix]

Thank You. I understand what you are saying.

If the labor participation rate is lower with flatting wages and unemployment is higher than usual. Would not the economy be smaller if the economy is ~70% consumer spending? Fewer people spending less equals smaller economy.

70% isn't a static figure. the traditional equation for an economy is GDP = C(onsumer spending) + I(nvestment) + (net e)X(ports) + G(overnment). if one of those 4 goes down, another can go up to maintain the same GDP.

Would it not be better to accept a smaller GDP than use low rates to fit a square peg in a round hole?

problem is that wages are sticky downward. so rather than end up with the same number of people employed at lower average wages, you end up with fewer people employed. if that unemployment number reaches too high, you get rather nasty things like armed insurrection.

When manufacturing was declining in the US the employees had to adapt to the changes. Wether or not the loss off manufacturing got us here. Here we are. Sounds like it is time for the economy to adapt.

let's be really clear: manufacturing hasn't declined, the number of people employed manufacturing has. productivity has shot way up. and when productivity shoots up, you can produce the same with fewer people. you may reach a malthusian scenario brought on by technology making people obsolete rather than just population growth.

the other issue is that the economy may be changing faster than people can realistically adapt. it takes money and time to retrain.

I am a boomer. After the example set in the market collapase of 08-09. I learned my lesson. Even though my stock account is back up and even gained some ground. I am not spending on much if I can do without. And I certainly don't finance it. I don't replace things unless they break and I can't repair them. Up until the last few years if something quit I called someone or replaced it. Not any more. I have repaired clothes washers and dryers, dish washers, heaters and AC's, water heaters, refrigators, and plumbing.
At my house, my parents and my three sisters houses for the last 5 years.
It is kinda fun reading all the manuals and schemtics.

there's something nice about working with your hands and getting things accomplished. but that same sort of saving behavior that individuals automatically do when the outlook goes negative just becomes a self-reinforcing cycle on the economy when done in aggregate.

Seems to me that for a while people were spending there savings I.E. equity in there house on doo-dads. Now that a lot of that equity is gone and they are reluctant to spend what is left. Where is the spending going to come from?

government got us through the worst of it. deficits have fallen way off their peaks.

Student loans amounts to spending the equity in a house that hasn't been bought yet. It will keep some from buying a house for a while. Even though I have seen articles that seem to say that housing loan requirments are being lowered.

blame the states. the total cost of college on an individual student basis hasn't been much rising at a rate much different from inflation. what's happened is the states went from funding 50% to funding 10%.

SubPrime auto loans don't seem like a long term solution either.


.

probably not. are those back?

 

[werepossum]

If we want to stop too big to fail, you have to stop bailing out the banks. If you want the government to stop bailing out the banks, you have to get the bankers money out of government. If you want the bankers money to be taken out of the government, you have to make the government smaller so it cant bail out the banks.

Pro tip, you cant regulate the money out of the government. The reason those who have money spend it on the government, is because it gets them what they want, and that is more money. Make the government smaller and it becomes less profitable than doing shit in the private sector.

It would have been a very major pain to not bail out the banks. A better solution would be that if your bank has to be bailed out, it gets broken into pieces that aren't too big to fail. And in bankruptcy, so contractually obligated bonuses aren't paid. I don't care what your contract says, if your company is being kept afloat with other people's money you should not get a bonus, period.

70% isn't a static figure. the traditional equation for an economy is GDP = C(onsumer spending) + I(nvestment) + (net e)X(ports) + G(overnment). if one of those 4 goes down, another can go up to maintain the same GDP.


problem is that wages are sticky downward. so rather than end up with the same number of people employed at lower average wages, you end up with fewer people employed. if that unemployment number reaches too high, you get rather nasty things like armed insurrection.


let's be really clear: manufacturing hasn't declined, the number of people employed manufacturing has. productivity has shot way up. and when productivity shoots up, you can produce the same with fewer people. you may reach a malthusian scenario brought on by technology making people obsolete rather than just population growth.

the other issue is that the economy may be changing faster than people can realistically adapt. it takes money and time to retrain.




there's something nice about working with your hands and getting things accomplished. but that same sort of saving behavior that individuals automatically do when the outlook goes negative just becomes a self-reinforcing cycle on the economy when done in aggregate.



government got us through the worst of it. deficits have fallen way off their peaks.


blame the states. the total cost of college on an individual student basis hasn't been much rising at a rate much different from inflation. what's happened is the states went from funding 50% to funding 10%.



probably not. are those back?

I don't know about subprime auto loans - I'm not even sure what that means in practical terms, other than just poor credit and high interest rates - but awhile back I saw signs advertising 110% financing on homes. So at least some of the stupid is back.

 

[LegendKiller]

If we want to stop too big to fail, you have to stop bailing out the banks. If you want the government to stop bailing out the banks, you have to get the bankers money out of government. If you want the bankers money to be taken out of the government, you have to make the government smaller so it cant bail out the banks.

Pro tip, you cant regulate the money out of the government. The reason those who have money spend it on the government, is because it gets them what they want, and that is more money. Make the government smaller and it becomes less profitable than doing shit in the private sector.

That's throwing the baby out with the bathwater. You want to get rid of TBTF you mandate that banks cannot have more than 2% of the country's deposits and cannot have a leverage ratio over 10:1. Watch the entire sector shed branches, assets, and get much, much smaller.

 

[LegendKiller]

It would have been a very major pain to not bail out the banks. A better solution would be that if your bank has to be bailed out, it gets broken into pieces that aren't too big to fail. And in bankruptcy, so contractually obligated bonuses aren't paid. I don't care what your contract says, if your company is being kept afloat with other people's money you should not get a bonus, period.


I don't know about subprime auto loans - I'm not even sure what that means in practical terms, other than just poor credit and high interest rates - but awhile back I saw signs advertising 110% financing on homes. So at least some of the stupid is back.

Subprime auto loans never went away. They are typically loans below 670 FICO.

The resurgence of them is more of a reversion to the mean, plus aggregation of the industry and creation of more subprime borrowers by the subprime crisis, the semi-recovery to the lower SES tiers and student loans.