Know the Enemy: Stock Buybacks
This publication and all of our content and coordination will be hosted on our new site, mtcstw.com however, we will still use Substack because capitalism.
As part of our Know the Enemy (mtcstw.com) series, we’d like to highlight one of the most insidious tools those big monkey brains coming out those fancy financial institutions use to destroy our lives: The Stock Buyback.
On the surface, this tool is very obviously stock manipulation and equally a waste of money as it is fraudulent. Here, we’ll break it down a little more in depth and give our direct critique against it.
“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
―Sun Tzu,The Art of War
We must know our enemy to understand how we must engage them on the financial battlefield, as outright financial warfare is the only language these soul sucking ghouls will understand.
Early History and Legality
Stock buybacks, also known as share repurchases, are a way for publicly traded companies to return capital to their shareholders by purchasing their own outstanding shares in the open market.
For most of the 20th century, stock buybacks were largely considered a form of market manipulation and were either illegal or heavily restricted in the United States. The concern, rightfully so, was that companies could artificially inflate their stock prices by reducing the number of outstanding shares.
The Shift in the 1980s
A significant turning point occurred in 1982 when the U.S. Securities and Exchange Commission (SEC) adopted Rule 10b-18 during the Reagan deregulation bonanza. This rule provided a "safe harbor" for companies engaging in buybacks, protecting them from liability for market manipulation under certain conditions. These conditions relate to the timing, pricing, volume, and manner in which buybacks are conducted. This regulatory change effectively legalized and facilitated the increase in stock buyback activity.
Rise in Popularity
Following the implementation of Rule 10b-18, stock buybacks gradually became a more common tool for companies to distribute earnings to shareholders. By the late 20th and early 21st centuries, buybacks saw a sharp increase in volume in the United States and later became a common practice globally.
Comparison with Dividends
Historically, before the 1980s, the primary method for companies to return cash to shareholders was through dividends. However, stock buybacks offer a few potential advantages:
Tax efficiency: In many jurisdictions, capital gains (realized when shareholders sell their appreciated stock) are taxed at a lower rate than dividend income. Also, taxes on capital gains are only paid when the shareholder decides to sell, offering more control over the timing of taxation compared to the immediate taxation of dividends.
Flexibility: Companies have more discretion over the timing and amount of buybacks compared to the more regular and often expected nature of dividend payments.
Boosting Share Price: By reducing the number of outstanding shares, a buyback can increase a company's earnings per share (EPS), which can lead to a higher stock price, assuming the company's overall value remains the same or investor sentiment is positive.
Methods of Stock Buyback
Companies employ various methods for repurchasing their shares:
Open Market Purchases: This is the most common method, where a company buys back its shares over time on the open market, similar to how other investors trade. Rule 10b-18 provides a safe harbor under specific limitations, such as daily volume and price restrictions.
Tender Offers: A company announces it will buy back a certain number of shares at a specific price within a specific timeframe, allowing shareholders to offer their shares. This can be a quicker way to repurchase a large number of shares.
Accelerated Share Repurchase (ASR): Companies use investment banks to repurchase a large number of shares quickly. The company pays upfront, and the bank delivers the shares over a contracted period.
Privately Negotiated Repurchases: A company directly purchases shares from a specific shareholder or a small group of shareholders. These transactions are not protected by Rule 10b-18's safe harbor.
Recent Trends and Regulations
Stock buyback activity has continued to be significant in recent decades. For example, in 2024, S&P 500 companies reportedly set an annual record for buyback expenditure. However, there has been increasing scrutiny and debate surrounding the practice.
In 2022, the U.S. introduced a 1% excise tax on stock buybacks by publicly traded corporations as part of the Inflation Reduction Act. This aims to reduce the tax advantage of buybacks over dividends and potentially encourage companies to reinvest more in their business or employees.
Economic Impact and Controversy
Stock buybacks, under capitalism, serve to artificially inflate stock prices and boost earnings per share, primarily benefiting wealthy shareholders and corporate executives whose compensation is often tied to stock performance. This financial maneuvering achieves this by reducing the number of outstanding shares without actually generating new value or productivity within the company itself. Instead of reinvesting profits into wages, infrastructure, research and development, or community support, these funds are channeled into the financial markets, further concentrating wealth.
Pillaging Resources from Local Communities:
Diversion of Capital: The capital used for stock buybacks could otherwise be directed towards investments that directly benefit local communities. This includes creating jobs with living wages, improving working conditions, funding local infrastructure projects, supporting community initiatives, and investing in sustainable practices that protect the environment. By choosing buybacks, corporations are actively diverting resources away from these crucial areas of social and economic development within the communities where their operations are based.
Stagnation of Productive Forces: From a Marxist lens, capitalism's inherent drive for profit maximization often leads to the stagnation of productive forces when it is deemed more profitable to engage in financial engineering rather than real investment. Stock buybacks exemplify this. The money spent on repurchasing shares does not contribute to the creation of new goods or services, nor does it enhance the productive capacity of the economy in a way that benefits the working class. This hoarding of capital in financial instruments limits the potential for societal progress and the improvement of living standards in local communities.
Widening Inequality: Buybacks exacerbate the already vast inequalities inherent in capitalism. The primary beneficiaries are those who own significant amounts of stock – predominantly the wealthy. This further concentrates wealth and power in the hands of the capitalist class, leaving the working class with a relatively smaller share of the economic pie. Local communities, often reliant on the economic activity of these corporations, suffer as resources are siphoned off to enrich distant shareholders rather than being reinvested locally.
Hoarding in Illiquid Equity:
While the equity itself isn't strictly "illiquid" in the sense that it can't be traded, the act of a corporation holding a large treasury of its own repurchased shares represents a form of hoarding. This capital is essentially locked away from being used for socially productive purposes. It sits on the company's balance sheet, not actively circulating within the real economy to stimulate growth and benefit communities. From a communist perspective, this represents a fundamental misallocation of resources driven by the capitalist imperative of private profit accumulation.
"Liquidate the Billionaires" and the Return of Stagnant Assets:
The slogan "liquidate the billionaires" encapsulates the communist critique of this hoarding of wealth and resources. It fundamentally calls for the dismantling of the capitalist class's control over vast amounts of stagnant assets, including inflated equity derived from practices like stock buybacks. The idea is not necessarily about physically seizing and selling off every personal possession, but rather about the revolutionary transformation of ownership and control over the means of production and the accumulated wealth derived from the exploitation of labor.
From a communist standpoint, the "liquidation" refers to:
Socialization of Capital: Transferring ownership and control of major industries, corporations, and financial institutions from private hands to the collective ownership of the working class, often through the state as a temporary instrument. This would mean that the vast pools of capital currently used for activities like stock buybacks would be redirected towards socially beneficial investments.
Democratic Economic Planning: Replacing the anarchic and profit-driven allocation of resources under capitalism with a democratically planned economy. This would allow for the conscious and rational deployment of resources to meet the needs of local communities, develop infrastructure, ensure full employment, and promote social well-being, rather than being dictated by the pursuit of private profit through mechanisms like buybacks.
Redistribution of Wealth: Breaking down the extreme concentrations of wealth accumulated by the capitalist class. This would involve measures such as progressive taxation, wealth taxes, and the abolition of inheritance in its capitalist form, ensuring that the vast resources hoarded by the few are redistributed to meet the needs of the many.
By fundamentally liquidating the stagnant assets controlled by the capitalist class, a communist revolution aims to unlock the vast wealth currently trapped in unproductive financial maneuvers and redirect it back into the real economy, benefiting local communities through direct investment, improved social services, and a more equitable distribution of resources. This would directly address the problems created by the hoarding of capital through mechanisms like stock buybacks.
Reference to Communist Theory:
This analysis draws heavily from the core tenets of Marxist theory, particularly:
Critique of Capital: Karl Marx's Das Kapital extensively analyzes how capital accumulation under capitalism leads to the exploitation of labor and the concentration of wealth in the hands of the bourgeoisie. Stock buybacks can be seen as a modern manifestation of this tendency, where surplus value extracted from the labor of the working class is used to further enrich the capitalist class through financial manipulation rather than reinvestment in production or the well-being of the workers and their communities.
Theory of Surplus Value: Marx argued that profit (surplus value) is derived from the unpaid labor of the working class. Stock buybacks utilize a portion of this accumulated surplus value not to benefit those who created it or their communities, but to inflate asset prices for the owners of capital.
Historical Materialism: This framework posits that the economic base (the mode of production) shapes the superstructure (social, political, and ideological institutions). Stock buybacks are a product of the capitalist economic base and reinforce the power of the capitalist class within the superstructure. The call to "liquidate the billionaires" represents a revolutionary challenge to this economic base and the resulting social order.
Lenin, Vladimir Ilyich. Imperialism, the Highest Stage of Capitalism. (Lenin analyzes the development of capitalism into its monopoly stage, highlighting the role of finance capital and the export of capital, which provides a broader context for understanding financial maneuvers like stock buybacks within the global capitalist system.)
Solution: Liquidation is Liberation
Our Liquidate the Billionaires movement is assembling a team of stable geniuses who’ve come up with many different strategies to take it to the billionaires and hit them where it hurts. These include all of the legal tools available to us.
When it comes to business, we must take their profits by force, through hostile means if necessary (mergers and acquisitions) through a culmination our prevailing efforts and market forces.
By weakening just one company enough, their parasitic vulture brethren will do our dirty work for us. And on and on and while we build out or alternative economies of scale centered on equity instead of profits.
We will strike like lightning. No one will know the target. No one will know when. And so begins our campaign of psychological warfare.
We’re coming. They need to know.
Because they can not defend everything.
They’d be fools to try.