Weekend thoughts on Corporate stock buy-backs

At the end of his interview segment on the coming corporate tax "holiday," Matt Taibbi tells Keith Olbermann that the money saved because of the tax forgiveness "holiday" won't go for jobs (natch), but for things like corporate tax buy-backs. (That comment is near the end of the interview.)

Here's why corporate buy-backs matter to you:

1. It's just a fact that today's corporations exist to pass as much money into the pockets of their chief executives as possible. With the top marginal tax rate near historic lows, why wouldn't they? The incentives almost demand it. In that sense, CEOs are predators who feed on company revenue — not an inaccurate statement, as you'll see below.

2. There are several ways for predator CEOs (yes, some aren't) to bank that cash — the chief being (1) direct compensation, (2) bonuses, (3) stock and stock options. In most cases, direct compensation is the least lucrative of the three.

3. This makes it personally important to keep company stock prices as high as possible — in many cases, it's simply job one.

Yes, all shareholders will benefit some (though not for long, since the company ultimately loses), but that's just a side-effect. The only shareholders that these CEOs care about is themselves and their (hoped-to-be dynastic) children—the ones they can now get into Sidwell Friends School, for example.

(This is why I recently predicted, by the way, that the recent 500-point fall in the Dow may be a blip, in dog years anyway. Ultimately, the CEO class has just too much money parked in their company's stock to let the Dow fall below that scary 10,000 mark.)

With all that in mind, let's say that our (very simplified) company:

■ Has 1 million shares outstanding @ $10/share

■ Therefore has a market capitalization of $10,000,000

■ And with repatriated minimum-taxed (or untaxed) profit, buys back 10% of those shares

The market capitalization (# of shares × price-per-share) goes down briefly, but then the stock price rises because earnings haven't changed (in our example, anyway). In a clean world, the increase in stock price brings the market cap back to $10 million.

That's an immediate 10% increase in value of the corporate stock holdings of the CEOs who made that (entirely self-serving) decision. Voilà—instant net worth, bought with corporate money, repatriated at low tax by retainer politicians on the take, campaign-contributions-wise.

See why I call these people "predators"? They really are the biggest meat-eaters in the jungle, and everything else is either servants or food, sometimes both.

So you should notice the phrase "stock buy-back" every time it's mentioned. It's a prime way for self-dealing CEOs to hand themselves a whole mess of company money at the expense of both the company itself and the welfare of the workers.

Hopefully, "corporate stock buy-back" doesn't sounds so innocuous any more. It's not; that's why the CEOs want it so bad.

Will Barack Obama support this corporate tax holiday? What's a retainer to do? It will certainly be a major indicator of where his priorities lie. If he does support it, the lost revenue will drill a monster hole in the budget, about which I hear he deeply cares.

Place your bets.

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Corporate tax repatriation bill falsely positioned as a "jobs bill"

They're calling it a tax "holiday," and some holiday it is.

Trillions of dollars that corporations earned and parked overseas (where they "delay" paying U.S. taxes on it) are being invited back into the country by the promise of a lowered tax rate on all money repatriated. The discussion starts at 5%.

That's correct — if you bring your money back home, you can pay 5% tax on it (more or less, not including deductions and loopholes). As Groucho used to say, "Cut me off a piece of that."

Here's Matt Taibbi discussing this on Keith Olbermann's Countdown. Great segment.



"Rewarding companies for off-shoring their profits" and for keeping their expenses in the high-tax states. The NeoLiberal Party (and project) at work. (By the way, and apropos of none of this, is the Clinton daughter still a hedge-fund employee? Maybe not; just wondering.)

Taibbi is right (starting at about 4:40) — this is the big one in lost revenue. Perhaps $70 billion per year in tax collections since 2004, gone forever.

It's called the "Freedom to Invest Act" by the way. Nice one; the only freedom the NeoLiberal Party cares about.

For those who want something to ready, here's Taibbi's latest write-up (short, clear, Taibbi-esque) on this deal.

And if you really want to stay ahead of the action, watch for Barack Obama's reaction. Just sayin'.

[Update: For more on Taibbi's point about how this connects to corporate stock buy-backs, see this follow-on post.]

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Drew Westen asks: "What Happened to Obama?"

If you read one thing this Sunday, read Drew Westen's column in today's New York Times. It's titled, What Happened to Obama?" And, it is definitely worth reading because it's a question a lot of people have been asking. Here's an excerpt:

Like most Americans, at this point, I have no idea what Barack Obama — and by extension the party he leads — believes on virtually any issue. The president tells us he prefers a “balanced” approach to deficit reduction, one that weds “revenue enhancements” (a weak way of describing popular taxes on the rich and big corporations that are evading them) with “entitlement cuts” (an equally poor choice of words that implies that people who’ve worked their whole lives are looking for handouts). But the law he just signed includes only the cuts. This pattern of presenting inconsistent positions with no apparent recognition of their incoherence is another hallmark of this president’s storytelling. He announces in a speech on energy and climate change that we need to expand offshore oil drilling and coal production — two methods of obtaining fuels that contribute to the extreme weather Americans are now seeing. He supports a health care law that will use Medicaid to insure about 15 million more Americans and then endorses a budget plan that, through cuts to state budgets, will most likely decimate Medicaid and other essential programs for children, senior citizens and people who are vulnerable by virtue of disabilities or an economy that is getting weaker by the day. He gives a major speech on immigration reform after deporting a million immigrants in two years, breaking up families at a pace George W. Bush could never rival in all his years as president.

THE real conundrum is why the president seems so compelled to take both sides of every issue, encouraging voters to project whatever they want on him, and hoping they won’t realize which hand is holding the rabbit. That a large section of the country views him as a socialist while many in his own party are concluding that he does not share their values speaks volumes — but not the volumes his advisers are selling: that if you make both the right and left mad, you must be doing something right.

The answer may be that nothing happened to Obama. This is who he is. Read the rest of this post...

Obama admitted to Dems in May that he probably wouldn't stand up to GOP in debt talks

He simply vocalized what we already knew.

The article does a pretty good job of laying out how the President approaches negotiating. He sees himself as the mediator. The only problem is that if he's the mediator, then there's no left flank. There's simply the right, the mediator, and no one else.

Instead, the president often operated more as a mediator, accepting the need to cut spending, including entitlements, while limiting his priorities to avoid default and any more debt-ceiling votes until after his reelection campaign.

“You look for what the other side needs. You look for what you need,” said White House budget director Jacob J. Lew, describing Obama’s negotiation philosophy. “And you look for a solution where both can have honorable outcomes. You can’t vanquish each other.”

By that measure, Obama got what he wanted.

It's like bringing a mediator to a street fight. They bring a knife, you bring a mediator. They bring a gun, you bring a mediator. But even that analogy is wrong. The President tries to put himself in the middle when he's a part to the negotiation, even when he's the only other party to the negotiation. He doesn't try to do what's best on substance. He tries to defuse the situation at all, and any, costs. Read the rest of this post...

S&P; is right about political risk, not necessarily the debt

S&P downgraded US debt yesterday because of the deficit ceiling fiasco.  And they're right.  As Ezra Klein notes:

But that doesn’t make Standard Poor’s wrong in this particular case. “The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges,” they explained in the statement accompanying Friday’s decision. After Republicans in Congress spent three months weighing whether or not to default on our debt and Senate Minority Leader Mitch McConnell said that paying our bills would never again be a foregone conclusion, can anyone really argue with that? After every Republican presidential candidate save Jon Huntsman either remained silent on, or flatly opposed, the deal to raise the debt ceiling, can anyone really say that U.S. debt is completely riskless? That there’s no chance of a political miscalculation, and if there is such a chance, that they can perfectly predict the outcome of the ensuing chaos?

The Republicans, including GOP presidential candidates, made clear that they no longer feeling obliged to pay US debt. S&P; reacted accordingly.

Now, S&P; is hardly harmless here. They decided to involve themselves in the US political process, not just observe it, not just react to it. They decided they wanted - THEY wanted - a specific debt deal, to the tune of $4 trillion, and they wanted it NOW (like Violet in Willie Wonka). To hell with the economy, to hell with whether it threw the US and the world into another serious recession. In that way, S&P; endorsed a GOP economic position, and that's wrong.

But they're right about their assessment of US politics. The GOP has gone nuts. It's always been a bit obstinate, see Gingrich circa 1995-96. And they've only gotten worse. It's the GOP that orchestrated this crisis (with S&P;'s help) and it's the GOP that gets the blame. It didn't help that the President enabled it, through his previous poor negotiations and his current willingness to one up the GOP in their budget cutting madness. But at its core, it's still the GOP that was behind this entire "let's stop paying the debt" fiasco. Read the rest of this post...

For your pleasure, a cartoon by Mr. Fish

A cartoon, by Mr. Fish.

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