From Wolf Richter at Wolf Street. The Trump administration is considering a $850-billion stimulus package (bailout) for corporate America. This includes a bailout for the airline industry – the same airline industry that spent the past few years spending cash and borrowed money on share buybacks.
“The S&P 500 companies, including those that are now asking for huge bailouts from taxpayers and from the Fed, have blown, wasted and incinerated together $4.5 trillion with a T in cash to buy back their own shares just since 2012.“
Now the Fed is worried, but Fed policy helped create this monster:
“And those $4.5 trillion in cash that was wasted, blown, and incinerated on share buybacks since 2012 for the sole purpose of enriching shareholders are now sorely missing from corporate balance sheets, where these share buybacks were often funded with debt.
And the record amount of corporate debt – “record” by any measure – that has piled up since 2012 has become the Fed’s number one concern as trigger of the next financial crisis. So here we are.
In 2018, even the SEC got briefly nervous about the ravenous share buybacks and what they did to corporate financial and operational health. “On too many occasions, companies doing buybacks have failed to make the long-term investments in innovation or their workforce that our economy so badly needs,” SEC Commissioner Jackson pointed out. And he fretted whether the existing rules “can protect investors, workers, and communities from the torrent of corporate trading dominating today’s markets.”
But, don’t worry, we’ll get our $1,000 payoff to keep our mouths shut and not complain.