Share Buybacks Just Another Wall Street Scam

Better a diamond with a flaw than a pebble without one.
Chinese Proverb

Wall Street has a new hobby use good money to create the illusion that all is well; only unlike most hobbies, the intent is to distort reality and reward lazy insiders for doing next to nothing. Gone are the days of actually trying to improve the bottom line, by improving efficiency, finding new markets, etc.; now the idea is simply cut the supply of outstanding shares, thereby magically boosting the EPS. Why are executives doing this with such impunity? The “safe harbor” rule passed in 1982, essentially allows corporations to repurchase shares without having to face charges of manipulating the price of their shares. Before the passage of this rule, stock repurchases were next to zero. In fact, Senators Elizabeth Warren and Tammy Baldwin both share the sentiment that stock buybacks should be forbidden by the SEC because they are a form of market manipulation.

Senator Baldwin issued the following statement in regards to share buybacks:

In 1982, when the Securities and Exchange Commission (SEC) issued a rule to provide ‘safe harbor’ from manipulation liability, buybacks were near zero. Last year, over $500 billion was spent on share repurchases.

Senator Warren also shares a similar sentiment

“These buybacks were treated as stock manipulation for decades because that is exactly what they are,” she said. “The SEC needs to recognize that.”

Does the SEC recognize that; apparently not as the SEC admits it not monitoring stock buybacks to prevent manipulation?  SEC chair Mary White made the following comments in response to a letter addressed from Senator Baldwin

“Performing data analyses for issuer stock repurchases presents significant challenges,” White writes, “because detailed trading data regarding repurchases is not currently available.”

White goes on to state that “because Rule 10b-18 is a voluntary, safe harbor, issuers cannot violate this rule.”