eli5: what are stock buybacks, why are they generally considered a bad thing (for most of us), and what’s the rationale for having it?
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When a company makes a lot of profit there are different hings that can be done with the money.
They could simply give the money to the owners, that is the ones who own shares of the company, in the form of dividends.
They could also reinvest some of the money into the company, buying new equipment or expanding into new markets. They could raise the wages of the employees to boost morale and employee retention rates. They could also safely invest the money in such a way that they have it available in case they need it later.
Or they can buy back some of their own shares from the shareholders. They go to people who own part of the company and give them money for the part that they own.
This is a way to give the shareholders money, similar to paying out dividends, but in some places it saves the stockholders a lot more money tax wise (and cost everyone else).
What makes a lot fo people angry is this legal tax-cheating, but also the fact that companies make record profits but don’t actually put any of that money to the parts of the company that made those profits like the workers etc.
What really makes people angry when a company takes the profit it makes in one year gives that money out to shareholders in a way that avoids paying taxes and then next year or a few years later they ask for a government bailout for the very taxpayers they cheated on earlier.
People will wonder why the company didn’t put some money to the side for bad times or why they didn’t invest it in making the company more profitable and why the taxpayer should foot the bill for this greed and shortsightedness rather than the people who benefited from it.
If you are shareholder they can be great though.
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