why are stock buybacks bad?
In:
It isn’t bad, it just means the company gets more control of their business.
BUT! When the buyback is done with money that was given by the government, so the company could keep paying their bills, buying supplies, and keeping people working, instead they do buy shareholders out of the company, so they get to keep more of the profits. Now this is kinda grotesque if you aren’t making any real profit and rely on subsidies and tax cuts to stay afloat. In which case you are basically just using tax payers money.
This is over simplifying it a bit, and since I’m nor from USA I can’t explain to you what US government wants companies to actually do.
But lets imagine you own a baking company, times are tough and barely anyone is buying your cupcakes. While ago when things were good you asked made a deal with a local raccoon, if he gives you money for a new dough machine, he get 10% of the profits. Now government gives you money so you can pay your bills during these hard times, to get flour, pay your utilities, pay your employee. To keep money flowing in the economy around you. Instead of doing this, you buy back the Raccoon’s profit share.
Can you see this issue here? Your local miller who is also struggling, needs business, and you need flour to run your business. But instead of buying said flour, you pay back Raccoons share. The money given to you doesn’t actually do anything. Economy is just long chain reactions. You buy flour from the miller, miller buys grain from farmer, farmer buys fertiliser from the rancher… etc… When you buy flour to make cupcakes, it is small amount of movement in the supply chain. You want this chain to keep moving. Imagine it as the belt of a machine, spreading momentum to other parts of the machine. (And before people barge in here… No… This is not “Trickle down economics”).
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