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Stock Buybacks

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There has been a good deal of talk lately about "stock buybacks."

This is because, if I understand the situation, the Republicans want to give money to various businesses to get them through the coronavirus problem. The Democrats respond, NOT "subsidies are wrong in principle" (given the history, that seems an unlikely position for them to take, though these days anything is possible) -- rather their response is "we'll go along with the bail-outs to your buddies, so long as various strings are attached which we can pretend are pro-worker strings."

I just want to say that on this point the Republicans have a case.

Let's not talk or act as if there's never a good reason for a company to buy its stock back. Example: a management may have a good faith belief that its stock is undervalued by the market, and thus due for an upswing. It may also face a situation in which, before that upswing can happen, it faces a takeover threat from a corporate raider on the Icahn mold.

Our hypothetical managers may rightly deem that the best thing they can do for their shareholders is to resist the raider by buying back some of the stock (from the open market not from the raider himself), raising the price of the stock to a point in which further accumulation becomes unattractive and the raid is abandoned.

Notice that in that hypothetical I didn't mention whether or not the company had recently been bailed out by the government. Bailouts are wrong. Contrary to the implication of Schumer et al, that wrong does not become right, or even less wrong, by being attached to irrational strings such as a "no stock buybacks" rule. Peace out.



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