Stock buybacks are the ultimate vehicle of self-enrichment. Consider the following as a ‘case study’ of Wall Street’s legal fraud. Under CEO Doug Parker’s leadership from 2013-2020, American Airlines (AA) has seen its stock plummet 70%.
When one looks at Parker’s pay awarded vs the company’s three-year average economic profits, his pay-for-performance metrics are abominable. The media worships Parker for his stewardship of AA during this crisis and reports that, for the past three years, Parker’s salary and bonus were zero.
However, they fail to mention that AA’s legal Ponzi stock-buyback scheme saw Parker’s 2016-2018 take-home pay rocket to $70.2 million. (According to the Financial Times, Parker’s total award from selling stock since 2013 is $150 million).
To anyone doubting the Covid-19 bailouts will line executives’ pockets, American Airlines CEO Doug Parker says he’ll “find a way around” the rules against it.
It’s not bad for Parker, but it’s horrendous for AA employees, shareholders and American taxpayers who will be stuffed with a $20 billion bailout. Fair? Not on your life.
Debt-fueled stock buybacks and dividend payments are engineered to artificially increase stock prices so that self-interested CEO’s like Parker can “earn” higher compensation.
Increasing debt creates an illusion of better earnings. However, buybacks cannibalize corporate balance sheets, leaving taxpayers exposed to unlimited “bailouts” when these leveraged bets go wrong.
What’s the difference between rogue hedge fund managers and airline CEOs? Not much, except some airline CEOs have been given golden parachutes to the tune of nearly $17.5 million.
So who is enabling these CEO’s to line their pockets with taxpayer money?
Last summer, the US Federal Reserve released the results of its annual Comprehensive Capital Analysis and Review (CCAR). The CCAR is a bank stress test, which all the banks passed, and after passing the stress test, the Federal Reserve approved $125 billion in share buybacks!
The president and chief executive of the Federal Reserve Bank of Minneapolis (who oversaw TARP during the GFC of 2008) is recommending big US banks raise $200 billion in capital now to act as a buffer against economic shock from the “Corona-virus pandemic.”
This is a bit like putting on your seat belt after your airbag has already deployed.
The Federal Reserve’s legislated dual mandate is price stability and full employment. But last week, the Fed manipulated interest rates by buying back bonds, permanently destroying the capital market’s ability to function and surrendering every pretense that markets are fair and that the United States is a democracy.
It is completely contrary to the mandate of the Fed to implement policies that not only create record-high wealth inequality but also enable record-high amounts of corporate debt and risky leveraged loans (used for stock buybacks).
These policies wildly distort valuations by inflating temporary bubbles in the stock, bond, property and credit markets.
They also destroy every market’s natural ‘price discovery’ mechanism, enable Wall Street to conspire with Washington to commit the biggest corporate plunder in history, and turn a blind eye to a grand Ponzi scheme that will destroy the myth of capitalism.
The Fed’s perverse policies have enabled Wall Street fraud and created an oligarchy to serve oligarchs. It is clear that Congress should close the Federal Reserve and investigate the use of leverage for share buybacks.
During the past decade, Bloomberg reported that US airlines spent 96% of their free cash flow buying back shares. American Airlines was the leader, squandering at least $12.5 billion on share repurchases.
Despite having negative cumulative free cash flow during the decade, AA engaged in high-risk, balance-sheet-weakening buybacks. If this money had not been wasted on share buybacks, earnings would be much lower – but so would AA’s debt.
However, rather than building capital buffers and paying off debt to ensure a strong balance sheet, the airline industry leveraged up, knowing that governments would bail out their fiscal profligacy.
The executives made millions and laughed all the way to the bank, leaving taxpayers on the hook. Unfortunately, this is nothing new.
Is it possible that a CEO like AA’s Doug Parker, who receives 100% of his take-home pay in the form of equity through the sale of his shares of his own company, would not have a conflict of interest?
The miracle of the stock market earnings-per-share growth over the past decade was driven, in no small degree, by extreme greed, conflicts of interest and trillions of dollars in corporate stock buybacks.
What is the solution? End the Federal Reserve, prohibit all share buybacks, do not bail out these companies and audit the fiduciary abuse of executives like Doug Parker and hold them responsible.
The time has come to put an end to all stock buybacks and bailouts.
RT com / ABC Flash Point News 2020.