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Comment by light_hue_1 | Hacker News Reader

In the past 15 years Intel has spent almost $100 billion on stock buybacks. They don't need the money.

This is a pure transfer of wealth from taxpayers to the rich. And they're getting more like $20 billion not once you include loans, etc.

The wealthy make massive amounts of money, take it out for themselves, and then complain that they don't have capital. That's pure junk. And then we wonder why Biden's approval ratings are terrible and why we might end up with Trump again.

We need to make stock buybacks illegal again. They provide no value to everyone but the ultra wealthy.

Edit: Wow, the downvotes are amazing. A company gives away $100 billion then comes hat and in had to taxpayers asking for another $20 billion and we just hand it out. And I'm getting downvoted?

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I don't care if companies buy back stock - but if they can afford to buy back stock, they don't need or deserve my tax money to operate.

> In the past 15 years Intel has spent almost $100 billion on stock buybacks.

This is the main reason that I dislike stock buy backs, they reduce R&D investment.

If you want to give your investors a prize, pay a dividend. Otherwise, invest in your company!

Stock-buy backs are basically just dividends with a better tax treatment.

There is also the benefit to any exec whose compensation is related to a rising stock price, right?

That depends on the comp structure.

Usually comp structures look at multiple metrics that owners want to see. Owners prefer stock price to dividends, so they reward it more.

Buybacks and dividends are the same thing. Money leaves the company to go to shareholders. Neither is better/worse for R&D.

The new CEO banned buybacks.

I never understood the anti-dividend and anti-buyback mindset.

I've given quite a bit of money to partially own a business (and I don't mean publicly traded shares, but literally buy a portion of a business). I have an agreement with the operator that I'll get N% of proceeds (as long as the business can handle that percentage). Are you saying that I, as an owner, am not entitled to it? That's rather ridiculous.

Imagine a friend coming to you who says "Hey, I need $50K capital to start a business. Let's be partners - you provide the capital, and I'll do the operations. Oh, and I'll give you whatever money I want, whenever I want. Perhaps none at all. It'll be entirely up to me."

Would you take that deal? Because that's how shares work.

Shareholders, on paper, are partial owners. Yet they do not even have an agreement like I do. The company can decide not to share any money at all with shareholders. IMO, all companies that sell shares to the public should be required by law to give a representative amount of money to these owners.

BTW, my N above is significantly higher than the percentage almost any company pays back in dividends. Intel used to give about 4.5% return via dividends, and that was triple the industry average. They've since reduced it to 1.5% to be in line with the industry.

Buybacks and dividends are not the same thing. Buybacks get preferential tax treatment and are in their entirety manipulative (that's why they were banned under SEC rules until Reagan deregulated capital markets) to the market it serves. Dividends are predictable, have a consistent rate across the years and are pretty much impossible to game the market with, as they return value to shareholders over a longer time period, avoiding temporary volatility.

> Buybacks and dividends are not the same thing. Buybacks get preferential tax treatment and are in their entirety manipulative

OK - answer me this. How can a publicly traded company buy more of its own shares (i.e. to get a higher ownership stake)? Or even buy them because they believe they are undervalued?

> Dividends are predictable, have a consistent rate across the years

Except this is not true. A company decides each quarter how much dividend to pay out. There's usually nothing preventing them from saying "Nah, sorry."

We all know plenty of companies that simply don't pay dividends, no matter how profitable.

> I never understood the anti-dividend and anti-buyback mindset.

I'll try to explain it.

Companies use stock buybacks to give away massive amounts of capital. Capital that they clearly need for their long term health. Then, because they're important to the economy when they have a downturn they come to taxpayers and ask for massive amounts of cash.

This is for example what happened to the airlines which then got over $50 billion or so in bailouts. They spent about 80% of that in the previous few years on stock buybacks. They would have been healthy enough to survive without the bailouts. So what happens is companies give their money away to the rich, constantly fail because of that, and take money away from the poor to cover up for their failure.

Stock buybacks create a conflict of interest where companies can directly manipulate their stock prices. So instead of building the best enterprise, they can pump money into bringing their stock up artificially.

The fact that this overt manipulation of your own stock price is bad was well understood after the Great Depression and that's why it was basically banned by the act that set up the SEC in 1934. The SEC then passed Rule 10b-18 granting companies an exception from the market manipulation rules under Reagan.

That's a pretty clear case of a regulatory agency going against the will of Congress to create basically its own law. It will be interesting to see what happens to Rule 10b-18 if the Supreme Court reverses Chevron in a few months.

> The new CEO banned buybacks.

Of course. After 20 years of stock buybacks where they gave away the vast majority of their cash the new CEO wants money from the CHIPS act which says they cannot have buybacks for 5 years.

It will also be interesting to see if the CHIPS act has any teeth. BAE took the money but is doing buybacks anyway.

This is too long of a topic for an HN post. Here's a nice and balanced writeup https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3639389

My personal position is far more extreme, there should be a clear ban and the SEC should not be allowed to overturn the law as it was written with a regulation. Certainly if the EPA cannot regulate carbon through the same logic, the SEC should not be allowed to do so.

If you want a gentler writeup, this HBR article has it. https://hbr.org/2014/09/profits-without-prosperity

You start a business and have partners who have bankrolled you. They own a percentage of the company. At some point, you want to buy out their share. But the government just banned it. You can only dilute your share, never increase your ownership stake.

Does that make sense? Because that's what banning stock buybacks will achieve.

> Companies use stock buybacks to give away massive amounts of capital.

It's one use of stock buybacks, amongst many. Companies also do buybacks to get a greater ownership stake. They also do it if they think their stock is undervalued.

Banning buybacks is throwing all good options out to prevent a few bad options. It's a kneejerk reaction.

My company has done buybacks multiple times. It barely made any impact on the stock price. The much believed notion that it manipulates stock prices ... needs hard data. Look at all the companies who've done it in the last 30+ years - how many of them saw a significant gain in stock price in the short term?

I can agree that these transactions need to be regulated. But banned? Nope. For me, though, reform is useless unless they solve the problem I mentioned above: That it is currently legal for me to get an ownership stake in a company and not be entitled to anything in return. Shareholders should have a contractual right to returns that is independent of the stock price.

> Companies also do buybacks to get a greater ownership stake.

Greater ownership stake in what? Companies, at least in the US, can't own themselves. Stock buybacks merely reduce outstanding shares effectively increasing the percentage of the company owned remaining shareholders.

> Companies, at least in the US, can't own themselves.

These are technicalities: The point was to prevent things like hostile takeovers:

https://www.sciencedirect.com/topics/economics-econometrics-...

Sure, but we get the same thing with dividends.

If we eliminated stock buybacks tomorrow, little would be lost other than insiders wouldn't be able to use buybacks to unduly enrich themselves and people having to pay some capital gains taxes.

I think since Pat Gelsinger took over as the CEO, no stock buybacks were made.

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