US senators want to limit corporate stock buybacks

Senators Bernie Sanders and Chuck Schumer want to reform corporate stock repurchases.

US dollar after corporate stock buybacks Source: Bloomberg

US Senators,Bernie Sanders, and,Chuck Schumer, want to stop a corporation staple: stock buybacks. The senators have gained attention from Wall Street for their plan to ban stock repurchases.

Can stock buybacks be changed?

For decades, corporations have bought back stocks of their own companies. While many chief executive officers, (CEO’s) , claim that they are investing the money back into their businesses, Senators Sanders and Schumer wrote in a New York Times opinion piece that they are just inflating the stock prices to increase profits for themselves. The senators want to introduce a bill to limit corporate stock buybacks unless they provide a living wage and pensions to employees.

Both senators singled out Walmart for the corporation’s stock repurchase. They contend that the retailer is enriching itself while hurting workers.

‘Recently, Walmart announced plans to spend $20 billion on a share repurchase program while laying off thousands of workers and closing dozens of Sam’s Club stores. Using a fraction of that amount, the company could have raised hourly wages of every single Walmart employee to $15,’ wrote the senators.

The senators want to ban corporations from stock buybacks until they pay workers $15 an hour and provide seven days of sick leave.

Should the US government tell companies how to invest money?

While some corporate watchdogs and even hedge-fund managers like Paul Tudor Jones, support the idea, many executives say the senators are guilty of government overreach. Former Goldman Sachs CEO, Lloyd Blankfein, criticised the plan on Twitter. He contends that stock buybacks are well-spent.

'A company used to be encouraged to return money to shareholders when it couldn't reinvest in itself for a good return.The money doesn't vanish. It gets reinvested in higher growth businesses that boost the economy and jobs. Is that bad?’ tweeted Blankfein.

Sanders answered Blankfein on his own Twitter account.

‘Lloyd Blankfein, the former CEO of Goldman Sachs, is correct that the money from stock buybacks 'doesn't vanish.' It increases the wealth of billionaires like him. Instead of making the very rich even richer, how about increasing wages for American workers. Is that a bad idea?’ tweeted Sanders.

The latest proposed law is continuing the debate in the US over how much corporate policies affects the middle-class. Sanders and Schumer have continued the conversation and corporations will see if the US Congress can change one of their longtime policies.

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