Stock Buybacks by Major Banks Are Not Good For Us

This Thursday, the House Financial Services’ Subcommittee on Investor Protection, Entrepreneurship and Capital Markets will hold a hearing on stock buybacks by publicly traded corporations. The practice was illegal until 1982. When major banks do it, they have less to spend on investing in our economy. When other companies do it, they have less to spend on boosting stagnant worker wages, investing in new equipment or research and development.

And, the banks are not dropping small change into buybacks. JPMorgan Chase has spent $16.4 billion in buybacks. How much better would the economy be if they spent that money on loans to small businesses to kick start innovation and job growth? Banks are not alone with the practice; buybacks have gone from less than $200 billion in 2000 to a record $811 billion last year.

Then, we also have to live with so-called “universal” banks, in which Wall Street’s brokerage firms and investment banks have combined with deposit-holding, federally-insured banks – giving the the potential to use savers’ deposit money to artificially inflate their own stock through buybacks. And, the SEC allows these mega banks to trade in their own stock in their own Dark Pools, the equivalent of an in-house stock exchange.

Then, in another heart-warming effort, we have a strange Federal reserve which for the past month has pumped hundreds of billions of dollars each week to Wall Street stock trading firms (not commercial banks) with no authorization or hearings occurring in Congress. This is the first time the Federal Reserve has acted in this fashion since the epic financial crash of 2008.