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While financiers often talk about the wonders of financial efficiency, they know that each merger, each leveraged buyout, and each stock buyback is likely to cause job loss.
I am writing to you from New Jersey, where approximately 250,000 people work in the financial sector. Many are employed by the most prosperous Wall Street banks’ hedge funds, and private equity and venture capital firms. Some of them are friends and neighbors in my home town, Montclair, and have over the years helped me understand how high finance actually works.
I fear they will not be happy with my new book, Wall Street’s War on Workers. It challenges the way Wall Street does business and critiques leveraged buyouts and stock buybacks. These practices have made a lot of money for my neighbors, but they have also led to millions of mass layoffs and enormous hardships for working people.
Not only financial pain. Studies show that following a layoff, a worker’s health suffers as well. The Department of Labor reports, “Being laid off from your job is one of the most traumatic events you can experience in life.”
It’s time for New Jersey financiers, and financiers everywhere, to curb mass layoffs and reconnect working people to a more stable economic future.
While financiers often talk about the wonders of financial efficiency, they know that each merger, each leveraged buyout, and each stock buyback is likely to cause job loss. As one friend put it, “After we do a merger, you really don’t need a bank on every corner.”
It’s well documented that Wall Street took down the Wayne, New Jersey-based Toys “R” Us. In 2006, KKR, Bain Capital, and Vornado purchased the company for $6.6 billion, financed by $5.3 billion of debt put onto the company’s books. This added approximately $400 million a year in debt-service costs to the company’s bottom line. These corporate raiders took management fees from the company, making the deal profitable for them but crippling Toys “R” Us. When the retailer filed for bankruptcy in 2017, 33,000 workers lost their jobs.
The slow demise of Bed, Bath, and Beyond, headquartered in Union, New Jersey, shows how a Wall Street-induced stock buyback binge cripples a company. Starting in 2004, Bed, Bath, and Beyond spent $11.8 billion on stock buybacks that, in the short term, boosted the company’s share price and enriched the Wall Street stock sellers who had pressured the company to buy back those shares. Even as the company struggled in 2022, it spent $230 million on stock buybacks while loading the company up with even more debt to finance them. Wall Street stock sellers were enriched, and so was upper management, which was compensated with stock options, but in the end the collapse of the company cost more than 32,000 workers their jobs.
This wasn’t isolated bad luck for these New Jersey firms. Researchers at California State Polytechnic University found that the bankruptcy rate for leveraged buyouts 10 years after was 20%, compared to just 2% for companies that weren’t leveraged buyout targets. Overall, a Harvard Business School study of thousands of leveraged buyouts between 1980 and 2013 shows that, on average, employment at bought-up firms shrank by 13%.
Is this the price of progress? Don’t mass layoffs help the economy move from low value-added jobs to high value-added jobs?
The data shows otherwise. For more than a generation working people and their children have been urged to develop the skills needed in the knowledge economy. Get into high tech, and the future is yours.
Until it isn’t.
Mass layoffs, often used to finance mammoth stock buybacks, are ripping through the booming high-tech sector. In 2022, more than 165,000 workers lost their jobs in high tech firms. In 2023, 263,000 were laid off. So far this year, another 74,000 workers have joined them, according to Layoffs.fyi. To repeat, these are boom years for the tech industry, but management wants to keep share prices high and the easiest way to do that is to cut jobs to pay for stock buybacks.
What can my friends and neighbors do about mass layoffs?
First, they could change Wall Street’s culture. Before firms were permitted to do leveraged buyouts and massive stock buybacks at will, shareholders, employees, and the community had roughly equal claims as corporate stakeholders. Executives of companies large and small were embarrassed to lay off their workers. It was considered a mark of failure. During recessions, layoffs might be needed temporarily, but not during good times. But those days of shared social values are long gone. Now, the first word associated with Wall Street by the average American is greed.
Next, they could support efforts to eliminate stock buybacks and greatly reduce the debt loads permitted in corporate acquisitions. Let companies make their money the old fashioned way, by making good products rather than manipulating their share price.
Finally, they should advocate for a simple rule change: Any corporation receiving government contracts or subsidies is prohibited from making compulsory layoffs. Taxpayers should not be funding corporations that lay off taxpayers. Instead, layoffs should be voluntary. Corporations taking government funds would have to encourage departures through negotiated payouts and benefits.
These steps are designed to discourage management from using layoffs as a financial tool, which since 1996 has affected at least 30 million workers and their families. These reforms also are designed to help our democratic society provide a modicum of job stability and therefore prevent the erosion of democracy.
It’s time for New Jersey financiers, and financiers everywhere, to curb mass layoffs and reconnect working people to a more stable economic future.
Falsely claiming that wage protections will drive up fares seems to be a tactic rideshare corporations use to pit drivers against passengers and obscure a massive transfer of wealth.
If you’ve taken an Uber ride recently, you’ve probably noticed it cost a lot more than a few years ago. Why is that? We conducted the largest-ever study of rideshare fares to find out, and discovered a story of gaslighting and corporate greed that squeezes rideshare drivers and riders alike, while funneling our money to banks and billionaires.
This month, Minneapolis passed an ordinance requiring rideshare corporations to pay drivers at least $1.40 per mile and 51 cents per minute. In a desperate attempt to block the pay floor, Uber and Lyft are threatening to leave the city, claiming that such a requirement would make rides too expensive for residents. This argument—that higher driver pay would force big fare hikes—is one of Uber and Lyft’s favorite scare tactics. As drivers across the country have protested poverty wages and organized for better pay, the rideshare giants have trotted out this line again and again—in Connecticut, Chicago, New York, and Seattle, to name just a few.
We decided to test that claim. Our team analyzed over a billion rideshare trips, comparing four years of data in Chicago and New York. These are two of the biggest rideshare markets in the U.S. and the only two American cities that make rideshare corporations report detailed trip data. In New York City, drivers overcame Uber’s fearmongering and won a minimum pay standard that took effect in February 2019. In Chicago, drivers are organizing but haven’t yet won pay protections.
Letting rideshare corporations bully and bamboozle to get their way harms all of us.
If Uber’s argument was true, fares should have gone up more in New York after the pay standard took effect. In fact, the opposite happened. Over the four years we studied, Uber and Lyft raised fares by 54% in Chicago, where drivers have no pay protections. In New York, they only increased fares by 36%. The reality just doesn’t match Uber’s scare tactics.
So if fares went up more in the city without a pay floor, what’s causing these big price hikes? We looked at many possible explanations, but only one fits the data: pressure from Wall Street.
For years, Uber used money from the likes of Goldman Sachs, BlackRock, and Jeff Bezos to subsidize cheap rides and decent pay. Now that Uber dominates the market, its investors are demanding their cut. As the corporation has faced increasing calls to turn a profit, it has jacked up fares and cut driver pay.
The strategy is working: just last month, Uber reported an annual profit for the first time ever—and promptly announced plans to give $7 billion to shareholders.
Letting rideshare corporations bully and bamboozle to get their way harms all of us. Riders are forced to pay more to get around, while drivers have to work long hours and still struggle to cover the bills. Falsely claiming that wage protections will drive up fares seems to be a tactic to pit drivers against passengers and obscure this massive transfer of wealth to Wall Street.
The good news is that communities are no longer falling for Uber’s scare tactics. In Minneapolis, the city council stood with the city’s mostly Black and immigrant drivers instead of giving in to Uber’s bullying. And in Chicago, drivers are organizing for an ordinance setting a living wage and protections against unfair deactivations—and have the support of a majority of the city council.
These fights are far from over (already Uber and Lyft are turning to the Minnesota state legislature, which could pass a law banning the Minneapolis ordinance from going into effect). But when drivers and communities stand together, these cities are showing we can say no to Uber’s bullying, ensure drivers are paid enough to provide for their families, and shape a transportation system that serves us instead of Wall Street.
Stock buybacks have become the main goal in life for corporate executives and activist stock sellers. And this sickness is spreading.
The institution casting a broad shadow over the UAW strike against the Big Three automakers is Wall Street. GM workers and those of us who have longed for the production of high-quality and affordable electric cars to combat global warming could not have invented a more damning story than the reality of how the financiers fleeced us.
The story starts back in 2008, when the auto industry was going bankrupt due to the financial crisis that Wall Street’s reckless gambling had caused. Six million workers lost their jobs in six months through no fault of their own. Motor vehicle sales fell by nearly 40 percent and as bankruptcies loomed, another three million more auto industry jobs were at risk.
The federal government intervened with a massive bailout, eventually loaning the companies more than $81 billion. To reorganize the industry, the government wanted more financial expertise. So where did it turn? To Wall Street! The financial foxes were hired to overhaul the hen house.
The UAW strike is illuminating a type of financial insanity that has gripped our economy.
To lead 1990s Presidential Task Force on the Auto Industry, the Obama administration recruited Steve Rattner, a Wall Street investment banker, whose net worth was $188 million. (A year later, we learned a bit how Rattner became so wealthy. He was charged by the Security and Exchange Commission in a pay-to-play scheme to obtain investments from New York’s largest pension fund and was forced to pay a $10 million fine.)
Rattner, dubbed the Car Czar by the media, recruited a 37-year-old Wall Street “turn around” expert, Harry J. Wilson, to guide GM to solvency. Wilson joined the federal task force, he claimed, out of a lofty sense of noblesse oblige. As he wrote to Rattner, “I have a very deep interest in public service, particularly given the good fortune I have enjoyed in my own life…” Wilson’s good fortune continued to follow him to GM. At taxpayer expense he would learn everything there was to learn about GM and then use it to fleece the company a few years later.
The bailout’s net cost to US taxpayers was $11. 2 billion, while autoworkers absorbed $11 billion in reduced labor costs. In exchange for the survival of their jobs, workers were saddled with a bitter decade-long wage freeze, the elimination of long-held cost-of-living adjustments, and reduced wages and benefits for new hires. This led to a 19.3 percent loss of real wages (after accounting for inflation) from 2008 to 2022). The UAW’s current request for a sizable wage increase is to make up for more than a decade of lost ground.
From a financial perspective, the bailout was a success. GM, after losing $38.5 billion in 2008-09, earned $16.7 billion in 2010. By 2014, GM had $29.5 billion in cash on hand, a tidy sum with which to enter the budding competitive race against new firms like Tesla to produce affordable electric vehicles.
But from Harry J. Wilson’s perspective, the GM hen house had far too many eggs. After returning to Wall Street from public service, he set his sights on GM’s cash.
First, Wilson purchased 30,000 GM shares worth about $1.1 million at the time. His goal was to press GM to conduct a stock buyback as soon as possible. (A stock buyback in effect moves cash from the corporation to stock-sellers. By reducing the number of outstanding shares, it drives up the price of each share so that Harry and other large financial entities can cash out quickly and with sizable profits.)
He then cut a deal with billionaire David Tepper, whose Appaloosa hedge fund owned $300 million in GM stock. Wilson also worked out arrangements with several other hedge funds, including Taconic Capital, which owned another $120 million worth of GM shares. In each arrangement, Wilson would receive a performance fee and a share of the profits should he succeed in forcing a GM stock buyback. The hedge fund group also agreed to cover up to $1 million of expenses incurred by Wilson over the next year.
Wilson then pushed GM to commit to an $8 billion stock buyback. When GM announced buybacks shortly thereafter Wilson and his Wall Street backers did even better than expected. GM went on to announce a $5 billion in buybacks in March 2015, another $4 billion later that year, and another $5 billion in 2017.
The business of American business is to create stock buybacks for top executives and for looting investors.
So, while Tesla was straining to sell 50,000 electric cars in 2015, GM was busily opening up a new ultra-luxury production line of stock buybacks that enriched Harry J Wilson and his Wall Street compatriots, and GM executives who were compensated with stock incentives. In the last 12 years, GM has spent $21 billion on stock buybacks rather than additional investments in greener vehicles. Not coincidently, in 2022 GM sold 39,096 electric cars, while Tesla produced 32 times more ( 1.31 million).
GM CEO Mary Barra has reaped an average of $41.8 million a year for the past four years in total compensation. “My compensation,” she said, “92 percent of it is based on the performance of the company,” She means that 92 percent of her income comes from stock incentives. The “performance of the company” is measured for compensation purposes by its stock price, which she is able to manipulate and raise through stock buybacks. The more GM engages in stock buybacks the higher the price of their shares, and therefore, the higher the pay of those executives who are paid with stock incentives tied to the price of the stock.
The strike is shining a bright light on a type of financial insanity that has gripped our economy. Stock buybacks have become the main goal in life for corporate executives and activist stock-sellers like Harry J. Wilson and his hedge fund raiders. Their looting adds nothing of value to their companies, yet this sickness is spreading. In 1982 only 2 percent of corporate profits were used for stock buybacks. Now, nearly 70 percent of all corporate profits go to stock buybacks instead of research and development, environmental controls, and worker health and safety. And certainly not to provide job security nor livable wages. Increasingly the business of American business is not to make things and provide services, but instead to create stock buybacks to benefit top executives and looting stock-sellers.
Hopefully, the UAW strike will move us one step closer to outlawing any and all stock buybacks.