Enshittification author explains why stock buybacks are such a scam(pluralistic.net)
pluralistic.net
Enshittification author explains why stock buybacks are such a scam
https://pluralistic.net/2025/09/06/computer-says-huh/
3 comments
So all those RSUs issued by tech companies are just supposed to appear out of thin air? That would be akin to taking money from every shareholder to pay employees.
Completely inaccurate, and written in an obnoxious immature style. Speaking with complete authority, yet doesn't grasp the 101 level knowledge.
>But the buyback hasn't reduced the price of the company's shares: it has doubled that price. The company has made its shares more valuable while making itself less valuable.
Yes, this is what distributing profit looks like in all businesses. From a furniture shop to a car manufacturer corporation to a SaaS software company. The money comes out of the corporate balance sheet (reducing the value of the company) and is distributed to shareholders. Unless a company can infinitely grow, this is what companies tend to do eventually. Sometimes a company doesn't want or need to grow, and that's OK believe it or not. Not every company needs to grow a thousand tentacles like Amazon. Ironically, I'm sure the author would not be a fan of that company, yet this is what they are advocating for (extreme aversion to returning capital and pursuing growth at all costs).
>If you think that markets are a computer that calculates efficient allocation based on prices, this should freak you the fuck out
Completely ridiculous. First of all, this is priced into the market. When a stock goes ex-div and announces a dividend, the share price drops by the amount of the distribution. There is an arbitrage trade that ensures this is the case. Likewise, buyback auths are immediately priced into the future via the options market, and guess what, they usually have zero effect, because buybacks are returning capital owned by shareholders to shareholders and don't intrinsically add or subtract value. Where they do add accretive value is when investors have been discounting internal cash (ex: a low growth company that has too much cash), and buybacks can unlock value in that case. Nothing to "freaks me the fuck out" about on a market structure level.
>The company is feeding an objectively – and grossly – false price signal into the computer's input hopper.
Bollocks. Believe it or not, the distributed machine that is the modern market is not some sort of hand-wavey monolithic computer, it's a vast array of participants, each of which, believe it or not, are quite aware of how a simple buyback works. I'm a PM with an options book and if a company is plowing their cash into shares at expensive prices in a suboptimal, guess what, they tend to get punished for it as soon as participants read the next quarter's results. There's nothing magical about this.
>Stock buybacks are a way of making the stock owning class much richer, by swindling everyday investors
It's actually the exact opposite. Everyday investors piled into the market cap weighted index trackers like SP500 are the primary beneficiaries of the buyback machine.
What's remarkably bad about this writing is that there are good angles to this topic that the author completely doesn't address. If you want a somewhat sensationalist look at this topic, I'd recommend this lecture by Mike Green: https://www.youtube.com/watch?v=x-rJciYZmi0
In short, the grand buyback engine does have potential deleterious effects (this is a big pet topic of mine), but it's best understood through the liquidity complex and emergent risks from an interconnected system. I'd also recommend the paper Liquidity Cascades by Hoffstein (another relatively approachable resource that actually adds value to the discussion).
As for specific results of buybacks that are a "scam", the author completely disregards that obvious one, which has to do with corporate governance and executive compensation and boards of directors that specifically engineer buybacks to neutralize their own dilution. I'm not talking about a Google or Microsoft generally using stock options (which is actually a key part of the internal flywheel that drove the trillion dollar tech behemoths to where they are today - so there's a real absurdity from the author claiming buybacks drain companies and block internal compounding/growth, while the very posterchilds for modern hyperscaling used the tool as a key part of their very real growth in the real economy)
I'd recommend Ben Hunt on The Big Bust Out for a good take on the darker side of buybacks (this covers half a dozen smaller topics that the author completely missed): https://thefelderreport.com/2023/05/24/ben-hunt-on-the-big-b...
There are also some good academic talks about how to reform corporate governance to address some of the issues above, but I'll leave it there. Hopefully anyone who is interested in this topic likes some of those links. There is a real rabbit hole to follow, especially in the liquidity cascades stuff, but the issues aren't immediately apparent with generic comments from the communist manifesto. They are hidden, emergent beasts.
>But the buyback hasn't reduced the price of the company's shares: it has doubled that price. The company has made its shares more valuable while making itself less valuable.
Yes, this is what distributing profit looks like in all businesses. From a furniture shop to a car manufacturer corporation to a SaaS software company. The money comes out of the corporate balance sheet (reducing the value of the company) and is distributed to shareholders. Unless a company can infinitely grow, this is what companies tend to do eventually. Sometimes a company doesn't want or need to grow, and that's OK believe it or not. Not every company needs to grow a thousand tentacles like Amazon. Ironically, I'm sure the author would not be a fan of that company, yet this is what they are advocating for (extreme aversion to returning capital and pursuing growth at all costs).
>If you think that markets are a computer that calculates efficient allocation based on prices, this should freak you the fuck out
Completely ridiculous. First of all, this is priced into the market. When a stock goes ex-div and announces a dividend, the share price drops by the amount of the distribution. There is an arbitrage trade that ensures this is the case. Likewise, buyback auths are immediately priced into the future via the options market, and guess what, they usually have zero effect, because buybacks are returning capital owned by shareholders to shareholders and don't intrinsically add or subtract value. Where they do add accretive value is when investors have been discounting internal cash (ex: a low growth company that has too much cash), and buybacks can unlock value in that case. Nothing to "freaks me the fuck out" about on a market structure level.
>The company is feeding an objectively – and grossly – false price signal into the computer's input hopper.
Bollocks. Believe it or not, the distributed machine that is the modern market is not some sort of hand-wavey monolithic computer, it's a vast array of participants, each of which, believe it or not, are quite aware of how a simple buyback works. I'm a PM with an options book and if a company is plowing their cash into shares at expensive prices in a suboptimal, guess what, they tend to get punished for it as soon as participants read the next quarter's results. There's nothing magical about this.
>Stock buybacks are a way of making the stock owning class much richer, by swindling everyday investors
It's actually the exact opposite. Everyday investors piled into the market cap weighted index trackers like SP500 are the primary beneficiaries of the buyback machine.
What's remarkably bad about this writing is that there are good angles to this topic that the author completely doesn't address. If you want a somewhat sensationalist look at this topic, I'd recommend this lecture by Mike Green: https://www.youtube.com/watch?v=x-rJciYZmi0
In short, the grand buyback engine does have potential deleterious effects (this is a big pet topic of mine), but it's best understood through the liquidity complex and emergent risks from an interconnected system. I'd also recommend the paper Liquidity Cascades by Hoffstein (another relatively approachable resource that actually adds value to the discussion).
As for specific results of buybacks that are a "scam", the author completely disregards that obvious one, which has to do with corporate governance and executive compensation and boards of directors that specifically engineer buybacks to neutralize their own dilution. I'm not talking about a Google or Microsoft generally using stock options (which is actually a key part of the internal flywheel that drove the trillion dollar tech behemoths to where they are today - so there's a real absurdity from the author claiming buybacks drain companies and block internal compounding/growth, while the very posterchilds for modern hyperscaling used the tool as a key part of their very real growth in the real economy)
I'd recommend Ben Hunt on The Big Bust Out for a good take on the darker side of buybacks (this covers half a dozen smaller topics that the author completely missed): https://thefelderreport.com/2023/05/24/ben-hunt-on-the-big-b...
There are also some good academic talks about how to reform corporate governance to address some of the issues above, but I'll leave it there. Hopefully anyone who is interested in this topic likes some of those links. There is a real rabbit hole to follow, especially in the liquidity cascades stuff, but the issues aren't immediately apparent with generic comments from the communist manifesto. They are hidden, emergent beasts.
Wow, that was a pretty comprehensive comment; thank you for sharing your expert knowledge and relevant links!