The diversion of the business revenues to the shareholders from a long decade has given an outcome of towering stock market. But this has also resulted in stagnation of the income of a large part of the total population. If this transfer of the assets to its existing share-owners is permitted to persist then a no less than any financial or global political cataclysm is about to happen. A remedial action might be on its way is the good news for this particular scenario.
Clearly, an enormous resource extraction for the shareholders isn’t the right way of capitalism. A few decades ago, the present scenario would be considered as illegal. The basic mechanism that enables a great shift of the resources estimating to a figure of $1 trillion in the current year alone is commonly known as share Buybacks. This practice is commonly done by the firms and in this, they purchase their shares with the motive of the increase in the value of every individual share. This enriches the current share owners as well.
When this practice in carried out on a huge extent in an open market then share buybacks were considered as illegal in the earlier days. Such a practice obviously indicated a manipulation of the stock prices. This practice was legalized effectively in the year 1982.
The thrust on the generation of immediate results for boosting up the present stock rates in the coming course created the short-term spotlight on public corporations at the cost of dynamism in the economy, long-duration shareholder value, and the cost of innovation. The hedge funds have become the enforcers of a stampede that helps extract the value from any public corporation. The case of Timken Steel in Canton Ohio is a great example of such a result.