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.”
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 percent, compared to just two percent 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 percent.
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.
Job killers they are. Remotely and anonymously, they are arguably destroyers of humans, too--those "deaths of despair" that happen to unimportant people. <cue: "we weren't responsible" "we didn't know" "just doing our job" type excuses after WWII by friendly, respectable neighbors of the victims>
Yesterday (4/25) I commented on Chris Hedges' site regarding his piece on what's happening on campuses; lots of 'likes'. Your account of how workers were treated at Oberlin fits the pattern.
I open with 2 sentences not relevant here. The rest is:
As for Hedges saying..."the heads of these institutions grovel supinely before wealthy donors, corporations" I don't think they're acquiescing at all. I just finished reading //American Oligarchy (The Permanent Political Class)// by Ron Formisano (2017.) A class whom he characterizes as "satisfied to bask in billionaire approval and to mingle with the One Percent." Similarly the heads of academia--except they're not merely basking. Formisano lists the outrageous salaries and perks these people receive plus the large slush funds they distribute to allies, calls it "Wall Street level compensation at academic institutions," and notes that "a report from the Institute of Policy Studies found that from 2005-2012, student debt and the number of low-paid faculty rose fastest at the 25 universities with the highest compensated presidents."
This egregious academic elite is quite cognisant whence the butter on its bread. To them, this sort of unrest is merely by ingrates, privileged students biting the hand that feeds them. And of course the declasse', the uneducated American majority, deserve nothing but crumbs.
Template for education of, by, and for perpetuation of oligarchy.
Great analysis on this issue. Corporations are destroying our country from so many different angles. We need to go back to the old days of prosecuting this illegal activity.
The laws are still there but aren't being enforced. Seeing the non-compete change is a nice win.
But as citizens, we need to rally around this issue and join together in our efforts to hold corporate America accountable and reclaim a government that represents our needs and not that of their corporate donors.