Without stock buybacks, many such companies would have little debt and would have greater flexibility during this period of increased credit constraints. In other words, their current financial problems are self-imposed. Instead of entering the recession with adequate liquidity and less debt with long maturities, they had the wrong capital structure for the time.
Companies like Bear Stearns and Lehman Bros. and AIG and General Electric were aggressive buyers of their own shares -- the result was debt-heavy balance sheets that lacked the flexibility to hold up during a prolonged downturn. More conservative capital structure management would have left these companies in fine shape, poised to take advantage of historically good acquisition opportunities.
What's fascinating is that you will never, ever, ever hear top executives and directors lament their own bad decisions repurchase their companies stock while funding operations with commercial paper. They prefer to go with the narrative that their companies' problems are the result of external forces and that explanation seems to be the one that the Obama administration has chosen to go with: Very few executives have been sent packing as a condition of the various bailouts.
But as Milken shows, the effects of the current crisis on individual companies could have been muted if executives had made focused decision to maintain strong balance sheets when the market was booming. Part of the problem was the corporate equivalent of peer pressure: Companies that employed leverage and bought back stock aggressively looked great while the economy was booming, and more conservative managers looked out of touch. But isn't it reasonable to expect executives to demonstrate some level of independent thought in exchange for their inflated salaries, bonuses and perks?