In today's WSJ, there is an article discussing the potential lightening up on the pace of share buybacks from public U.S. corporations. The reason is simple: the tightening of capital and lending is causing a liquidity crunch and putting balance sheets more at risk. The WSJ stated that Standard & Poor's estimated that $122 billion was spent by U.S. companies to repurchase stock in Q2 2007 alone. Right now Wall Street is in love with share buybacks. After all, a share buyback in the open market can create a substantial floor in a stock. If it doesn't create a floor it can at least offset some major selling.

Companies that buy their own shares do not necessarily retire the shares permanently. These shares become treasury stock that can be used to fund future buyouts that maybe the company thinks aren't feasible today. The shares can also be used as a form of currency to fund other ventures down the road. But the shares bought back are not in the common stock that receives dividends from the company.

Cisco Systems' (NASDAQ:CSCO) will probably keep buying back stock. Its acquisition targets right now would seem to be smaller players and it is kicking well above what would be "maintenance cash flow." But the huge buyback from Proctor & Gamble (NYSE:PG) and even the recent buyback from Wells Fargo & Co. (NYSE:WFC) could face some pushbacks from borrowers if the companies use too much cash keeping their shares up at the expense of the balance sheet quality. Would this put the "Harry Potter Profit" buyback plan at risk at Scholastic Corp. (NASDAQ:SCHL)? Maybe. Recently, Expedia Inc. (NASDAQ:EXPE) had to cancel its major buyback it was planning to finance with debt, and the reason was the same: 'unfavorable terms.'

But in a day when some efforts are calling an end to quarterly and annual guidance "because it changes the focus to the near-term only", this is a mixed message. Share buybacks are good for current holders. But on a longer-term basis it can be a leveraging up of the balance sheet. If we are really headed into a recession or a slowdown of any real magnitude, then the cash being used for a share buyback may be feeding only short-term investor demands rather than setting aside capital for a rainy day. In Q1 companies were claiming that their balance sheets had never been better in corporate America. We aren't even half way through Q3 yet, and here we are in the midst of a major credit crunch and liquidity squeeze.

Buybacks usually translate to "we think the stock is cheap today." But companies that hike dividends are truly showing a sign that they have visibility and conviction for years ahead, and that has been a more historic measurement of 'rewarding shareholders for the long haul.' If you want to know how popular share buybacks have become recently, there is even an ETF that tracks buybacks: PowerShares Buyback Achievers ETF (AMEX:PKW). Maybe some of the near-term buybacks actually NEED to lighten up.

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.