Published on Portside (https://portside.org/)
Meet BlackRock,
the New Great Vampire Squid
Ellen
Brown
June
21, 2020
The
Unz Review
BlackRock is a
global financial giant with customers in 100 countries and its tentacles in
major asset classes all over the world; and it now manages the spigots to
trillions of bailout dollars from the Federal Reserve. The fate of a large
portion of the country’s corporations has been put in the hands of a megalithic
private entity with the private capitalist mandate to make as much money as
possible for its owners and investors; and that is what it has proceeded to do.
To most people, if
they are familiar with it at all, BlackRock is an asset manager that helps
pension funds and retirees manage their savings through “passive” investments
that track the stock market. But working behind the scenes, it is much more
than that. BlackRock has been called “the most powerful institution
in the financial system,” “the most powerful company in the world” and the
“secret power.” It is the world’s largest asset manager and “shadow bank,”
larger than the world’s largest bank (which is in China), with over $7 trillion
in assets under direct management and another $20 trillion managed through its
Aladdin risk-monitoring software. BlackRock has also been called “the fourth
branch of government” and “almost a shadow government”, but no part of it
actually belongs to the government. Despite its size and global power,
BlackRock is not even regulated as a “Systemically Important Financial
Institution” under the Dodd-Frank Act, thanks to pressure from its CEO Larry
Fink, who has long had “cozy” relationships with government officials.
BlackRock’s
strategic importance and political weight were evident when four BlackRock
executives, led by former Swiss National Bank head Philipp Hildebrand,
presented a proposal at the annual meeting of central bankers in
Jackson Hole, Wyoming, in August 2019 for an economic reset that was actually
put into effect in March 2020. Acknowledging that central bankers
were running out of ammunition for controlling the money supply and
the economy, the BlackRock group argued that it was time for the central bank
to abandon its long-vaunted independence and join monetary policy (the usual
province of the central bank) with fiscal policy (the usual province of the
legislature). They proposed that the central bank maintain a “Standing
Emergency Fiscal Facility” that would be activated when interest rate
manipulation was no longer working to avoid deflation. The Facility would be
deployed by an “independent expert” appointed by the central bank.
The COVID-19
crisis presented the perfect opportunity to execute this proposal in the US,
with BlackRock itself appointed to administer it. In March 2020, it was awarded
a no-bid contract under the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act) to deploy a $454 billion slush fund established by the Treasury in
partnership with the Federal Reserve. This fund in turn could be leveraged to
provide over $4 trillion in Federal Reserve credit. While the public was
distracted with protests, riots and lockdowns, BlackRock suddenly emerged from
the shadows to become the “fourth branch of government,” managing the controls
to the central bank’s print-on-demand fiat money. How did that happen and what
are the implications?
Rising from the
Shadows
BlackRock was
founded in 1988 in partnership with the Blackstone Group, a multinational
private equity management firm that would become notorious after the 2008-09
banking crisis for snatching up foreclosed homes at firesale prices and renting
them at inflated prices. BlackRock first grew its balance sheet in the 1990s
and 2000s by promoting the mortgage-backed securities (MBS) that brought down
the economy in 2008. Knowing the MBS business from the inside, it was then put
in charge of the Federal Reserve’s “Maiden Lane” facilities. Called “special
purpose vehicles,” these were used to buy “toxic” assets (largely
unmarketable MBS) from Bear Stearns and American Insurance Group (AIG),
something the Fed was not legally allowed to do itself.
BlackRock really
made its fortunes, however, in “exchange traded funds” (ETFs). It gained trillions
in investable assets after it acquired the iShares series of ETFs in a takeover
of Barclays Global Investors in 2009. By 2020, the wildly successful
iShares series included over 800 funds and $1.9 trillion in assets under
management.
Exchange traded
funds are bought and sold like shares but operate as index-tracking funds,
passively following specific indices such as the S&P 500, the benchmark
index of America’s largest corporations and the index in which most people
invest. Today the fast-growing ETF sector controls nearly half of all
investments in US stocks, and it is highly concentrated. The sector is
dominated by just three giant American asset managers – BlackRock, Vanguard and
State Street, the “Big Three” – with BlackRock the clear global leader. By
2017, the Big Three together had become the largest shareholder in
almost 90% of S&P 500 firms, including Apple, Microsoft, ExxonMobil,
General Electric and Coca-Cola. BlackRock also owns major interests
in nearly every mega-bank and in major media.
In March 2020,
based on its expertise with the Maiden Lane facilities and its sophisticated
Aladdin risk-monitoring software, BlackRock got the job of dispensing Federal
Reserve funds through eleven “special purpose vehicles” authorized under the
CARES Act. Like the Maiden Lane facilities, these vehicles were designed to
allow the Fed, which is legally limited to purchasing safe federally-guaranteed
assets, to finance the purchase of riskier assets in the market.
Blackrock Bails
Itself Out
The national lockdown
left states, cities and local businesses in desperate need of federal
government aid. But according to David Dayen in The American
Prospect, as of May 30 (the Fed’s last monthly report), the only purchases
made under the Fed’s new BlackRock-administered SPVs were ETFs, mainly owned by
BlackRock itself. Between May 14 and May 20, about $1.58 billion in ETFs were
bought through the Secondary Market Corporate Credit Facility (SMCCF), of which
$746 million or about 47% came from BlackRock ETFs. The Fed continued to buy
more ETFs after May 20, and investors piled in behind, resulting in huge
inflows into BlackRock’s corporate bond ETFs.
In fact, these
ETFs needed a bailout; and BlackRock used its very favorable position with the
government to get one. The complicated mechanisms and risks underlying ETFs
are explained in an April 3 article by business law professor Ryan
Clements, who begins his post:
Exchange-Traded
Funds (ETFs) are at the heart of the COVID-19 financial crisis . Over
forty percent of the trading volume during the mid-March selloff was in ETFs ….
The ETFs were
trading well below the value of their underlying bonds, which
were dropping like a rock. Some ETFs were failing altogether. The problem
was something critics had long warned of: while ETFs are very liquid, trading
on demand like stocks, the assets that make up their portfolios are not. When
the market drops and investors flee, the ETFs can have trouble coming up with
the funds to settle up without trading at a deep discount; and that is what was
happening in March.
According to a May
3 article in The National, “The sector was ultimately saved by the
US Federal Reserve’s pledge on March 23 to buy investment-grade credit and
certain ETFs. This provided the liquidity needed to rescue bonds that had been
floundering in a market with no buyers.”
Prof. Clements
states that if the Fed had not stepped in, “a ‘doom loop’ could have
materialized where continued selling pressure in the ETF market exacerbated a
fire-sale in the underlying [bonds], and again vice-versa, in a procyclical
pile-on with devastating consequences.” He observes:
There’s an
unsettling form of market alchemy that takes place when illiquid,
over-the-counter bonds are transformed into instantly liquid ETFs. ETF
“liquidity transformation” is now being supported by the government, just like
liquidity transformation in mortgage backed securities and shadow banking was
supported in 2008.
Working for Whom?
BlackRock got a
bailout with no debate in Congress, no “penalty” interest rate of the sort
imposed on states and cities borrowing in the Fed’s Municipal Liquidity
Facility, no complicated paperwork or waiting in line for scarce Small Business
Administration loans, no strings attached. It just quietly bailed itself out.
It might be argued
that this bailout was good and necessary, since the market was saved from a
disastrous “doom loop,” and so were the pension funds and the savings of
millions of investors. Although BlackRock has a controlling interest in all the
major corporations in the S&P 500, it professes not to “own” the funds. It
just acts as a kind of “custodian” for its investors — or so it claims. But BlackRock
and the other Big 3 ETFs vote the corporations’ shares; so from the point of
view of management, they are the owners. And as observed in a 2017 article from
the University of Amsterdam titled “These Three Firms Own Corporate America,”
they vote 90% of the time in favor of management. That means they tend to vote
against shareholder initiatives, against labor, and against the public
interest. BlackRock is not actually working for us, although we the American
people have now become its largest client base.
In a 2018 review
titled “Blackrock – The Company That Owns the World”, a multinational research
group called Investigate Europe concluded that BlackRock “undermines
competition through owning shares in competing companies, blurs boundaries
between private capital and government affairs by working closely with
regulators, and advocates for privatization of pension schemes in order to
channel savings capital into its own funds.”
Daniela Gabor,
Professor of Macroeconomics at the University of Western England in Bristol,
concluded after following a number of regulatory debates in Brussels that it
was no longer the banks that wielded the financial power; it was the asset
managers. She said:
We are often told
that a manager is there to invest our money for our old age. But it’s much more
than that. In my opinion, BlackRock reflects the renunciation of the welfare
state. Its rise in power goes hand-in-hand with ongoing structural changes; in
finance, but also in the nature of the social contract that unites the citizen
and the state.
That these
structural changes are planned and deliberate is evident in BlackRock’s August
2019 white paper laying out an economic reset that has now been implemented
with BlackRock at the helm. Public policy is
made today in ways that favor the stock market, which is considered the
barometer of the economy, although it has little to do with the strength of the
real, productive economy. Giant pension and other investment funds largely
control the stock market, and the asset managers control the funds. That
effectively puts BlackRock, the largest and most influential asset manager, in
the driver’s seat in controlling the economy.
As Peter
Ewart notes in a May 14 article on BlackRock titled “Foxes in the
Henhouse,” today the economic system “is not classical capitalism but rather
state monopoly capitalism, where giant enterprises are regularly backstopped
with public funds and the boundaries between the state and the financial
oligarchy are virtually non-existent.”
If the corporate
oligarchs are too big and strategically important to be broken up under the
antitrust laws, rather than bailing them out they should be nationalized and
put directly into the service of the public. At the very least, BlackRock
should be regulated as a too-big-to-fail Systemically Important Financial
Institution. Better yet would be to regulate it as a public utility. No
private, unelected entity should have the power over the economy that BlackRock
has, without a legally enforceable fiduciary duty to wield it in the public
interest.
Ellen Brown is an
attorney, chair of the Public Banking Institute, and author of thirteen
books including Web of Debt, The Public Bank Solution,
and Banking on the People: Democratizing Money in the Digital Age. She
also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her
300+ blog articles are posted at EllenBrown.com.
Donations can be sent
to Max Obuszewski, Baltimore Nonviolence Center, 431 Notre Dame Lane, Apt. 206,
Baltimore, MD 21212. Ph: 410-323-1607; Email: mobuszewski2001 [at]
comcast.net. Go to http://baltimorenonviolencecenter.blogspot.com/
"The master class
has always declared the wars; the subject class has always fought the battles.
The master class has had all to gain and nothing to lose, while the subject
class has had nothing to gain and everything to lose--especially their
lives." Eugene Victor Debs
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