Mark Lennihan/AP Photo
BlackRock is the world’s biggest asset manager, handling $7.4 trillion in customer assets.
Our government—its administration, its policymakers, and the policy itself—has long been beholden to various financial firms with massive balance sheets and influence, in both good times and bad. But the occurrence of destabilizing economic events, going back at least a century, has often resulted in one particular entity taking the reins. In 1907, for instance, a financial panic led to John Pierpont Morgan literally bailing out the country, a reflection of his and his bank’s underlying power as almost a government unto itself. (This led to reformers taking power from the banking system through the creation of the Federal Reserve, which didn’t precisely work out as planned.)
In recent years, we’ve been living in the Goldman Sachs era. The list of former high-level Goldman Sachs employees who held high-level government offices in the most recent decade is lengthy, including three Treasury Secretaries in the past 27 years: neoliberal avatar Robert Rubin (under Clinton), 2008 bailout architect Hank Paulson (under George W. Bush), and current occupant and coronavirus bailout architect Steve Mnuchin. You can add to that list Goldman Sachs veterans like Gary Gensler (Obama’s Commodity Futures Trading Commission chair), Neel Kashkari (president of the Minneapolis Fed), Mark Patterson (former chief of staff to Tim Geithner at Treasury), Rahm Emanuel (former Obama White House chief of staff), Steve Bannon (Trump political adviser), James Donovan (Mnuchin’s deputy), Gary Cohn (former Trump economic adviser), Dina Powell (former senior adviser to Trump), and many more.
As journalist Matt Taibbi wrote in Rolling Stone in July 2009, Goldman Sachs was primed to be “everywhere” in government once the dust from the bank bailout settled. The long 2010s proved him correct. With the 2008 recession as the catalyst, Goldman’s power consolidated beyond any of the lowly Morgans (JP and Stanley) or Bank of America.
The coronavirus crisis of 2020 has changed things. Big banks, of course, remain powerful, incredibly profitable, and closely linked to the federal government. But asset management firms have become increasingly vital over the past few years, rising as the few meaningful banking regulations that endure from the financial crisis blunt bank power to a minimal degree. And with the passage of the coronavirus bailout package, a new decade and a new economic catastrophe has brought a passing of the torch. The Goldman decade has begun to fade, giving way to our newest age: the BlackRock era.
BlackRock is the world’s biggest asset manager, handling $7.4 trillion in customer assets. It’s twice as profitable as Goldman. It’s got offices in 30 countries and clients in a hundred. The company’s Aladdin risk-management system, an industry-standard software tool that monitors trading, watches over another $20 trillion in assets for 200 other financial firms, as well as the Federal Reserve and European central banks. This makes BlackRock part money manager, part institutional investor, part software platform, and part government partner. It’s a pioneer in junk bonds, and has often been referred to as the world’s largest shadow bank.
In March, the Federal Reserve announced that it had tapped BlackRock to serve as an investment adviser and asset manager for multiple debt-buying programs on behalf of the U.S. central bank as part of the CARES Act bailout program, a money pot worth hundreds of billions of dollars. With BlackRock’s advisement, the Fed committed to buying unlimited purchases of Treasury bonds and mortgage-backed securities, as well as buying agency commercial mortgage-backed securities. Of course, that decision put BlackRock on both sides of a multitrillion-dollar bailout windfall: As Bloomberg reported, “Under the arrangement [BlackRock] could buy some of its own funds on behalf of the central bank.”
It’s been roughly six weeks since BlackRock’s Financial Markets Advisory unit won that contract with the Federal Reserve to manage billions of dollars of securities, and that program began in earnest on Tuesday, with the Fed purchasing its first round of bonds, including junk bonds, or “fallen angels” identified by the firm. If you’re suspicious about how that might go, you’re in for a treat.
According to documents published by the New York Fed, BlackRock employees managing the Fed’s $750 billion corporate credit facility are permitted to trade on the information they’ve learned in advising the Fed after just two weeks of “cooling off.” And even during those two weeks of latency, they can provide “general market views” to clients. That regulatory standard means that the firm and its individual traders are primed to benefit massively and legally from insider knowledge of what’s been by far the most robust and efficient component of the bailout so far. Not only can BlackRock traders direct the Fed to pour its billions into funds they have an interest in, they can use that information to further their own investments and positions, making it a near certainty that they’ll reap massive rewards on all sides of the stimulus program. Because the Fed doesn’t have to announce its purchases right away, BlackRock could be permitted to trade positions before the purchases become public.
BlackRock and its individual traders are primed to benefit massively and legally from insider knowledge of what’s been by far the most robust and efficient component of the bailout.
Of course, BlackRock has been angling for a government takeover for a while. CEO Larry Fink famously “built a shadow government” of former agency officials as part of an influence initiative to become Hillary Clinton’s Treasury Secretary during her 2016 campaign; but that effort was for naught when Hillary lost. Fink then pivoted and became part of the main private-sector advisory organization to Donald Trump, but that, too, was quickly disbanded.
BlackRock’s governmental ambitions aren’t just domestic. Currently, BlackRock is managing U.S. securities purchases for the central bank of Israel. Philipp Hildebrand, who used to run Switzerland’s central bank, is a BlackRock vice chairman. George Osborne, the former U.K. chancellor, is a senior adviser. Friedrich Merz, a former high-ranking member of German Chancellor Angela Merkel’s CDU party, was chairman of BlackRock Deutschland until last month, when he stepped down to focus on his campaign to replace Merkel as chancellor. In Mexico, BlackRock handles the country’s pension funds, while simultaneously owning the companies they invest in. It also secured a contract with the European Commission to advise on a project to integrate climate change into EU banking regulation. Did I mention that BlackRock is the world’s largest institutional investor in fossil fuels?
And while BlackRock has diverged from the Goldman model, pursuing policy and money management more than personnel, they’ve also got a personnel coup in the works. That’s because Larry Fink has positioned himself in the shirt pocket of the Biden administration, and he has in turn been shortlisted in some circles for the position he’s lusted after for years: Treasury Secretary. Giving him that post would have a profound effect: The Fed’s reliance on BlackRock to oversee the Trump bailout strategy means that the company would be extremely influential in a second Trump term; that influence would be amplified even further in a Biden presidency, if Fink was indeed granted that role.
Whenever the United States emerges from the coronavirus, its future will already have been indelibly shaped by BlackRock. And given the profound economic influence of the Fed’s buying program, in tandem with BlackRock’s expansion into international governance in other major economies like Germany that are battling recessions of their own, that may well be true for the rest of the world as well.
