By Joe Duffus
It would be hard to find a more connected Wall Street player than BlackRock, and its CEO, Larry Fink. Fink became a true “Wolf of Wall Street” during the 2008 financial crisis, as BlackRock’s purchase of iShare index funds, among other savvy moves, helped turn the company into a financial behemoth. BlackRock is the world’s largest asset management group, with more than $8.6 trillion under its control, roughly twice the size of the annual U.S. government budget.
Its size and scale have made it a favorite recipient of government contracts In 2020, the Federal Reserve tapped BlackRock’s FMA division – the company’s consulting arm – to manage its emergency asset-purchasing program to respond to the COVID-19 pandemic’s effects on the economy.
According to the Wall Street Journal, BlackRock “will be central players in what is expected to be a multitrillion-dollar overall program of central-bank support to the economy and markets, a program that will help decide which businesses survive the pandemic.” In addition, “BlackRock could reap as much as $48 million a year in fees for its Fed work, according to a Bloomberg analysis. That’s no windfall, especially in relation to its $4.5 billion in earnings last year. But it may further cement the money manager’s ties with policymakers. On May 12 , BlackRock began the first stage of these programs when it began buying [Exchange-Traded Funds].”
Author Peter Schweizer and co-host Eric Eggers explore this financial juggernaut on the lastest episode of The DrillDown podcast. They take aim at how BlackRock is simultaneously investing in the residential real estate market, buying up huge tranches of single-family homes throughout the country.
Peter asks: “Is this really functioning as a fully free market? If you have this financial monster, BlackRock, that is a partner of the federal government, that is buying all these mortgage-backed securities, that is getting access to all this information, and they are getting subsidized loans… If that financial monster is competing against somebody in town who’s trying to buy a couple of rental properties, or a regional company, is that really a free market? And I would argue it’s not. The federal government has tipped the scales in favor of BlackRock.”
Many have raised questions about BlackRock’s enormous and growing influence and its sheer size. In a profile of Fink, one senior bank executive fretted that “It’s like the ‘Blackwater’ of finance, almost a shadow government,” referring to the mountain of government contracts awarded to BlackRock.
BlackRock’s role in this process brings an opportunity for conflicts of interest, financial benefits, and political benefits for the firm. In addition, BlackRock maintains a close relationship with the Biden Administration and uses its powerful position to advocate for aligned goals in the private sector.
BlackRock expects fairly relatively low earnings from the deal with the Feds. The WSJ reports that the firm will only receive modest compensation its help, especially when compared with the firm’s yearly average profits. Yet, the real benefits to BlackRock come from its closer integration with the government and the ability to direct monetary policy and investment decisions across the market.
Furthermore, as a Bloomberg article pointed out, “One arm of BlackRock knows what the Fed is buying, while other parts of the business participating in credit markets could benefit from that knowledge. A BlackRock spokesman says “there are stringent information barriers in place” to avoid conflicts.
However, “BlackRock’s contract with the Fed also acknowledges that senior executives “may sit atop of the information barrier” and “have access to confidential information on one side of a wall while carrying out duties on the other side.”
Not only that, but BlackRock’s inside knowledge of what the Federal Reserve is buying extends a credibility to the firm’s other investments. As Michael Rosen – chief investment officer of Angeles Investments – explained, “It’s not that complicated, really. The Fed says, ‘We’re buying this.” OK, then, I’m going to buy it too.”
Beyond its ties to the Fed, BlackRock has close relationships with the Biden Administration and the Democratic Party. At least three leaders connected to BlackRock hold prominent roles in President Joe Biden’s administration.”
- Brian Deese – former BlackRock investment executive, leads Biden’s National Economic Council (effectively the top advisor on economic matters).
- Adewale Adeyemo—former chief of staff to BlackRock CEO Larry Fink, serves as a top official at the Treasury Department.
- Michael Pyle—BlackRock’s former global chief investment strategist, an Obama administration veteran, serves as chief economic advisor to Vice President Kamala Harris.
- In addition, Thomas Donilon, the chairman of BlackRock’s asset management research arm, served as Obama’s National Security Advisor. His brother, Mike Donilon, was Biden’s chief campaign strategist during the 2020 election.