BlackRock – The super cartel

Canadian government hands over key advisory and decision-making power to super cartel | PETER EWART

The unfolding worldwide pandemic is bringing with it a profound financial crisis. How the crisis will be dealt with is a question on the minds of working people around the world. In Canada, working people face the additional complication that as yet, they do not set the direction of the economy, which is controlled by a financial oligarchy and governments in their service.

A financial crisis is itself nothing new; crises are inherent to the capitalist system espoused by the financial oligarchy. To prop itself up, as the financial oligarchy lurches from crisis to crisis, its instruments and forms of organization mutate and change, like creatures from the Black Lagoon.[1] For example, out of the crises and corruption of the late 19th century came the merging of banking and industrial capital and the giant trusts and monopolies of the Robber Barons. And out of a cabal of leading U.S bankers on Jekyll Island in 1910 rose the Federal Reserve. In the 1990s, came the financial de-regulation of the banking sector and the welding back together, Frankenstein-style, of investment and commercial banking which contributed in a negative way to the sub-prime mortgage crisis and the Great Recession of 2008. And most recently, there is the “warm and fuzzy” statement from the U.S. Business Roundtable that the big corporations are responsible to all stakeholders, rather than the previous Milton Friedman configuration of only being accountable to shareholders.

In the midst of these crises and mutations, often one particular financial institution ends up at the top of the heap. At the beginning of the 20th century, it was the mammoth J.P. Morgan bank.[2] In 2008, it was Goldman Sachs, notorious for shorting its own customers. In 2020, it is BlackRock, the asset manager, shadow bank and super-cartel, which has obtained unprecedented power and authority over handing out trillions of public dollars in bailout funds from the U.S. Treasury, as well as being appointed key advisor to the Bank of Canada in its bailout program.

Founded in 1988 by financier Larry Fink and others, BlackRock has grown in leaps and bounds since then, its assets under management now amounting to $7.4 trillion, as well as another $20 trillion through Aladdin, its financial risk software platform. It has offices in 30 countries, clients in another 200, and is by far the largest asset manager and shadow bank in the world, with assets under management greater than the GDP of any country. BlackRock is the largest private investor in weapons manufacturing in the world, owns more oil, gas and thermal coal reserves than anyone else, and is the largest exchange traded fund (ETF) provider. As of 2017, the firm was a major shareholder in most of the top 300 corporations in North America and Europe and a co-owner in 17,309 companies and banks worldwide.[3]

The financial crisis of 2008 proved to be a huge windfall for the company when the U.S. government contracted with BlackRock to oversee the massive bailout of failing banks and other financial institutions which had been peddling toxic securities. There was some irony in this in that BlackRock itself had played an important role in paving the way for this very same crisis by pushing for de-regulation of the banking sector in the 1990s, as well as promoting the toxic securities market. Indeed, an inverse relationship appears to be at work. As BlackRock has swollen in size like a modern-day version of the Hindenburg blimp, the incomes of workers, small businesses, and other sections of people in the U.S. and Canada have stagnated or shrunk.

It is a sign of the times that most big banks and financial institutions in the U.S. and elsewhere are clamouring to be designated as “systemically important financial institutions” (SIFI) in order to be eligible for bailouts of public dollars from the U.S. Treasury and other Central Banks. However, BlackRock is an exception. Instead, it has strongly resisted being designated a SIFI. And there is a telling reason for that. To become a SIFI means that BlackRock would have to come under some government regulatory authority such as the Dodd-Frank Banking Act of 2010 which was brought in to provide a minimum of regulation over the out-of-control financial institutions that precipitated the 2008 crisis. For BlackRock, the largest shadow bank in the world, even a small bit of regulation over its activities is too much.

Thus, while many financial institutions are limited to some extent by government regulation, BlackRock and other pirate “asset managers,” sail the murky waters of an unregulated financial world. There is an even more inherent instability in the shadow banking sector than in that of traditional banking. Unfettered by regulations, shadow banks often engage in risky behaviour that is not backed up by reserves, resulting in dangerous levels of financial leverage, overstretch and debt.[4] Like bombs, these shadow entities lie deep within the financial system waiting to explode, enriching financiers but destabilizing entire economies and wreaking havoc in the lives of millions, as happened in the 2008 Great Recession and other crises.

When such crises emerge, BlackRock and the financial oligarchy as a whole, advocate fire hosing trillions of dollars of public money into the hands of the big banks and corporations, either directly or indirectly, thus diverting funds away from health care, education, social services, and other areas of physical and social infrastructure. In charge of this “fire hosing,” of course, are the private financial institutions, and at the head these days is BlackRock.

BlackRock’s power and authority come not just from its sheer size, but from the fact that it constitutes, as one analyst puts it, a virtual “fourth branch of government,”[5] or, as some might say, the “first branch.” From the beginning, a key part of BlackRock’s strategy has been to recruit top state officials from around the world on an “in and out” basis. One year they might be working for government, the next year for BlackRock. And vice-versa. For instance, Jean Boivin is currently the head of BlackRock’s Investment Institute, but formerly served as Deputy Governor of the Bank of Canada and Associate Deputy Finance Minister. In addition, BlackRock has on its staff many former White House officials and routinely advises top government and central bank officials in North America and Europe. In this and myriad other ways, the lines are obliterated between state and private corporation, with the state being reduced to an ancillary or adjunct role.

Another important source of BlackRock’s power is that it constitutes a de facto ”super-cartel,” even though regulatory officials have not dared so far to designate it as such.[6] In recent years, asset managers and shadow banks like BlackRock, Vanguard and State Street have become the first tier organizations of the financial oligarchy, displacing even the huge investment banks like Goldman Sachs. Together, the “Big Three” of BlackRock, Vanguard and State Street dominate three-quarters of the multi-trillion world market of index funds. Their assets under management amount to more than all the sovereign wealth funds on earth and over three times the global hedge fund industry.

In cartel-like fashion, the Big Three have interconnected ownership. For example, Vanguard and State Street own substantial shares in BlackRock, and together the Big Three are “the largest single shareholder in almost 90 per cent of S&P firms, including Apple, Microsoft, ExxonMobil, General Electric and Coca-Cola.” According to various analysts, the Big Three coordinate their votes at shareholder meetings through centralized corporate governance departments.[7]

In corporate mergers, the Big Three are often on both sides of a deal, i.e. they are invested in both the buyer and the seller, which gives them “superior two-sided information compared with those who operate only on one side of the deal.”[8] On the banking side, the Big Three are also co-owners of many of the same big banks and thus constitute other loops of huge financial cartels. As major joint shareholders, they even dominate financial rating agencies, such as S&P and Moody’s, which determine credit ratings and can have a huge impact on the viability of corporations and governments.[9]

Cartels like the Big Three constitute an alliance of rival oligarchs that work together against competitors and other sectors of business and industry, and present a common front against their own workers and employees, and the population at large. Their aim is to obtain maximum profits and dominate the market and, to do so, they engage in anti-competitive, monopolistic behaviour, including price fixing, bid rigging, reductions in output, and suppression of wages. In so doing, they have run roughshod over numerous conflict of interest and regulatory norms to the point that such norms no longer exist in the financial world and a naked law of the jungle prevails.

In its most recent activity, BlackRock has formed cartel-like relations with the U.S. government and the Federal Reserve, creating what looks to be a giant public-private partnership cartel that hands out public funds to chosen financial institutions and corporations in the largest transfer of wealth in history. Early returns show that BlackRock is dishing out the largest amount of money (48 per cent) to the very same ETF funds it runs.[10]

Nonetheless, the largest financial organization and the largest central bank in the world cannot overcome the black hole of contradictions and crises at the heart of the financial system. They only serve to sharpen these.

Despite its blimp-like size, an asset manager like BlackRock does not create new value in any way but rather represents yet another layer of the oligarchic skimming off of the new value already created by the workers and productive forces in society. Thus it has a parasitic relationship to these forces.

However, in their sheer size, BlackRock and the Big Three are capable of destabilizing the entire economy of countries through “herding behaviour” and other cartel-type activities such as happened with the frenzied peddling of toxic securities in the U.S. by the financial oligarchs back in 2008. As such, they represent alien, unaccountable bodies which pose a threat and ongoing danger to society. A fundamental task for the working people in the coming years will be to step up the fight to change the aim and direction of the economy so it is removed from the clutches of the financial oligarchy and its institutions and brought under the control of a public authority accountable to the people. Such an economy will have no place for parasitic cartels like the Blackrock looting machine to exist.

Notes

1. Creature from the Black Lagoon, 1954 U.S. movie.

2. “The dawn of the BlackRock era,” by Alexander Sammon, The American Prospect, May 15, 2020.

3. The Capitalists of the 21st Century, by Werner Rugemer (Tredition, 2019). 

4. “Shadow Banking,” Wikipedia, June 2, 2020.

5. “In Fink we trust: BlackRock is now ‘fourth branch of government,’”  by Annie Massa and Caleb Melby, Bloomberg, May 21, 2020.

6. The Capitalists of the 21st Century, by Werner Rugemer.

7. “BlackRock, Vanguard and State Street own corporate America,” by Jan Fichtner, Eelke Heemskerk and Javier Garcia-Bernardo, Ponderwall, September 29, 2019.

8. “Biggest deals of 2019 had BlackRock, Vanguard on both sides,” by Annie Massa and David McLaughlin, Bloomberg, January 24, 2020.

9. The Capitalists of the 21st Century, by Werner Rugemer.

10. “BlackRock rakes in big portion of Fed’s ETF investments,” by Christine Idzelis, Bloomberg, June 1, 2020.


The Canadian connection to BlackRock

In March 2020, the Bank of Canada announced that BlackRock, the world’s largest asset manager, is to be a key advisor and consultant regarding the federal Liberal government’s COVID-19 corporate bailout program. This is just the latest development in the growing influence and deep entanglement of the U.S.-based super-cartel in the economy and politics of Canada, which goes back a number of years.

For example, there is BlackRock’s involvement in the federal government’s Infrastructure Bank. In the 2015 election, Trudeau proposed the formation of a federal infrastructure bank “to provide low-cost financing for new infrastructure projects” that would “use its strong credit rating and lending authority to help municipalities reduce their cost of borrowing.”[1] But in January 2016, Prime Minister Trudeau met with BlackRock CEO Larry Fink at the World Economic Forum in Davos at a time when Fink was also calling for increased infrastructure investments by governments and private interests. Trudeau met with Fink again in March 2016 in New York. Later that spring, the Liberal government announced the formation of an Advisory Council of Economic Growth which, in the fall of 2016, called for the creation of a Canadian Infrastructure Development Bank. By that time, the original concept of the infrastructure bank – to provide low-cost financing for infrastructure projects – was replaced with the new aim of allowing the private sector, including BlackRock and its clients, to put up much of the financing at a higher cost to municipalities and other bodies.[2]

Prior to the meeting in fall 2016, Trudeau government officials worked cheek-to-cheek for several months with BlackRock executives in crafting presentations to inform potential investors about investing in the Infrastructure Bank. BlackRock personnel organized the investor meeting for November 14 and, in the course of a number of bi-weekly sessions leading up to it, even went so far as to help put together the PowerPoint presentation that Amarjeet Sohi, the federal Infrastructure Minister, delivered at the meeting. Jean Boivin, currently a BlackRock managing director and previously an Associate Deputy Minister with the federal government, also participated in those sessions.

One of the big attractions of public infrastructure projects for a private interest like BlackRock is the higher return on its investments, which can be as much as seven to nine per cent per year. Of course, that extra return ends up coming out of the public purse and, over time, can end up doubling the cost of projects.[3] However, a think tank formed by Larry Fink and other financiers argued that private investment in public infrastructure represents “a rich opportunity … with predictable income streams and time spans measured in decades.”[4]

As the BlackRock Transparency Project and various news reports have revealed, other government bodies, such as the Canada Pension Plan Investment Board (CPPIB), have had their own involvements with BlackRock.[5] Mark Wiseman was a CEO of the $278 billion pension plan board from 2012 to 2016 which manages the CPP pensions of 20 million Canadians. While at the helm, Wiseman “significantly outsourced management of the pension plan’s assets to BlackRock,” including investing in BlackRock’s “distressed mortgage funds” and other global investments. As CEO of the CPPIB, Wiseman was eventually appointed to the government’s Advisory Council of Economic Growth. However, just three days after its first meeting, “Wiseman abruptly announced his intention to resign from the [Council and the CPPIB] to join BlackRock as its global head of equities.” Despite this clear conflict of interest, the federal government allowed Wiseman to remain on the Council, as well as to stay on as a senior advisor to the CPPIB. And so it is that the federal government allows BlackRock officials to be key advisors while at the same time lobbying for federal funding.

Besides Wiseman and Jean Boivin, both of whom jumped to BlackRock from top positions in the public sector, there are a number of other examples of the “revolving door” of high level personnel between BlackRock and the federal government. For example, in 2018, BlackRock took on another CPPIB official, Andre Bourbonnais who had been the CEO of PSP Investments, which is the $139 billion retirement fund that manages investments for the Public Service, the Canadian Armed Forces and the Royal Canadian Mounted Police. All told, there are more than two-dozen additional officials “who have worked or interned at both the CPPIB and BlackRock.” According to the BlackRock Transparency Project, BlackRock has had “a significant hand not only in the [infrastructure] bank’s creation, but in personnel decisions as well” including determining who should fill key positions.[6] Thus the state and the super-cartel become one.

For his part, Prime Minister Trudeau continued to meet with BlackRock executives, including attending a private dinner with BlackRock executives on March 8, 2017 and a meeting in 2018 in New York with BlackRock investors. Today, with BlackRock appointed as key advisor in the COVID-19 bailout program, even the Bank of Canada has been “thrust into BlackRock Inc.’s increasingly crowded orbit.”[7]

One of the oldest economic think tanks in Canada, the C.D. Howe Institute, has also been brought under BlackRock’s influence. In 2017, the Institute, which previously had published a study critical of the idea of an Infrastructure Bank, received funding from BlackRock and appointed a top official from the super-cartel to its board of directors. Since then the Institute has issued various publications praising the Infrastructure Bank.

Besides its inroads into the Canadian public sector, BlackRock has a huge involvement in the private sector. Although the full extent is not known, BlackRock either manages or owns assets in most large North American companies and financial institutions, including those in Canada. As well, iShares, its family of exchange traded funds (ETFs) dominates the $200 billion ETF market in Canada (as it also does in the huge U.S. market).

In 2019, BlackRock formed a strategic alliance with RBC Global Asset Management to deliver a new brand of ETFs named “RBC iShares” worth $60 billion. According to a press release from RBC, “this transformational alliance brings together two market leaders: the world’s largest ETF manager and Canada’s largest asset manager.”[8]

Not a few pundits, journalists, academics, NGOs and unions have raised concerns about BlackRock’s growing clout over the Canadian economy as well as its ethical violations.[9] Critics have argued that BlackRock’s role in the creation of the Infrastructure Bank “puts the priorities of wealthy investors and BlackRock clients ahead of Canadian taxpayers, public pension investors, and consumers.” Others have pointed out that the cozy relationship between the company and government “violated federal conflict of interest rules and gave BlackRock preferential treatment in the selection and implementation of projects financed by the new bank.” Matthew Dube, the NDP’s parliamentary infrastructure critic, says that “Canadians will likely have to pay twice for their infrastructure – first through the federal treasury and then through user fees that will generate corporate profits.”[10]

Besides the issue of the Infrastructure Bank, there is the broader issue of a super-cartel like BlackRock being in a position to take actions and make decisions that impact the public interest of Canadians in fundamental ways. Indeed, the corporation threatens to enmesh much more of the Canadian economy in its net, especially now that it is a key advisor in the government’s COVID-19 bailout program, which will provide funding to chosen corporations and financial institutions. As one professor has commented, it’s likely that BlackRock now “oversees at least a portion of just about every Canadian’s retirement nest egg.”[11]

The super-cartel currently has $27 trillion of assets under management, while the Canadian economy has only a GDP of $1.9 trillion. Thus it has the capa:bility to influence and distort the entire direction of the economy as well as the political affairs of the country. But should a giant entity with such narrow aims have such influence over everything from public pensions to the economy as a whole? After all, BlackRock’s aims are all about its own private interest and that of its clients, not the broader public interest.

The super-cartel aggressively pursued the interests of its investors (and its own interests) when it pushed to de-regulate the financial sector in the U.S. in the 1990s and promoted the toxic mortgage-backed securities market, all of which contributed to the financial crisis of 2008, resulting in countless bankruptcies, housing foreclosures and job losses in the U.S., Canada and elsewhere (while BlackRock benefited hugely from the very crisis it helped cause). Over the years, it has pursued cartel-type policies that put its interests first and which various observers believe should be prosecuted or made illegal. In addition, as an example of its lack of commitment to any sort of public interest, the super-cartel has been named in various international tax evasion scandals, including those revealed in the Paradise Papers and Panama Papers.[12]

All of this shows that we need a new direction for the economy in Canada. Decision-making power must be in the hands of the Canadian people, not in those of a super-cartel or a financial oligarchy with a hammerlock on the state.

Notes

1. “Private-sector role in Canada Infrastructure Bank raises conflict issues.” by Bill Curry, Globe and Mail, May 5, 2017.

2. “Creating a Canadian infrastructure bank in the public interest.” by Toby Sanger, Canadian Centre for Policy Alternatives, March 20, 2017.

3. Ibid.

4. “New evidence shows BlackRock’s role in Canada Infrastructure Bank may have also included advising on key personnel,” by Black Rock Transparency Project: Campaign for Accountability, August 27, 2018.

5. Ibid.

6. “Why the Bank of Canada needs BlackRock’s help while fighting the coronavirus downturn,” by Kevin Carmichael, Financial Post, April, 1, 2020.

7. Ibid.

8.”RBC Global Asset Management and BlackRock Canada announce strategic alliance to transform Canadian ETF market,” RBC Global Asset Management, January 8, 2019.

9. “Democracy Watch files complaint with Ethics Commissioner raising questions about violations of federal ethics law by BlackRock and the federal cabinet.” by Bradford, Democracy Watch, May 24, 2017.

10. “What is BlackRock, and why does it matter now in Ottawa?” by Andy Blatchford, Maclean’s, May 11, 2017.

11. Ibid.

12. “Canada Infrastructure Bank promoter involved in tax havens.” National Union of Public and General Employees, accessed May 2, 2020.


U.S. report on asset management and financial stability

In 2013, the U.S. Treasury Department’s Office of Financial Research conducted a brief overview and analysis of the asset management industry with respect to how giant firms like BlackRock, Vanguard and others, through their activities, could introduce “vulnerabilities” that might pose threats to the financial stability of the economic system.[1] The study, titled “Asset management and financial stability,” was done on behalf of the U.S. Government’s Financial Stability Oversight Council to better inform its analysis as to whether such firms should be put under “enhanced prudential standards and supervision” as designated by the Dodd-Frank Wall Street Reform and Consumer Protection Act which came into being in the wake of the 2008 financial crisis.

Financial regulations are one of the tools which the large corporations and banks that dominate the economy use to sort out contradictions within their ranks, but they are also used as weapons by one faction, sector or cartel of business against others. In that regard, an ongoing controversy in the U.S. has been that the giant asset management corporations are not as restricted by regulation as other sectors of the financial industry, which gives them a competitive advantage. To remain in that position, BlackRock, the world’s largest asset management company, has successfully opposed the imposition of regulation to the point that it has even refused to be designated a “systemically important financial institution” and thus be subject to more regulation, despite its gigantic size and influence. Indeed, asset management companies remain largely unregulated despite the efforts of the Office of Financial Research and other sections of the financial oligarchy. Nonetheless, in its report the Office of Financial Research reveals some of the risks and dangers to the larger economy posed by the rise of these asset management companies.

The report points out that in 2013 the U.S. asset management industry oversaw the allocation of approximately $53 trillion in financial assets. In 2020, these assets now amount to approximately $90 trillion, matching the GDP of all the countries of the world combined. The report notes that the industry is central to the allocation of financial assets on behalf of investors and is marked by a high degree of innovation and diverse financial activity. Asset management firms and the funds they manage “transact with other financial institutions to transfer risks, achieve price discovery, and invest capital globally through a variety of activities.”

However, their activity differs in key ways from that of banking and insurance companies (although these latter may also have asset management divisions within them). For example, “asset managers act primarily as agents, managing assets on behalf of clients as opposed to investing on the managers’ behalf. Losses are borne by – and gains accrue to – clients rather than asset management firms.”

In contrast, although some asset management activities may be similar, “commercial banks and insurance companies typically act as principals: accepting deposits with a liability of redemption at par and on demand, or assuming specified liabilities with respect to policy holders.”

According to the report, asset management firms could possibly engage in a certain combination of fund- and firm-level activities within a large, complex firm, or have a significant number of asset managers engage in riskier activities, all of which could end up posing, amplifying or transmitting a threat to the monopoly capitalist system.

The report identifies four key factors that make the asset management industry vulnerable to threats and shocks: 

1. “reaching for yield” – (i.e. seeking ever higher returns on investment by purchasing riskier assets, as well as “herding” behaviours, which include stampeding in and out of markets and investments especially at times of market stress); 

2. “redemption risk” – (i.e. early or heightened withdrawal of funds from a financial institution or instrument, etc. in a stressed or illiquid market causing a cascading crisis and even insolvencies); 

3. “leverage” – (i.e. the use of borrowed funds which can amplify asset price movements and increase the potential for fire sales’ of assets, which can then spread to the larger market); 

4. “firms as sources of risk” – (i.e. given their size, the failure of one of the big asset manager corporations could pose a risk to the financial stability of the entire economy, as happened with several of the large Wall Street financial institutions in 2008). In other words, the bigger they are, the harder they fall. The problem is that they not only hit the ground hard, but also pull down the entire economy with them, plunging millions of workers, small and medium-sized businesses, pensioners and the population as a whole into crisis and ruin.

In that regard, the asset management industry is highly concentrated. Although the report does not mention the word cartel at all, some of the activities it describes hint at cartel type activity. For example, the report states that “interconnectedness and complexity can transmit or amplify threats to financial stability” and that “large financial companies tend to have multiple business lines that are interconnected in complex ways.” Further, “these threats may be particularly acute when a small number of firms dominate a particular activity or fund offering.” This, of course, contradicts the mantra of asset management firms like BlackRock that “exchange traded funds” (ETFs) and other financial instruments, that it dominates in both the U.S. and Canadian markets, are a safe investment.

What the report exposes is the high degree of potential instability and chaos that lies at the heart of the financial system and how much it has descended into a “law of the jungle” situation where even minimal regulations are cast off by the most powerful. The financial oligarchy has created huge, highly complex, financial institutions and structures to enrich itself to an unprecedented degree. At the same time, it is like the sorcerer’s apprentice conjuring up demons it can’t control, even if it wanted to.

Despite this risk, the U.S. and Canadian governments have allowed asset management companies to swell and dominate the economy. And, more than that, have handed over key advisory and decision-making power to BlackRock in regards to the COVID-19 bailout. The consequences remain to be seen.

Note

1.  “Asset management and financial stability.” U.S. Office of Financial Research, September

 

TML Weekly, June 23, 2013, No. 21

1 Comment

Filed under Canada, United States

One response to “BlackRock – The super cartel

  1. Pingback: The Green Face of BlackRock | Tony Seed's Weblog

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