DQ here: As Barrons reported today, almost half of the Federal Reserve’s purchases of corporate bonds ETFs went into funds belonging to BlackRock, the world’s biggest asset manager which just happens to be advising the Fed on those very same asset purchases. As Barrons says, the “optics” of the Fed’s purchases of iShares ETFs are “controversial,” which is a modern way of saying that the “ethics” of stink to high heaven and the potential for fraud and corruption are huge. On the plus side, “BlackRock has said it won’t charge management fees on the iShares ETFs it buys behalf of the Fed.”
Given how much power BlackRock has amassed through its influence over central bank policy and purchases on both sides of the Atlantic, I thought it would be a good time to feature the following piece on transition we’re going through at the moment, from the Goldman Sachs era to the BlackRock era.
The world’s largest asset manager is poised for overwhelming influence no matter who wins the next presidential election.
By Alexander Sammon and cross-posted from American Prospect
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…