How BlackRock Rules the World
By: David Dayen, The American Prospect, September 27, 2018
A new pecking order has emerged on Wall Street. Big banks remain powerful and incredibly profitable—quarterly income has hit record levels throughout 2018, largely due to benefits from the tax cuts. But a decade of financial crisis, regulatory pressures, and (most important) new investing trends has transferred power to a few dominant asset management firms. As more Americans plow retirement savings into passive funds, the buy side has overtaken the sell side.
Buoyed by an index fund collection called iShares that it purchased from Barclays, BlackRock is the world’s largest asset manager, with $6.3 trillion of other people’s money under its control. BlackRock’s Aladdin risk-management system, a software tool that can track and analyze trading, monitors a whopping $18 trillion in assets for 200 financial firms; even the Federal Reserve and European central banks use it. This tremendous financial base has made BlackRock something of a Swiss Army knife—institutional investor, money manager, private equity firm, and global government partner rolled into one.
The BlackRock Transparency Project, an initiative from the Campaign for Accountability, a watchdog organization focused on public corruption, seeks to demystify the firm’s “access and influence” business model. BlackRock forges close relationships with governments to outpace competitors, attracting special benefits and avoiding onerous regulatory standards. Since 2004, researchers note, BlackRock has hired at least 84 former government officials, regulators, and central bankers worldwide. This can quickly bleed into conflicts of interest and official corruption.
For example, it’s no secret that BlackRock CEO Larry Fink built a shadow government of former agency officials in a bid to become Hillary Clinton’s Treasury secretary. That didn’t stop Fink from becoming part of the main private-sector advisory organization to Donald Trump until that panel disbanded after Charlottesville. Links to leaders in both parties have enabled BlackRock to successfully fight designation as a systemically important financial institution, keeping its trillions outside the Dodd-Frank regulatory perimeter. The Treasury Department official leading efforts to relax that designation and keep asset managers outside its grip is Craig Phillips, a former BlackRock executive.
This model of fused BlackRock/government relations doesn’t stop in the United States, as researchers at the BlackRock Transparency Project have laid out in a series of reports. The first focused on Canada’s Infrastructure Bank, a public-private partnership for low-cost loans for road and bridge projects, which BlackRock advised on creating and helped staff with friendly executives. BlackRock subsequently stands to gain from the bank it helped construct.
The latest report, provided exclusively to the Prospect, details a deep tangle of relationships between BlackRock and the outgoing government of Enrique Peña Nieto in Mexico. This has bolstered BlackRock’s efforts to generate an infrastructure business in Mexico from scratch. Since 2012, BlackRock has purchased stakes in Mexican toll roads, hospitals, gas pipelines, prisons, oil exploration businesses, and a coal-fired power plant.