BlackRock, the international investment management firm run by billionaire Larry Fink, has played an outsized role in Federal Reserve bailouts of Wall Street. As it turns out, it’s also been quietly managing hundreds of billions of dollars for more than five million federal government employees in their retirement plan, known as the Thrift Savings Plan (TSP).
During the last financial crisis of 2007 to 2010, the Federal Reserve gave BlackRock no-bid contracts to manage the toxic assets held in three programs known as Maiden Lane, Maiden Lane II and Maiden Lane III. These were Special Purpose Vehicles set up by the New York Fed. Maiden Lane purchased $30 billion of toxic assets from Bear Stearns as an inducement by the New York Fed to get JPMorgan to purchase the good parts of Bear Stearns. Maiden Lane II purchased mortgage-backed securities from the giant insurer, AIG, as part of a program to bail out its securities lending to Wall Street banks. Maiden Lane III purchased collateralized debt obligations (CDOs) on which AIG Financial Products had written credit default swaps that it couldn’t make good on to the Wall Street and foreign global banks to whom it owed the money. (Thus, the AIG bailout was actually a bailout of mega banks.)
BlackRock was also one of the investment managers for the Fed’s mortgage backed securities purchase program during the last financial crisis. It also advised the Fed on the pool of assets of Citigroup that the Fed ring-fenced and guaranteed. Additionally, the Federal government turned to BlackRock to evaluate the toxic assets of Fannie Mae and Freddie Mac after the government seized the entities in 2008.
Today, BlackRock has been selected in more no-bid contracts to be the sole buyer of corporate bonds and corporate bond ETFs for the Fed’s unprecedented $750 billion corporate bond buying program which will include both investment grade and junk-rated bonds. (The Fed has said it may add more investment managers to the program eventually.)
BlackRock is being allowed by the Fed to buy its own corporate bond ETFs as part of the Fed program to prop up the corporate bond market. According to a report in Institutional Investor on Monday, BlackRock, on behalf of the Fed, “bought $1.58 billion in investment-grade and high-yield ETFs from May 12 to May 19, with BlackRock’s iShares funds representing 48 percent of the $1.307 billion market value at the end of that period, ETFGI said in a May 30 report.”
No bid contracts and buying up your own products, what could possibly be wrong with that? To make matters even more egregious, the stimulus bill known as the CARES Act set aside $454 billion of taxpayers’ money to eat the losses in the bail out programs set up by the Fed. A total of $75 billion has been allocated to eat losses in the corporate bond-buying programs being managed by BlackRock. Since BlackRock is allowed to buy up its own ETFs, this means that taxpayers will be eating losses that might otherwise accrue to billionaire Larry Fink’s company and investors.
As it turns out, the Federal Reserve is not the only entity trusting BlackRock with vast sums of money. As of December 31, 2019, according to an official report from the federal employees’ retirement plan known as the Thrift Savings Plan (TSP), BlackRock is the sole manager of the four investment funds offered, which total $334.5 billion. Those plans include a corporate bond fund; a stock fund consisting of large-cap and medium size companies; and a stock fund that includes small-cap and medium size companies.
The Thrift Savings Plan also offers a government securities fund which consists of short-term nonmarketable U.S. Treasury securities specially issued to the TSP. That fund is managed by the plan itself.
Noteworthy for what should be a conservatively-supervised federal employee retirement plan, the TSP allows BlackRock to “invest in futures contracts and other derivatives. As part of the investment strategies, derivative instruments may be used to provide liquidity for daily investments or to manage currency, interest, and other exposures.”
This raises the question as to what extent BlackRock might be influencing stock market moves using federal employee money to buy futures on the Dow Jones Industrial Average or S&P 500.
BlackRock manages investments for numerous other state and federal retirement plans, including a significant part of the Tennessee Valley Authority Savings and Deferral Retirement Plan which held a total of $2.6 billion as of September 30, 2018. According to the TVA plan’s 2018 financial statement, BlackRock manages all of its Target Date funds which “serve as the qualified default investment alternative for participants.”
BlackRock also manages pension funds for foreign governments, foreign local governments, and foreign central banks. According to a recent filing with the Securities and Exchange Commission by the central bank of Israel, BlackRock is investing its U.S. stock portfolio.
Barron’s reported last week that BlackRock is “the second- or third-largest owner of stock in Microsoft, Apple, Amazon, and Procter & Gamble, and among the top five in nearly every large U.S. company.” Because of BlackRock’s heavy influence with foreign central banks, some of which are also buying Microsoft, Apple, and Amazon, its role in the outlandish valuations of these companies may not be fully understood.
According to BlackRock’s April report to shareholders, as of March 31, 2020 the company was managing “approximately $6.47 trillion in assets on behalf of investors worldwide,” which is about six times what it was managing before the last financial crisis.
How did BlackRock become a behemoth in the span of a decade? The nonprofit watchdog group, Campaign for Accountability, has established a “BlackRock Transparency Project” that strongly suggests BlackRock has an untoward coziness with government and Fed officials. For example, it reports that “from the earliest days of the financial crisis in the fall of 2007 to early 2018, BlackRock has visited or spoken by phone with senior government and banking officials in the U.S. on almost 400 different occasions according to meeting logs.
Those calls and meetings included the following according to the BlackRock Transparency Project:
“More than 220 meetings and phone calls between BlackRock CEO Larry Fink and senior government officials; 98 meetings between Obama White House officials and BlackRock executives; 185 meetings and phone calls between senior BlackRock executives and Treasury Secretaries spanning the Bush and Obama Administrations; 37 meetings and phone calls between BlackRock and senior officials at the Federal Reserve.”
The contact logs reveal that between August 17, 2007 and December 27, 2007 (before the American public knew just how severe the financial crisis was) Larry Fink conversed with U.S. Treasury Secretary Hank Paulson 21 times – twice a day on multiple occasions. Paulson was the former Chairman and CEO of Goldman Sachs. Fink also had multiple phone calls with Fed Chairman Ben Bernanke during the financial crisis.
The current Federal Reserve Chairman, Jerome Powell, spoke for 30 minutes with Larry Fink on March 19 of this year, according to his daily calendar. Now BlackRock is a central cog in the Fed’s financial bailout plans.
This article first appeared on Wall Street on Parade.