Government Hands Over Key Advisory and
Decision-Making Power to Super Cartel

BlackRock -- The Super Cartel

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 behavior" 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.


This article was published in

Volume 50 Number 21 - June 13, 2020

Article Link:
Government Hands Over Key Advisory and: BlackRock -- The Super Cartel - Peter Ewart


    

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