BlackRock: The $12 Trillion "Too Big to Fail" Firm You Don't Know About

I was looking for a good story to encapsulate just how concentrated power is in Wall Street, and specifically how BlackRock basically runs half of the world, and nobody seems to notice. Lo and behold, Vanity Fair had done a feature piece on Larry Fink himself.

I thought the D&D would enjoy this, especially as it's nice, once in a while, to give those Ron Paul conspiracy boys paydirt on the fact that yes, bankers and government can pat each other's backs, with potentially disastrous implications for us all. Of course, re-regulation is not needed and the financial markets are all A-OK.

Analysis and discussion welcome, of course.

http://www.vanityfair.com/business/features/2010/04/fink-201004

 

Going by the Vanity Fair headline.

Okay, if you want to be technical, a $42 billion market cap company that controls and influences to some degree $12 trillion of assets.

but ain't nobody got time for that level of detail

 

Yes, but essentially, BlackRock decision makers influence a huge part of that $12 trillion. Whatever view BlackRock has of the economy holds enormous weight because they are the preeminent advisers on $12 trillion worth of assets, including some of the most sensitive post-bailout (Freddie, Fannie etc.). Given Fink's links with the highest tier of government, there is a worrying possibility that one man may have way too much influence. And the somewhat creepy thing is most Americans simply don't know that man.

This is especially the case because BlackRock is known for risk analysis. If they get it systematically wrong, the entire system is f**ked.

It's not so much BlackRock's health that is worrying, so much as it is the amount of influence BlackRock wields without many people batting their eyes. If Goldman had been getting government contracts in utter secrecy, you can bet some eyebrows would have been raised at the very least. Not so with BlackRock. Asset management or investment banking---you still wield an inordinate amount of control and influence over said assets.

Thus my contention that BlackRock is a "$12 trillion" firm, even if yes yes, market cap and cash flows imply a valuation of less than $50 billion.

 

BlackRock's risk advisory systems are known as the best in the world. You can be sure every decision the Fed makes takes into account BlackRock's view of the situation. In any case, BlackRock has a view on everything in the market, and if you don't think monitoring and dissemination of influential opinions from a firm that has deep connections in government and a heft of secretive government contracts is worrisome, then I suggest you still tailor it off to the $3.67 trillion BlackRock has directly under management---which is still a pretty hefty number.

 

This conflict of interest is an issue as well in isolation, IIRC BlackRock had people at one time managing the unwinding of Bear Stearns (or some other risk-plagued bank) while simultaneously having other people help the Fed do a risk appraisal of those assets. Externally, they say both teams didn't contact one another, but it's easy to see how tempting that might be.

 

One returns profits to the public purse, while appointing economic bureaucrats hired at a fixed wage. The other keeps profits, and redistributes them to employees in the form of incentive bonuses. Two different beasts altogether.

 

If you think the incentive structure and mission of BlackRock is the same as that of the Federal Reserve, then we will have to agree to disagree.