Laurence Fink: The Trillion-Dollar Deadhead
By James Petras, Axis of Logic
Axis of Logic
Wednesday, Jan 4, 2017
|“The secret of great fortunes without apparent cause is a crime forgotten, for it was properly done.”
- H. Balzac
Among the current crop of Wall Street financiers, Laurence “Larry” Fink has received the greatest number of awards and plaudits. He is the CEO and Chairman of Black Rock (BR), the world’s largest multinational investment management corporation. By 2016, BR had over $5 trillion dollars under management with over 12,000 employees in 70 offices in 30 countries serving clients in 100 countries.
Fink has dominated Wall Street. He holds more assets than his biggest established competitors, because he had the political power to direct the enormous Washington bailout of Wall Street in 2009. He helped shape Hillary Clinton’s emerging Treasury Department team and policies, anticipating her presidential victory. Under a President Hillary Clinton, Fink’s political control would have matched his global economic empire. According to the Economist, Aladdin, the BlackRock electronic subsidiary, monitors 7% of the world’s 225 trillion dollar financial assets.
In the mass media and among the economic elite, Fink is a genius, a self-made empire builder, who has succeeded because he picks the winners and dumps the losers. He is a life-long Democratic Party contributor, although he works with and through both parties and a variety of high ranking government officials and financial CEO’s.
As head of the most influential financial institution in the world, with institutional investors comprising over 65% of its assets, Laurence Fink controls the economic lives of many millions of pensioners, workers, employees and managers. Having risen to the pinnacle of financial power, he wields enormous political influence in shaping fundamental economic decisions. Fink’s economic empire is well-known: the financial elite and business publications are awed by his successes.
There is another side of the Rise of Fink. He has consistently cost his employers and clients millions of dollars in losses while never losing his aura of success! His economic empire is less a result of his economic skills and competitiveness and more a result of his political connections and trillion-dollar state contracts. Fink’s most famous financial product, mortgage-based securities led to the biggest collapse in world financial markets since the Great Depression.
Larry Fink is the best example of how an investment loser can become a ‘double’ W (Wall Street – Washington) emperor. Early on Larry Fink demonstrated his flair for incompetence. During his first position with the First Boston Corporation, Fink lost $100 million by betting the wrong way on interest rates.
After a ‘gentleman’s departure’ Fink co-founded BlackRock (BR) in 1988. He proceeded to grow BR by acquiring or merging with lucrative rivals – but not by investing in factories and productive employment. In 2003 Fink merged with Merrill Lynch, doubling BR asset management. The ‘Genius’ Fink, invested $5.4 billion dollars to purchase Peter Cooper Village in Manhattan, the massive residential complex, built by Metropolitan Life in the 1940’s. It was heralded as the largest real estate deal in US housing history. The project ended in default, BR clients lost their money, and the California Pension and Retirement system (CALPERS) was out $500 million dollars under Larry’s stewardship. Undaunted, BR continued to grow by merging with PNC Financial Services Group, Barclay’s Global Investors and numerous other financial specialists in speculative ‘products’.
But the big deal propelling Fink into the ‘Thirteen digits’ (trillions) occurred in 2009 when newly elected Barack Obama awarded BlackRock with the Government contract to direct the ‘three-trillion dollar’ bailout of big financial companies and to manage the bankruptcy of others. Perhaps because of Fink’s deep ties with top senior officials, the contract was awarded without competitive bidding. Equally important, because of Fink’s ties with the biggest bankers, he facilitated the flow of Treasury trillions to the banks to be ‘bailed out’ while allowing other smaller banks and investment houses to go ‘belly up’ in a process dubbed ‘the cleanup after the meltdown’. BR would naturally buyout these assets at ‘fire sale’ prices. Millions and billions led to trillions on the BR ledgers. By 2010, Fink’s genius status grew and so did the number of wealthy pension funds and major institutional investors in his portfolio– despite his major losses in the recent past – (as Balzac would note, memories do not include ‘crimes properly done’.
Thus, Larry Fink became the most prominent former deadhead turned trillion-dollar speculator. Despite the influx of trillions, BR faces a new, bigger and more dangerous ‘mistaken’ decision. Fink has ploughed hundreds of billions in client funds in Exchange Traded Funds (ETF), which are likely to take a dive as they overvalue and are under pressure to deflate.
Black Rock has been extraordinarily profitable because of Fink’s unique political, social and ethnic ‘identity’ ties to the US Treasury Department. In May 2009, the Fink-Treasury connection resulted in BlackRock receiving the ‘contract’ to manage the cleanup of ‘toxic’ mortgage assets amounting to an astronomical trillion-dollar chunk of business. In other words, Fink’s company would analyze, unwind and assign value onto billions of dollars of assets owned by Bear Stearns, AIG, Freddie Mac, Morgan Stanley and other lucrative firms. Fink would ‘unwind’ the assets and rewind them into his mega fund; he could set prices favoring BR’s market position.
Fink’s history of mediocre market performance was no obstacle to his success because the political links more than compensated – they guaranteed a bonanza for BR.
The business press provided a veneer of technological and mathematical competence, which they cited as the basis for Fink’s/BR trillion dollar success story.
But the historic and contemporary reality of the political-economic success of the big financial houses depends on their political control over the US Treasury. Their ability to trade and get rich depends on a system of favorable state and federal rules (deregulation, taxes, etc.), which establish the necessary framework for the paper economy. This system is light years away from the ‘real’ economy of factories and stable, well-paying jobs for the citizenry.
Fink has turned BR into an empire by spending his time and energy in the politics of controlling and milking the US Treasury. Controlling this activity is more influential than the President of the United States or Pentagon in deciding who among the elite wins and who loses!
Once at the top, legions of journalists and academic courtesans will busily polish the stars in the financial firmament, covering up their failures and turning their political connections into hymns of praise for the ‘hard work and commitment’ of the self-made genius. This spectacle indeed will dazzle the eyes and judgment of lesser speculators. While the same pundits write extensively about the political leaders and lesser economic titans, the more the Larry Finks of Wall Street remain invisible to the citizenry, the greater their political control over the trillion dollar Treasury!
Please note James Petras's new collection of essays with Clarity Press:
THE END OF THE REPUBLIC AND THE DELUSION OF EMPIRE
$24.95 / 252 pp. / 2016
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