When the US Federal Reserve Chairman Jerome H. Powell and Treasury Secretary Steven Mnuchin tried to save stalled markets at the start of the pandemic last year, America’s top economic officials were in near constant contact with a Wall Street executive, whose company financially from the rescue.
Laurence D. Fink, chairman of the board of directors of BlackRock, the world’s largest asset manager, was in frequent contact with Mr. Mnuchin and Mr. Powell in the days before and after the announcement of many of the Fed’s emergency rescue programs in late March. Emails received by the New York Times in response to a file request, as well as public releases, underscore the extent to which Mr. Fink, together with the government, is planning parts of a financial rescue that his company in a message described as “the project,” the he and the Fed “worked together”.
While some conversations were previously disclosed, the newly released emails, along with public calendar entries, reveal the extent to which economic policymakers have partnered with a private company to work out a response to the financial crisis and how closely BlackRock is linked to the federal government.
Mr Mnuchin held 60 recorded calls during the hectic Saturday and Sunday before the Fed, on Monday March 23, unveiled a policy package that included its first program to buy corporate bonds that were nearly impossible to sell as investors sprinted to convert their holdings into cash. Mr Mnuchin spoke to Mr Fink five times this weekend, more than anyone except the Fed chairman, with whom he spoke nine times. Mr. Fink joined Mr. Mnuchin, Mr. Powell and Larry Kudlow, the Director of the National Economic Council of the White House, at 7:25 a.m. the night before the Fed’s big announcement, based on Mr. Mnuchin’s calendars.
The records show the number of times federal officials engaged with a Wall Street executive during a time of crisis to develop strategies for reversing chaotic markets. Mr. Fink’s firm is a large player in many equity and bond markets, and their advisory arm helped implement some of the Fed’s crisis responses during the 2008 financial crisis. That market knowledge and experience earned him a front-row seat at a pivotal moment that may have enabled him to influence a bailout with huge implications for households, businesses and the entire US economy.
“You’re as close as you can get to a government arm without being the Federal Reserve,” said William Birdthistle, professor at Chicago-Kent College of Law and author of a book on funds.
On March 24, 2020, the New York Fed announced that it had re-engaged BlackRock’s advisory arm, which operates separately from the firm’s asset management business but is overseen by Mr. Fink, this time to conduct the Fed’s commercial mortgage loan purchases, securities and Corporate bonds.
BlackRock’s ability to benefit directly from regular contacts with the government during the rescue planning was limited. The company signed a nondisclosure agreement with the New York Fed on March 22, prohibiting officials involved from disclosing any information about upcoming programs.
But how the Fed and the Treasury Department crafted their bailout package was important to BlackRock. The company makes a profit by managing money for clients in a number of funds, generally with a preset fee. She earns more when she increases her assets under management. In the early days of the coronavirus crisis, when people turned financial stocks into cash, parts of their asset base shrank and their business prospects depended on events in certain markets.
While the Fed and the Treasury Department consulted many financial firms – and benefited virtually all of Wall Street and much of Main Street – in working out their response, no other company took center stage.
It is good for BlackRock to keep in touch throughout the government’s planning and could improve its image in the longer term, said Mr. Birdthistle. BlackRock would have benefited from “tons of information, tons of secondary financial benefits,” he said.
Mr. Mnuchin could not be reached for comment. When asked if senior Fed officials discussed program details with Mr. Fink before his company signed the nondisclosure agreement, the Fed said that Mr. Powell and Randal K. Quarles, a Fed vice chairman, were also in the email appears, “no memory of” have to discuss the conditions of both institutions with Mr. Fink. “
“They also had no reason to, because the Federal Reserve Bank of New York handled the process with great care and transparency,” added the central bank in its statement.
Brian Beades, a spokesperson for BlackRock, said the company “has put in place strict information barriers separating BlackRock Financial Markets Advisory from the company’s investment business,” and said it was “proud to have been able to do that.” To support the Federal Reserve ”. in dealing with the severe downturn in the financial markets in the depths of the crisis. “
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The disclosed emails between Fed and BlackRock officials – a total of 11 in March and early April – don’t make it clear whether the company knew about the Fed and Treasury’s plans or whether they were simply providing market intelligence.
Emails indicate that Mr. Powell spoke to Mr. Fink on March 23, hours after the Fed announced its corporate bond program.
“Larry Fink is available today to speak on the project you will be working on together,” stated an email from Mr. Fink’s assistant directly to Mr. Powell. “Please let us know when there’s a suitable time for you.”
“It’s fine now,” replied Mr. Powell.
The call does not appear on the Fed chairman’s official schedule last March. These calendars generally keep track of scheduled events and may have missed meetings in early 2020 as staff desperately worked to bail out the market and the Fed worked from home, a central bank spokesman said.
Mr. Powell’s calendars indicated that he spoke with Mr. Fink in March, April, and May, and he has previously answered questions about those conversations.
“I don’t remember exactly what those conversations were, but it was about what he sees in the markets and the like, the general exchange of information,” Powell said at a news conference in July 2020, adding that they weren’t “very many” conversations. “He’s usually trying to make sure we’re getting good service from the company he founded and runs.”
BlackRock’s Washington connections are not new. It was a key player in the 2008 crisis response when the New York Fed retained the company’s advisory arm to manage the mortgage holdings of insurance giant American International Group and Bear Stearns.
Several former BlackRock employees have been appointed to top positions in President Biden’s administration, including Brian Deese, who heads the White House’s National Economic Council and Wally Adeyemo, Mr. Fink’s chief of staff and now the No. Treasury.
The company has grown rapidly, with assets under management increasing from $ 1.3 trillion in early 2009 to $ 7.4 trillion in 2019, compared to $ 8.7 trillion at the end of last year.
In the course of expansion, it intensified its lobbying work. In 2004, BlackRock Inc. registered two lobbyists and spent less than $ 200,000 on their efforts. As of 2019, it had 20 lobbyists and was spending nearly $ 2.5 million, although that has decreased slightly over the past year based on OpenSecrets data. Campaign donations tied to the company also skyrocketed, reaching $ 1.7 million in 2020 (80 percent to Democrats, 20 percent to Republicans), up from next to nothing in 2004.
In March, when some of BlackRock’s own offerings were shaken with the pandemic outbreak in the United States, the company reached out to Mr Powell and Mr Quarles, the emails show. On one or two occasions, BlackRock appears to have spoken to Mr. Quarles on the phone. In others, Mr. Powell and Mr. Quarles did not respond, based on the published records.
The company representatives also spoke to other decision-makers from the Treasury Department other than Mr. Mnuchin in March, the emails show. A former official said such calls were part of the routine intelligence gathering of a large market operator at a time when markets were rapidly collapsing.
BlackRock operates in short-term bond markets that have come under severe stress as people and companies struggled to convert all of their holdings into cash. And problems were brewing in the corporate bond market, including exchange-traded funds that track bundles of corporate bonds and other assets but trade like stocks. Corporate bonds were difficult to trade and almost impossible to issue in mid-March 2020. The prices of some high quality corporate bond ETFs, including one from BlackRock, were out of whack relative to the values of the underlying assets, which is unusual.
People could still get their money out of ETFs, which both the industry and several outside academics touted as a sign of their resilience. However, investors would have had to accept financial losses in relation to the market value of the underlying bonds. This may have damaged the product’s reputation in the eyes of some retail savers.
“This was the first time ETFs had really come under systemic stress,” said Gregg Gelzinis, assistant director of economic policy at the Center for American Progress.
The Fed’s programs have helped change that. The central bank supported the corporate bond market on March 23, 2020 by pledging to buy both previously issued debt and new bonds. The existing bond program promised to buy ETFs as well, as they offer quick access to a broad market. The bond market and funds rallied almost immediately.
When the New York Fed entrusted BlackRock’s advisory arm with the purchases, it quickly released details of these contracts to the public. The firm made the program cheap for the government by waiving fees for buying exchange-traded funds and reimbursing fees from its own iShares ETFs to the New York Fed.
The Fed justified the decision to commission the advisory side of the House on the grounds of practicality.
“We hired BlackRock for their expertise in these markets,” Powell said since then, in defense of the quick move. “This was done very quickly because of the urgency and the need for their expertise.”