by Joyce Nelson
World’s Biggest Investor
According to The Economist (Dec. 7, 2013), this company (that nobody has heard of) turns out to be the world’s biggest investor, with more than $4 trillion in assets under management, and another $15 trillion that it manages (under something called the Aladdin risk-management platform) for investors worldwide.
So influential is BlackRock that, according to The Economist, the company advised governments in the U.S., Greece and Britain on what to do with toxic assets from crashing banks, with co-founder, chair and CEO Larry Fink becoming a Washington insider.
These governments sought Fink’s advice, despite the fact that (as Fortune reported in 2008) BlackRock’s Larry Fink “was an early and vigorous promoter [of] the same mortgage-backed securities” responsible for the crisis. “Now his firm is making millions cleaning up these toxic assets,” Fortune noted.
Besides being Bank of America’s biggest shareholder, BlackRock owns part of Merrill Lynch and in 2009 BlackRock snapped up Barclays’ asset-management business, thereby boosting the assets under its control well into the trillions.
The current Board of Directors for BlackRock has some interesting people and corporate connections, including one Canadian – Gordon Nixon, the former President and CEO of the Royal Bank of Canada who retired in 2014 and was appointed to the BlackRock Board in July 2015.
In its extensive 2013 coverage of BlackRock, The Economist focused on the company’s risk-management platform called Aladdin – a massive data centre that “single-handedly manages almost as much money as all the world’s private equity and hedge funds,” while advising more than 100 major investors worldwide on where and how to invest. Calling Aladdin’s “prognostications” somewhat “discomfiting,” The Economist noted: “Buyers, sellers and regulators may all be relying on the same assumptions, simply because they are all consulting Aladdin. In a panic, this could increase the risk of all of them wanting to jump the same way, making things worse.”
With BlackRock advising on $15 trillion worth of investments globally, it wasn’t just The Economist that was worried. As the Wall Street Journal reported, the U.S. Treasury Department’s Office of Financial Research issued a 2013 report which “concluded that asset-management firms [like BlackRock] and the funds they run were ‘vulnerable to shocks’ and may engage in ‘herding’ behaviour that could amplify a shock to the financial system.”
But BlackRock lobbied hard against such a view, and in April 2016 avoided greater oversight from regulators in the U.S.
Struggling Local Governments
Provinces and municipalities across Canada are struggling financially, as neoliberal federal governments since the mid-1990s have cut transfer payments and further downloaded costs onto local governments (which have the least ability to raise revenues, basically through property taxes and user fees).
As Council of Canadians’ Maude Barlow and Paul Moist (national president of the Canadian Union of Public Employees) wrote in 2012, “The federal strategy appears to be to starve municipalities of infrastructure cash until they are forced to privatize through a Public-Private Partnership (P3),” despite evidence “from auditors’ general reports across Canada that P3s are often more costly and less efficient than fully public models.”
In 2014, BC’s Auditor General revealed that the provincial government is paying nearly twice as much to borrow through P3 private financing than if it borrowed the money itself. As CUPE noted, “Over the average 35 year lifespan of P3 contracts, this means the [BC] government is paying more than $2 billion more just in private financing.”
In December 2014, Ontario’s Auditor General Bonnie Lysyk blasted the Liberals’ use of private money to finance new hospitals and transit, revealing that Infrastructure Ontario’s use of P3s had cost $8 billion more taxpayer dollars than traditional public financing would have.
The use of P3s in the United Kingdom led to what has been called “a full-blown fiscal crisis,” with governments indebted to banks and corporations for 222 billion pounds sterling in order to pay for P3 projects valued at 56.5 billion pounds – an astonishing rip-off of taxpayers. UK’s “Private Finance Initiative,” in place since the 1990s, was the forerunner to the Canadian P3 program, but no one bothered to explain to Canadians just what happened to the UK through its use of P3 private financing.
More recently, Auditor General Bonnie Lysyk revealed Ontario’s mismanagement of the electricity system through vastly overpaying IPPs (independent power producers). The Auditor General determined that because of the terms for this partial privatization of electricity production, between 2008 and 2014 Ontarians overpaid for electricity by as much as $37 billion. The biggest IPP in Ontario is TransCanada Corp.; others include Bruce Power, TransAlta, NextEra, Brookfield, and Enbridge. The long-term contracts with these IPPs mean that Ontarians will be overpaying by billions of dollars for electricity for many years.
Similarly in BC, taxpayers have a $50 billion secondary debt burden under IPP contracts, according to retired economist Erik Andersen, and they are paying “exorbitant premiums” because of this partial privatization of BC Hydro.
So with P3s and partial privatizations now considered somewhat “toxic” by much of the taxpaying public, it appears that a new euphemism of “asset recycling” has been created, along with a new strategy of selling off assets in order to build new ones. Conveniently, all this is happening at the same time that rates for borrowing from private lenders are low.
The growing hype about “asset recycling” might well appeal to politicians, unless the public catches on and understands what’s happening. Pension managers team up with private investors to take stakes in big assets, such as Australia’s Port of Melbourne – the country’s largest container terminal and the so-called “jewel in the crown” – which the government is hoping will sell/lease for $6 billion in order to finance other infrastructure.
In late September 2016, the deal for the Port of Melbourne was signed for $7.3 billion, with the Ontario Municipal Employees Retirement System (OMERS) taking one fifth ownership, along with China Investment Corp and several others.
Needlessly starved for capital, governments are doing everything but take back their own monetary powers.
For decades (1938 to 1974), the publicly-owned Bank of Canada funded a wide range of public infrastructure projects by providing near-zero interest loans to federal and provincial governments, without causing inflationary problems or debt to private and foreign lenders. That hidden history is now emerging, thanks to the efforts of many.
By contrast, the Canada Infrastructure Bank looks like a Trojan Horse that could usher in more indebtedness and more corporate control – as neofeudal landlords – over major infrastructure such as water and wastewater systems, electricity systems, airports, ports, etc.
The founding members of COMER have long questioned neoliberalism’s economic model based on exponential growth, with escalating private profits considered supreme. As COMER Vice-chair Herb Wiseman told me by email, “P3s are not really about government financing because of scarce money, but another con job by the corporations to expand their operations in order to enhance shareholder value. It is made to look like governments are asking for this form of help when in fact it serves the corporate interests for never-ending growth on a finite planet.”
Globe and Mail columnist Konrad Yakabuski has urged “sober second thought” about infrastructure spending, citing examples in Spain, Greece and Japan (seduced by low borrowing rates from private lenders) where massive spending has created “money pit” infrastructure that nobody uses. Yakabuski noted, “If government spending on superlatively smooth highways, sleek subways and far-stretching fast trains was the ticket to success, Japan, Spain, and Greece would lead the global economy. Instead, infrastructure spending has been a major source of their debt-induced woes.” Yakabuski refers to “our infrastructure envy,” suggesting that Canada is being herded down a path that other governments have already followed into further massive debt to private lenders.
Renowned economist Michael Hudson (author of Killing the Host) bluntly warns that this path is “the road to debt serfdom,” with a rising financial oligarchy “impoverishing the 99%.”
The Trudeau government’s appointment of a banker from Bank of America Merrill Lynch who advised on the creation of the new Canadian Infrastructure Bank (CIB) was the most politicized appointment possible, aside from appointing BlackRock’s Larry Fink himself.
Meanwhile, on May 18, 2016 the Financial Post reported that Mark Wiseman, the chief executive of the Canada Pension Plan Investment Board, is leaving that post in June to take “a senior leadership role” at BlackRock in September 2016.
Excerpted from Beyond Banksters: Resisting the New Feudalism by Joyce Nelson. Also just published, the sequel, Bypassing Dystopia: Hope-filled Challenges to Corporate Rule. Watershed Sentinel Books. www.watershedsentinel.ca/books250-339-6117. Box 1270, Comox BC V9M 7Z8