Wall Street giant faces bipartisan fire as part of historic Fed bailout

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“What we are trying to do is create conditions in which American workers can keep or return to their jobs,” he said. “And that’s our only goal; we are not trying to achieve or deviate from other public policy objectives. “

Despite BlackRock CEO Larry Fink’s friendly relations with President Donald Trump, the company became a target of the Tories after Fink rocked the financial world in January by highlighting climate change as a major risk and in s ” engaging to modify the investment policy of the company to promote economic sustainability.

This has raised concerns among Republican lawmakers such as Senator Ted Cruz of Texas, who could disadvantage oil and gas companies in his actions on behalf of the Fed.

“We think the Federal Reserve should insist that … to avoid conflicts of interest, BlackRock must act regardless of this investment policy or others that BlackRock has adopted for its own funds,” said 17 Republican senators in an April letter led by Kevin Cramer (RN .D.) With Cruz among the signatories.

On the other hand, nine democratic senators at the end of April urged Powell to include climate risks in his reflections on the bonds to buy.

“The timing and extent of climate damage may not be perfectly suited to existing risk management frameworks, but they will be economy-wide and potentially irreversible,” wrote lawmakers led by Senator Brian Schatz ( D-Hawaii).

This is not the only concern raised by the Democrats. García, along with eight other members of the House, including representatives Rashida Tlaib (D-Mich.) And Alexandria Ocasio-Cortez (D-N.Y.), Highlighted the size and influence of BlackRock in the economy. They argued that the company’s Fed selection underscores that it should be subject to increased scrutiny.

“BlackRock is already big, and you have to make sure that its work during this crisis does not cement the structural importance of the business in the global economy and our dependence on it,” lawmakers wrote in their own letter to Powell and Treasury Secretary Steven Mnuchin.

Under the Obama administration, BlackRock successfully pushed back efforts to place it under Fed supervision, a move that would have tightened regulations by assuming the role of the company is so critical to markets that its failure could shock the financial system. The asset manager argued that his activities were not large enough to have this effect.

According to BlackRock’s contract with the New York Fed, the central bank will communicate its objectives and strategies for bond purchases to the company, which will provide details on how to execute them – plans the Fed will approve on a regular basis. For starters, BlackRock will earn two cents on every $ 100 spent on each purchase.

BlackRock’s own ETFs cannot constitute a larger share of the Fed’s portfolio than their actual market share – currently 50%. And the company will reimburse the Fed for the fees it collects on the central bank’s holdings of its ETFs. According to the latest data released by the Fed, 48% of the ETFs it has purchased are managed by BlackRock.

Nonetheless, the company will be responsible for determining a fair market price for bonds in an environment where markets will not necessarily function properly – an area where the company has extensive expertise and precisely why the Fed hired it in the first place.

The Fed could have selected smaller asset managers for the position, but “none of these other entities, I think, would benefit from this type of power and would be integrated into internal financial management circles in the same way than BlackRock, “said Marcus Stanley, policy officer. director of Americans for Financial Reform, which advocates tougher rules on Wall Street.

Stanley said that BlackRock’s growing relationship with the U.S. government has echoed Citigroup and Goldman Sachs over the past decades, when these companies have worked closely with previous administrations and have seen former executives move into government positions. high level. The point is supported by speculation that Fink has ambitions to become secretary of the Treasury under a future Democratic president.

“BlackRock faces a ton of political risks here that range from [accusations that] BlackRock pursues a program other than the public’s best interest, with the personal ambitions of Larry Fink, “said Morley.

But Ian Katz, an analyst at Capital Alpha Partners, said the central bank would always turn to a private company to help with purchases.

“There are very few people in the world who have expertise on these very specific issues,” said Katz. “If you eliminate all the people who work in large financial services companies, it would be very difficult to find the right expertise.”

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