An Investment Giant Or a Future Menace?

 

 

 

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Wall Street

 

 

Not long ago, Lanny Breuer, the head of the Criminal Division, step down after four years of serving the Justice Department. He will officially leave March, first. In PBS Frontline show “The Untouchables” he is quoted as saying the following.

“To be clear, the decision of whether to indict a corporation, defer prosecution, or decline altogether is not one that I, or anyone in the Criminal Division, take lightly. We are frequently on the receiving end of presentations from defense counsel, CEOs, and economists who argue that the collateral consequences of an indictment would be devastating for their client. In my conference room, over the years,

I have heard sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects.…

In reaching every charging decision, we must take into account the effect of an indictment on innocent employees and shareholders, just as we must take into account the nature of the crimes committed and the pervasiveness of the misconduct.

I personally feel that it’s my duty to consider whether individual employees with no responsibility for, or knowledge of, misconduct committed by others in the same company are going to lose their livelihood if we indict the corporation.”

It sure seems like private banks in Wall Street are ‘too big to fail’

But another sort of super wealthy institutions from a different pedigree than banking, have risen lately, and now, even challenge the ‘Untouchable Banks.’Private investors like BlackRock, Fidelity, Vanguard, and State Street are somehow a threat, that don’t ‘break bread’ with banks or sit at their round tables.

The investment corporations, Offers mutual funds, closed-end funds, managed accounts and alternative investments to individuals, institutions and financial professionals. They’re only getting bigger….and BlackRock manages the portfolios of the Government! (Not sure about the other three investment corps)

Lately BlackRock, tired of Wall Street has decided to create the ‘Aladdin Trading Network’ an alternative bond market. BlackRock executives contend that the platform is aimed at lowering costs and plugging a gap in Wall Street’s diminished ability to provide market liquidity, not at competing with investment banks.

The point is, investment corporations are extremely powerful and scary.
Is it possible that Investment corporations like BlackRock could eventually become so powerful that:

1) Eventually buyout the most powerful ‘Wall Street banks.’?
2) Be above federal law and international law and avoid persecution? as Breuer said “ I have heard sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects.… “
3) Make decisions that would legally bypass the need for new bills to be signed by legislature and ‘call the shots’ with the government’s permission, when dealing with foreign and national trade …without absolutely no constitutional rights?

 

Catherine Haig.

Catherine Haig 

“This is a mind boggling dilemma American has created for itself. From convincing citizens that the “american dream” is to own a  house mortgage and property (which is bunk) to buying apartments with mortgages and maintenance agreements created by greedy little people who would normally never have that much clout outside their small perimeters. Someone forgot to tell the homeowners that property taxes will go sky high and that even if you have no kids you will have to pay for them and pick up the slack for others who are NOT paying.

That aside Investment companies are not investing in America and our money is being printed with zero backup. We used to have a gold collateral but not now. Now we owe countries like Pakistan and China and India trillions of dollars and we re pay them by allowing their exports and imports into America. All of these countries have taken over our products and no longer do we see “MADE IN AMERICA” on a label today.

In answer to your questions I don’t believe that Investment companies will take over the banks because the banks are still too strong and the banks have investment arms in their corporations that will do the dirty work that companies like Fidelity and Blackrock are doing. Our government is not investing in it’s people, in its products and quite frankly it is bringing down America to a point where we are not going to be the most powerful hen in the coop.

Banks and Investment companies are corrupt and they will have their downfalls regardless of whether their employees lose their jobs or not. Big business are in bed with Banks and banks are in bed with lobbyists and Investment companies are outside this intimate triangle. Banks have been here for 3 centuries and will continue to do business until the people of the world get rid of them. But again, no one is above the law and the law should and does cover everyone because in America the system of checks and balances still works and is used traditionally.”

 

Eric Tham 

“The idea of a ‘too big to fail’ bank or institution came about during the Global Financial crisis in 2008 with the bailout of Lehman Brothers, AIG and the large auto makers.

There are two repercussions from the failure of these institutions:

i. a circumscribed effect of immediate job losses and financial losses to stakeholders

ii. and a more extensive impact on the inter-connected world economy and trade

I will focus on the 2nd aspect. Post the crisis, there have been financial reforms primarily targeted at the over the counter derivatives markets. This according to the Bank of International Settlements is of the order of $1500 trillion – some 20X more than the actual world economy. A collapse in this generally opaque market has repercussion through the networked economies affecting world trade.

For this reason, there are generally two broad counter measures. The first is the congregation of OTC trades to central clearing parties. This helps to create transparency and contain the repercussions from a collapse of any too-big-to-fail institution. The second is the use of collateral amongst trading members. These collaterals are generally investment grade sovereign bonds, which shift the onus from the institutions to the sovereigns.

These measures cannot be belittled and can potentially nullify the threat from collapse of the ‘the too-big-to fail’ institutions.”

 

Claude Nougat 

“Mutual funds, corporations like BlackRock and others, have long operated outside of the borders of national governments, the US included. They operate out of London, Singapore, Korea, Japan, Frankfurt,Luxemburg and many so called “tax havens”, whatever, you name it.

Wall Street is only one of the many places. Since they’re outside national borders, they are nimble, they move fast, left and right, back and forth, hopping from one place to the next, in short they are able to and will duck any attempts to regulate them.”

 

rsz_Teri
Teri Buhl
 
“1) A: There isn’t a chance in the world that BlackRock (or any of the other big asset management complexes can overtake the big players on Wall Street. Second, these complexes do not have commercial banking licenses and therefore do not have access to the window at the Fed. Third, I think the Dept of Justice (Anti-Trust) would not allow mergers of this magnitude to occur anyway — even if Blackrock could afford it (which they can’t).
 
2)  A: Eventually buyout the most powerful ‘Wall Street banks.’? BlackRock’s equity market capitalization is $42bn. JP Morgan’s is $187bn. BofA’s is $131bn. The too big to fail conundrum has been played all too often at this point. If BlackRock were to get overextended (for whatever reason) and begin to fail, I think the government would let it happen. Recall that one of the big reasons the Tsy and Gov’t stepped in during the financial crisis is because banking customers (you and me) needed to be reassured so we didn’t create a “run on the bank” and that’s why the FDIC and others did what they did. The FDIC guarantee doesn’t exist at or extend to BlackRock…

3) (Make decisions that would legally bypass the need for new bills to be signed by legislature and ‘call the shots’ with the government’s permission, when dealing with foreign and national trade …without absolutely no constitutional rights?)
A: This isn’t possible and is, in my opinion, an absurdly unlikely consequence.”

 

rsz_1msmallberg-hr

Michael Smallberg 

(Participant) 

“In ‘the wake of the financial crisis and the bailout, Congress created a new body–the Financial Stability Oversight Council–to keep an eye on firms that pose a systemic risk. As part of this process, we think the Council should take a close look at BlackRock and other large non-bank financial institutions.

In our 2009 letter, we raised concerns that the government wasn’t doing enough to protect taxpayers from potential conflicts of interest when it hired BlackRock and other companies, “many of which have a direct financial interest in the same types of toxic assets that they are managing and valuating for the government.”

 

Jaime Ortega 

“As a professor taught me, “Economics are laws, affected by casual laws”

Even though banks ‘look’ stronger than ever, it doesn’t mean anything. Banks are still fragile and the fact government had to intervene to rescue them during the bailout shows their relative strenght . People forget banks don’t have money, they borrow it from other banks. That’s not necessarily the case with BlackRock and other investment firms.

There was an article in Forbes back in 2011, about BlackRock going after JPMorgan Chase & Co. over $95 billion of morgage-backed securities, and  according to the article it was the first time the big investor group was identified as targeting a $8.5 billion settlements with Bank Of America. Its was supposed to be the biggest legal settlement in Wall Street History.

BlackRock had no debt during the credit bubble years, and was able to buy assets from reluctant sellers, including Merrill Lynch and Barclays. BlackRock, which manages about $3.7 trillion, is unique among money managers in having equally big businesses devoted to passive and active strategies. BlackRock’s iShares manages about $759 billion in ETPs and offers about 600 funds. The firm had about $942 billion in active stock and bond strategies, and $113 billion in alternatives as of Sept. 30.

Since 2008, BlackRock unlike Wall Street banks, is emerged from the financial crisis with its reputation enhanced and its business strengthened without any federal help. And unlike many Wall Street executives, who in recent years have endured Congressional grillings, regulations, and government investigations, Mr Fink (the president) has had good relations with the Obama administration. What those “good” relations stand for, is up in the sky!

Lanny Breuer, showed the world how ‘too big to fail’ institutions can dodge prosecution from the Criminal Division. A few years back, Obama showed behind close doors during his meeting with top bank CEO’s,  how not to sanction banks with regulations when justice is most needed. Henry Paulson, former Secretary of  Treasure, also proved that the best way to negotiate with banks during corruption and fraud, is to enhance banks with more liquidity by providing free tax payer money… and no doubt will the government give BlackRock free ‘hors d’oeuvre’ when they break the law.

Paul Shea a financial expert from ValueWalk posed the question of too big to fail with yet another question,‘But what about BlackRock? The company is bigger than any other, if it began to act recklessly, very bad things could happen to the world economy. If a firm can be so big that it would be impossible to allow it to fail, should there be a legal limit on the size a firm can be, to avoid such a situation from occurring?”

BlackRock manages government agencies portfolios, and as larry Fink said, “”We can compete with any private equity firm. We offer the same economics and the best information flow,” I don’t think he is exaggerating. The Aladdin Trading Network is a direct nuclear face-palm to banks, and they’re not afraid to challenge anyone inside the bond market.

Moody’s Investors Service wrote that BlackRock’s platform “is credit negative for banks with global capital market operations as it has the potential to reduce their trading revenues.”

BlackRock does not thrive in the same financial ecosystem Wall Street banks flourish, they keep buying overseas companies and planning risks managements for separate governments. I think a reason why they could outlaw anyone is simply because they manage the governments portfolios and help strategize solutions to foment growth in different markets. No bank has the ability to strategize government risks like BlackRock, in fact, I don’t think people, investors, and  global governments have recovered from fully entrusting bank policies after the recession, much less for banks to manage their risks!

If they keep growing without regulations, they’re going to grow with an unimaginable scale never seen before. If Banks slip into another ‘likely’ crisis, BlackRock will buy their shares and own them.  In my opinion, they already “edge” most banks in the equity market (not the top dogs yet) and they’ll keep growing larger and larger, and could prove dangerous for legal and too big to fail reasons. ”

 

 

 

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