BlackRock: The Conspiracies You Don’t Know

Summary

This video delves into Blackrock, an asset manager overseeing $10.6 trillion, surpassing half of the US GDP. It scrutinizes the firm's role as a 'passive investor' and its control over a vast swath of the economy through index funds and ETFs. The video questions whether Blackrock is passively profiting or actively shaping the world, highlighting its influence on corporate decisions, wage stagnation, and market competition. It also touches on the interconnectedness of asset managers like Blackrock, Vanguard, and State Street, suggesting a self-perpetuating financial ecosystem that may not always align with public interest.

Takeaways

• 💼 Blackrock is an asset management company that handles $10.6 trillion, a sum exceeding half of the United States' GDP.
• 🌐 Blackrock's influence is pervasive, affecting nearly every economic interaction through their investments in 95% of Fortune 500 companies.
• 🤖 The company is often discussed in conspiracy theories, with some suggesting it has more control over wealth than any single country.
• 📊 Blackrock operates primarily through index funds and ETFs, which are popular due to their lower risk, consistent returns, and cost-effective management.
• 🔄 The concept of 'universal ownership' describes how Blackrock, Vanguard, and State Street hold significant stakes in almost all publicly traded companies.
• 📉 Blackrock's passive investment strategy and significant shareholding can potentially contribute to wage stagnation and anti-competitive market practices.
• 🏦 The company's influence extends to government and international bodies, with a revolving door of personnel between Blackrock and these institutions.
• 💵 Blackrock's business model is based on fee income rather than returns on investment, aligning their interests with maximizing assets under management.
• 🔗 There's a complex web of inter-ownership among asset managers like Blackrock, Vanguard, and State Street, creating a self-reinforcing financial ecosystem.
• 🛑 Regulatory attempts to oversee entities like Blackrock have been met with significant lobbying efforts to maintain their 'passive investor' status and avoid oversight.

Q & A

What is the significance of Blackrock's management of $10.6 trillion in assets?

The significance lies in the fact that this amount is more than half of the United States GDP, indicating that Blackrock has considerable influence over a vast portion of the global economy.

What does the term 'passive investors' mean in the context of Blackrock?

Passive investors refers to Blackrock's strategy of buying and holding shares in companies for the long term without actively trading them, which provides them legal leeway and reduces the need for constant management.

How do index funds contribute to Blackrock's power in the financial market?

Index funds allow investors to invest in a broad market index, thereby spreading risk and providing steady returns. Blackrock's management of these funds gives them significant influence over a wide range of companies.

What is the concept of 'universal ownership' as it relates to asset managers like Blackrock?

Universal ownership refers to the practice of asset managers holding shares in almost all publicly listed companies, which can lead to a concentrated influence over the market and potentially stifle competition.

Why are asset managers like Blackrock able to exert control over companies even though they don't own a majority of shares?

They can exert control because even a small percentage of shares can make them the largest shareholder in a company with dispersed ownership, and they often hold enough voting power to influence company decisions.

How does Blackrock's passive investment strategy affect the way companies are managed?

Passive investment can lead to a focus on short-term profits for shareholders, potentially at the expense of long-term company health, employee welfare, and competitive pricing.

What role do institutional investors play in the operations of asset managers like Blackrock?

Institutional investors, such as pension funds and insurance companies, provide the majority of the funds that Blackrock manages, which are often derived from regular people's savings and investments.

How does the interconnection between Blackrock, Vanguard, and State Street create a complex financial structure?

These asset managers are not only the largest investors in each other but also in many of the same companies, creating a web of interlocking interests that can reinforce their market influence.

What is the 'revolving door' phenomenon mentioned in the script, and how does it relate to Blackrock?

The 'revolving door' refers to the movement of individuals between positions in the private sector, like Blackrock, and the public sector, such as government and regulatory agencies, which can lead to preferential treatment and policy influence.

Why is Blackrock's self-certification of passivity potentially problematic?

Self-certification allows Blackrock to determine their own level of passivity without external oversight, which can enable them to avoid regulatory scrutiny and maintain their influence without being subject to the same rules as other financial institutions.

What are the implications of the shareholder oligarchy described in the script for the average person?

The shareholder oligarchy means that a small group of powerful investors has significant control over the economy, potentially leading to policies that benefit them at the expense of the average person, such as wage stagnation and reduced competition.

Outlines

00:00

💼 Introduction to Blackrock's Economic Influence

The video script introduces Blackrock, an asset management company that oversees $10.6 trillion, surpassing half of the United States GDP. It contrasts Blackrock with the consulting group McKinsey and highlights the company's significant role in the global economy. Blackrock's vast holdings in Fortune 500 companies and its involvement in managing financial crises for governments worldwide are emphasized. The script questions whether Blackrock is a passive investor or an active controller of the world's economy. It also introduces the concept of asset managers and their role in the economy, specifically focusing on index funds and the strategy of passive investing. The narrative aims to demystify Blackrock's operations and its impact on everyday economic interactions.

05:03

🏦 The Power of Passive Investing and Universal Ownership

This section delves into the mechanics of asset management, particularly the role of index funds and exchange-traded funds (ETFs). It explains how these funds operate on a passive investment strategy, buying and holding shares indefinitely, which contrasts with active investing. The concept of 'universal ownership' is introduced, where asset managers like Blackrock, Vanguard, and State Street hold significant but not controlling stakes in a vast array of companies. The script discusses how this ownership structure can lead to a lack of competitive behavior among companies, as they are all ultimately serving the same set of shareholders. It also touches on the historical shift from individual to institutional investment and the implications this has for shareholder democracy and corporate governance.

10:07

🔍 The Interconnectedness of Financial Power

The final paragraph explores the complex relationships and influence that asset managers like Blackrock have within the financial sector and beyond. It discusses the 'revolving door' between Blackrock and government institutions, highlighting how former government officials and regulators often move into roles within the company. The script also addresses the self-regulatory nature of asset managers, who are allowed to certify their own compliance with passive investment terms. The narrative concludes by suggesting that while Blackrock does not own everything, it controls significant aspects of the economy through its investments and influence. It raises concerns about the current state of shareholder power and the need for a more equitable system where wealth creators have a say in wealth distribution.

Keywords

💡Blackrock

Blackrock is a global investment management corporation that manages a vast amount of assets, as mentioned in the script, '$10.6 trillion'. It is central to the video's theme as it exemplifies the power and influence that asset managers wield in the economy. The script discusses how Blackrock's size and scope allow it to have a significant stake in numerous companies, thereby influencing economic activities and corporate decisions.

💡Passive Investing

Passive investing refers to a strategy where investors buy and hold a broad market index rather than actively trading individual stocks. In the context of the video, Blackrock and similar asset managers are described as 'passive investors', which gives them legal leeway and allows them to hold large stakes in companies without the need for active management. The video questions the true nature of their passivity, suggesting that their influence is more substantial than the term implies.

💡Index Funds

Index funds are a type of mutual fund with a portfolio constructed to match or track the components of a financial market index, such as the S&P 500. The video explains that Blackrock's main product is index funds, which are popular due to their lower risk and more consistent returns. They enable investors to spread their investments across a wide range of companies, thereby minimizing risk.

💡Universal Ownership

Universal ownership is a concept where a few large asset managers hold significant stakes in almost all publicly traded companies. The video uses this term to describe the situation where 'Blackrock, Vanguard, State Street' hold a sizable stake in all listed corporations, which can influence corporate behavior and market dynamics. This ownership structure can lead to a lack of competition and potential conflicts of interest.

💡Asset Manager

An asset manager is a firm that manages and oversees the investment of institutional and individual clients' money. The video explains that Blackrock, as an asset manager, offers services to make more money out of customers' investments. It highlights the role of asset managers in shaping the economy and the potential ethical and operational concerns associated with their practices.

💡Institutional Investors

Institutional investors are organizations such as pension funds, insurance companies, endowments, and foundations that invest large sums of money. The video mentions that most of the money managed by Blackrock comes from institutional investors, which includes the retirement funds of regular people. This highlights the broad impact of asset managers' decisions on the general population.

💡Shareholder Voting Rights

Shareholder voting rights refer to the power of shareholders to vote on corporate matters, such as electing the board of directors or approving mergers. The video discusses how asset managers, including Blackrock, aggregate voting rights from the shares they manage, which can significantly influence corporate governance. It raises concerns about the concentration of power and the potential for misuse of these voting rights.

💡Financial Stability Oversight Council (FSOC)

The FSOC is a U.S. federal agency tasked with identifying risks to the financial stability of the United States. The video mentions the FSOC's attempt to oversee entities like Blackrock due to their systemic importance. However, it also discusses how Blackrock was able to avoid additional oversight through lobbying, illustrating the influence of financial institutions on regulatory bodies.

💡Corporate Profits

Corporate profits refer to the financial gain a corporation makes after deducting all its expenses from its total revenue. The video suggests that asset managers, including Blackrock, may influence corporate decisions to maximize profits, often at the expense of other stakeholders such as employees or consumers. This highlights the potential conflict between short-term shareholder value and long-term sustainability.

💡Shareholder Oligarchy

A shareholder oligarchy is a term used in the video to describe a system where a small group of large shareholders, like asset managers, have significant control over corporate decisions. This is contrasted with a more democratic shareholder system where a broader base of shareholders has a say. The video argues that the current system leads to decisions that benefit a few at the expense of the many.

Highlights

Blackrock manages $10.6 trillion, more than half the United States GDP.

Blackrock, Vanguard, and State Street are known as the 'Big Three' asset managers.

Blackrock owns stock in 95% of Fortune 500 companies, with governments hiring them for financial crises management.

Blackrock claims to be a passive investor, meaning they hold shares but don't actively trade them.

The 'Big Three' asset managers collectively own significant shares in all major companies, enough to influence voting and corporate decisions.

Blackrock's influence stems from index funds, which were pioneered in the 1970s, allowing investment across entire markets.

Asset managers like Blackrock make their profits from client fees, not directly from returns on investments.

Universal ownership by the Big Three allows them to hold shares in nearly all listed corporations, shaping competition and market dynamics.

In some companies, Blackrock holds 3-10% of shares, giving them significant influence in decision-making.

Blackrock, Vanguard, and State Street often vote in line with company management, reinforcing corporate profit maximization at the expense of wages and workers.

Households today own only 40% of the stock market, with the top 1% controlling the majority of corporate equity.

Blackrock is involved in wage stagnation, as they encourage corporations to prioritize shareholder returns over employee benefits.

Universal ownership logic can stifle competition, as major companies in the same sector (like airlines and banks) have overlapping shareholders, reducing incentives to lower prices.

The revolving door between Blackrock and government agencies enables the company to avoid oversight and further cement its influence.

Asset managers like Blackrock are self-regulated, auditing their own compliance with passive investment rules, creating potential conflicts of interest.

Transcripts

I'm standing in front of the headquarters of a company that manages $10.6 trillion.

That's more than half the United States GDP.

Last time I covered the shady consulting group McKinsey,

and you guys asked for one thing.

Blackrock.

So here we are.

Blackrock is the subject of a lot of speculation online.

there is a robot that controls more wealth than any country on Earth.

really the commander in chief is Larry Fink.

They have stock in 95% of fortune 500 companies.

And they've been hired by governments across the world

to help manage financial crises and even just conduct normal operations.

That means that pretty much any time you interact with the economy

working, buying stuff, driving a car, going to the bank, anything

you're interacting with Blackrock.

But that $10.6 trillion isn't really their money.

Don't worry. We'll come back to that.

And they claim they're just passive investors, which seems harmless, right?

While I love a good conspiracy and I know there was a cornucopia

on the fruit of the loom logo.

How much of a conspiracy is this really?

I wanted to get to the truth behind Blackrock and the other nearly identical

asset managers, State Street and Vanguard, known as the Big Three.

Are they actively controlling the world and shaping it in their favor?

or are they passive investors just riding the wave of American economic expansion?

Stay with me.

We'll get to the spooky stuff soon.

But first, let's talk through some finance basics that give Blackrock their power.

What an asset manager actually does the main product they provide index

funds, their favorite loophole, passivity and their position in our economy.

The not at all terrifying sounding universal ownership.

Blackrock is an asset manager, and the service they offer

is taking a customer's money and making more money out of it.

Their existence relies upon an important invention of the 70s.

This waterbed's only $119!

more exciting. The index fund.

It was pioneered by the first CEO of Vanguard,

and it offers investors a way to invest in many stocks at once.

So instead of betting a lot on a few individual companies,

you bet a little bit on every company in the whole index.

Basically just the whole market itself.

the index at least steers a steady course.

It's like instead of

betting on a single horse, you're betting on all the horses at once.

And index funds are a form of mutual fund.

The more general way people pool their money together

to make big investments.

But someone needs to be the one to pooll all that money together and manage it.

And that's an asset manager, i.e. Blackrock.

Index funds and ETFs are their main products and they're pretty similar.

They're popular because they're lower risk, have more consistent returns

and are cheaper for asset managers because they don't

have to pay a guy to place bets all day,

which studies show they are not very good at.

just ignore the folly of short term speculation.

It's absolutely a loser's game.

So if the market is up 7% today, so is your index fund.

Instead of constantly buying and selling shares which is what active investors do,

Blackrock and these big asset managers buy a little bit of every company

and just hold onto those shares basically indefinitely.

This is called passive investing, a title that affords them

a lot of legal leeway they otherwise wouldn't get.

They own so much that it would be impossible for them

to sell out of any one stock in one fell swoop.

When you think about passive- we can't sell a company

as long as they're in the index.

Most of the money

asset managers manage comes from institutional investors.

Those are big pension funds.

Insurance companies, non-profits and university endowments.

But while all the money they manage is in the hands

of these big institutions, most of it actually comes from regular people.

Public and private pension plans,

401 K owners, college tuition and anyone with insurance.

This is your money, but it doesn't always come back to you,

nor do you get a say in the companies it gets invested in.

while they want good returns on those investments,

contrary to how we think about Wolf of Wall

Street type investors, that's not actually their main goal.

They make their profits from the fees they charge to their clients,

not from the returns on the money they invest.

I spoke with Benjamin Braun, a professor of political economy

at the London School of Economics.

He's written a bunch of studies on asset managers role in our economy and society.

The fees you earn if you're Blackrock increase

when the market value of the assets you manage increases.

you maximize your assets under management by winning over new clients

and by getting the clients that you already have to

you more money. When you have $10 trillion, you have to put them somewhere,

and eventually that somewhere becomes everywhere.

Universal ownership refers to, holding shares

in the entire universe, firms listed on the stock market.

the big three asset managers Blackrock Vanguard state Street hold a sizable

but still relatively small stake in all listed corporations.

Blackrock is a 3 to 10% shareholder in all of these companies.

This may not sound like a lot, but it's enough

that selling all of it at once would likely crash that entire stock,

kind of locking them into the whole not selling passive thing.

5% in any individual company is actually very significant because if and

when shareholder ship is dispersed, 5% makes you in all likelihood

the single largest shareholder in that company. That's why, for example,

a lot of academic studies, 5% is taken as a threshold for control.

there's almost no difference between, Vanguard, Blackrock, State Street

and even bunch of other asset managers in terms of their business model.

So then you can start and wonder, okay, so if the big three together hold

25% of the shares in any

individual company, then you're definitely above the threshold.

Let's zoom in on Amazon.

The big three owns 16% of all outstanding Amazon shares.

Jeff Bezos only owns 9%.

in theory, universal owners should have an interest

maximizing profits in the long term across the entire economy.

And that is not how they operate in practice.

The amount of stock you have determines the number of votes you get.

Blackrock is almost always in the top three, maybe five

if they're feeling broke.

So that is a lot of votes.

And let's not forget, it's not BlackRock's money that's invested.

It's your dad's pension fund and your insurer's massive pile of savings.

It sounds crazy, but when you put your money in a pension fund,

you sign away your voting rights to the pension fund manager.

And then when the pension fund manager puts all their pension

funds under an asset manager's control, they sign away

all those votes to the asset manager, kind of pyramid scheme vibes.

And how do they actually use those votes?

A 2017 study found that asset managers

almost always voted with what the company executives recommended.

And why are they always voting with company management?

Back in the 80s, company managers used to spend company money on company

things like corporate jets, fancy offices, or occasionally paying their employees.

And this made the investors sad because they wanted those profits.

So they started offering company managers, in addition to bonuses

and benefits, stock options. Executives'

total pay was now forever tied to how much the company made.

They can push managers, corporate managers

to act more in the interest of shareholders, meaning in the interest

of, corporate profits and do more to maximize corporate profits.

This funnels money back to investors, who now include management

and away from any hope of making companies work better, or

including employees in the profits that their labor created.

Back in the day, like my grandparents day, more regular people had stocks

and the idea was that every shareholder could vote on things like board elections,

mergers and acquisitions, executive compensation And once in a while, wages.

Sort of like democracy for people with disposable income.

Government is the people's business,

and every man, woman and child becomes a shareholder

with the first penny of tax paid. In 1945,

94% of stocks were owned by households.

But that's not really how it works anymore.

Today, households have more like 40% of the stock market,

and about half of that belongs to the top 10%.

Okay.

Thank you all very much.

Thank you.

Thank you.

Today,

the top 1% own 50% of corporate equity

and mutual fund shares, while the top 10% own 86%.

Did you think this yellow part was everyone else? Nope.

The tiny green part on the bottom is the least wealthy half of Americans.

You often hear this argument that, What is good for shareholders

is good for everyone because especially in the US, where retirement assets

are overwhelmingly invested in corporate equities, everyone is a shareholder.

But that's simply not true.

the bottom 50% virtually owns no shares at all,

the vast majority of shares are held by the top 10%.

And within that, even, shareholdings are quite concentrated within the top 1%.

and while the strategies corporations choose -because asset managers

vote for them- affect everyone, they only benefit half the population

even a little bit, and frequently hurt the other half, those without any shares

at all. Take the example of worker pay.

Blackrock and other asset managers play a huge part in wage stagnation.

if you're a corporation, you can increase profits only in so many ways.

and you can always, in a short term

increase returns to shareholders by squeezing workers.

So this kind of Uber monopolization really hurts working

people, consumers and even small businesses.

And this is where it gets interesting.

There's evidence that this type of universal ownership

is in part responsible for why everything is so expensive these days, For example,

they have significant stakes in Nike, Adidas, Lululemon, and Under Armour.

If one outperforms the other

it's the same from BlackRock's point of view,

and sometimes it can even lose investors money altogether.

If companies were to start lowering prices to compete.

That's the universal ownership logic in action

but it's also an anti-competitive logic in action.

The fact that all five airlines, all the major banks,

for example, in the US, have the same large shareholders

creates a danger and a risk that, these corporations

will not engage in competition in the same way they would

if they each had different shareholders because, in that world,

each shareholder would, root for their company

and would hope to outperform the market by the company waged a bet on.

It's sort of like a neo-monopoly where companies don't even have to merge

and buy each other anymore,

because they all send profits to the same guys no matter what.

And their large stakes

In basically every company affords them friends in high places.

From just 2014 to 2015

Blackrock performed over 1,500 private engagements

with the companies held in their portfolio.

Blackrock reportedly believes that meetings behind

closed doors can go further than votes against management,

and they typically give management a year before voting against them.

They also have a lot of friends in the government.

There's a sort of revolving door between Blackrock, the government

and the international bodies that create monetary policy.

Things like the US Treasury, Federal Reserve,

the central banks of Canada, some European countries and Sweden,

as well as the International Monetary Fund and the World Economic Forum.

Since 2004, Blackrock has hired at least 84

former government officials, regulators and central bankers worldwide.

The intersection of politics and business has never been more ongoing.

Larry Fink himself is on the board of the WEF, and even tried to get himself

selected as Hillary Clinton's treasury secretary in 2016.

And in 2008, they got themselves a pretty sweet deal.

Traders say this is the craziest day they have ever seen in these markets.

Veteran traders say they’ve never seen anything like it.

In the aftermath, the government created the Financial Stability Oversight

Council to oversee entities like Blackrock that control a lot of money

but aren't banks.

The FSOC pointed to Blackrock as an organization that's so big

that its failure could cause another collapse

and tried to put additional oversight on them.

But Blackrock doubled their political lobbying spending, including running

a super targeted ad campaign on the DC Metro, and managed

to dodge the oversight that other large financial institutions receive.

And let's come back to that loophole they like to call passivity.

the people who decide

if they're passive enough to continue not to be overseen by the government

is Blackrock themselves.

Basically, Blackrock and other asset managers have to submit annual letters to

Self-certify that they've been compliant with the terms of passive investment.

That's like being allowed to write

whatever you want on your taxes and then audit yourself.

Except if you also had $10 trillion, which,

unless you're watching this and you're literally Larry Fink-

hey, bestie- I'm going to safely assume you don't.

The part that really blows my mind is that while this one company

already has their eggs in basically every basket and is making money off

seemingly everyone, it goes even deeper than that.

The biggest investors in Blackrock are Vanguard and State Street.

And the biggest investors in Vanguard are Blackrock and State Street.

And the biggest investors in State Street are, you guessed it,

Blackrock and Vanguard.

Asset managers are the shareholders of asset managers. And this is true for

all financial firms and not only, in fact, for stock market

listed firms but private equity firms buying up private insurers.

So the financial sector effectively owns itself.

The biggest companies that they own own them back,

creating this loop that sucks money in and never seems to spit it back out.

They play all sides of the game because at a certain point, you can't lose

when you play against yourself.

So going back to our original questions:

does Blackrock own everything? No.

but do they control everything? Kinda.

They profit off of every bit of your life

while controlling just the minimum amount

they need to make sure they can continue profiting off of every bit of your life,

and they get paid by teachers retirement funds to do it.

And they get away with this by

constantly exchanging money for power and utilizing legal loopholes.

It's worth being pedantic here for a second.

They don't own everything.

They own shares in everything, which gives them an outsized amount of control.

So while they're not necessarily

the ones making all the nitty gritty decisions in every company,

it is their influence, and this giant structure of universal ownership

that continues to make their pie bigger and are smaller.

It's the ultimate endgame of the Investor Management Alliance.

Remember the part about how they're responsible

for reporting their own passivity to the government?

The Consumer Financial Protection Bureau and the FDIC are working to change that

and make it so that asset managers that own

large chunks of banks like Blackrock are regulated like banks.

The asset managers, of course, are not happy,

And they are lobbying against this

so regulating them much further is going to prove difficult.

And this is a solution to one part of a much larger problem.

We no longer have the old system of shareholder democracy.

We have something more like a shareholder oligarchy, where the people

with the most power over where our money and stuff goes are incentivized

to make that stuff worse and more expensive and not work for us.

But Blackrock didn't create this system,

they just used it to their advantage.

And I think we deserve a better one where the people who create the wealth

have a say in where it goes.

Thanks for watching the Class Room-where controlling the world is important to us.

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