John Daniels explains the rise of asset managers such as BlackRock, and their impact on financial markets and the debt of developing countries.
Zambia, central Africa: home to a rapidly growing population of more than 18 million people. It’s seen its GDP quintuple since the mid-2000s, not least due to prolific copper exports. But as the economy grew, so did government debt. Even before the pandemic arrived, this stood at more than ten times its 2007 value. Debt payments amounted to almost half its tax revenues – more than Zambia’s health, education and social protection spending combined.
Some $220 million of this debt is held by BlackRock, the world’s largest asset fund manager. Since 2008 Passive Index Funds such as BlackRock have succeeded banks and hedge funds as the world’s major financial players. In January 2022 the Financial Times reported that BlackRock alone holds $10 trillion in assets. This exceeds the annual GDP of any individual country, China and the US excepted.
With its revered portfolio management suite, Aladdin, BlackRock carries a lot of clout. No wonder then that, in August 2019, it was BlackRock which was asked to prepare a presentation on ‘dealing with the next downturn’ to leading figures from the world’s central banks. It argued that, come the next financial crisis, central banks would need to ‘go direct’, finding ways of getting money created by central banks beyond the commercial banks and into the wider economy (the proposed mechanism is explained here).
Just a few weeks later, an opportunity to put this strategy into practice arose when the interest rate in the US repo market suddenly spiked, going from 2% to 10% overnight. This indicated a liquidity crisis, when borrowers find themselves unable to meet demands on their liabilities as these fall due. A similar disruption in the repo market in 2007/8 is widely seen as having triggered the Great Financial Crash. So, in September 2019, this led to an immediate intervention by the Federal Reserve, the US central bank.
When the pandemic hit in March 2020, prompting stock market crashes around the world, once again BlackRock’s ‘going direct’ strategy was put into action. Central banks bought trillions of dollars’ worth of assets, and in the US BlackRock was also given the job of choosing which assets to purchase. 47% of the Exchange Traded Funds purchased on behalf of the Federal Reserve were those managed by BlackRock itself. In the words of financial commentator Ellen Brown, BlackRock “just quietly bailed itself out“.
More recently BlackRock, and its CEO Larry Fink, have been at the forefront of developing new investment vehicles which permit the assetizing of the natural world for profit in new ways. Friends of the Earth is just one of those deeply concerned about this kind of development:
Financial instruments such as compensation offsets or green bonds, are not only actively contributing to the continued destruction of biodiversity and ecosystems, they also provide both financial and reputational benefits to the companies responsible for this devastation.
So that’s who, and what, Zambia is up against. Debt Justice, formerly known to many of us as Jubilee Debt Campaign, has recently highlighted the power wielded by asset management giants over indebted nation states, and is currently running a campaign calling on BlackRock to drop Zambia’s debt. Check it out.
(Photo by Daniel Lloyd Blunk-Fernández)