Year Of The Rat Fink – Investment Firms Selling Out America

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Larry Fink was not exactly a household name until President Trump singled him out in a White House press briefing on March 28th as one of “the smartest people in the world” who is helping figure out how America’s airlines and other big U.S. companies can weather the economic pandemic unleashed by the Chinese virus. While Mr. Trump asserted that Fink “love[s] this country,” one thing is certain: He loves money and has made immense amounts of it doing things that are, in a word, troubling.

In particular, Larry Fink in his capacity as the Chairman and CEO of one of Wall Street’s largest financial houses, BlackRock, Inc., with its estimated $7 trillion under management, has repeatedly placed the interests of America – and, for that matter, those of his clients – second to his own agendas and interests. The most worrying of the latter are his sustained, concerted and personally lucrative efforts to promote investment in the PRC. They have, over time, had the effect of enriching and enabling the Chinese Communist Party (CCP), its corporate fronts and the malevolent activities in which they have long engaged – to the grave detriment of this country, its security, and values. 

So who is Larry Fink?  Fortune Magazine has called him as “one of the World’s Greatest Leaders.” His corporate profile credits him with transforming BlackRock since he co-founded it in 1988 into a company “trusted to manage more money than any other investment firm in the world.” Last year, he reportedly earned over half-a-billion dollars in compensation and considerably more in appreciated equity. Tom Wolfe would surely describe him as “a master of the universe.”

At the very least, Larry Fink is a globalist. For example, he is on the Board of Trustees of the World Economic Forum and features prominently in its programs. Indeed, this year, he used his remarks at the Forum’s conclave in Davos to promote the priority his firm would be giving to environmental, social and governance (ESG) principles over return on investment. And in his annual letter to global CEOs released last January, Fink actually threatened those who disagreed with that priority: “…We will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.”

Fink’s strong-arm tactics to impose his globalist climate-change agenda are, of course, rooted in a bid to destroy the fossil fuel industry – and, as such, are fundamentally at odds with President Trump’s policies. They also appear to transgress the spirit, if not the letter, of relevant sections of the U.S. Code. 

In a February 3, 2020 letter to the Securities and Exchange Commission, the American Securities Association (ASA), a major financial trade association, warned that what Fink is doing represents “a perversion of federal securities laws [that] is a threat to our capital markets, and it needs to be strongly rejected by the SEC.” The ASA argues that such a response is in order since Fink and others in a Wall Street “oligopoly” are failing to take into account shareholders’ overarching interest in return on investment and relies on sustainability standards that “have been widely derided as both unworkable and irrelevant to long-term profitability.”

Just how bad has the return on investment been for BlackRock clients? The American Securities Association put it this way in its letter to the SEC: 

A recent case study emphasizes the enormous risk that BlackRock’s politics poses for investors. As reported by Bloomberg, the iShares MSCI USA ESG Select Social Index Fund (SUSA), which is one of the largest and most well-known ESG funds on the market, has trailed the S&P 500 index by thirty-seven percentage points over the last ten years. To many Americans, a thirty-seven percent return on your savings can be the difference that allows you to retire early or tell your child they won’t have to take out loans for college. It is simply unconscionable that the largest asset managers are trying to use their market power to import the investment strategy underlying SUSA to every other investment fund they manage.

ASA also called out Larry Fink for the utter inconsistency between his ESG agenda, on the one hand, and BlackRock’s insistence that its clients funds be invested in China, on the other. 

…There is hypocrisy at play here. The push from asset managers to promote “societal” goals and corporate responsibility through their investment strategies seems to stop at our nation’s borders. BlackRock, StateStreet, and others are noticeably silent when it comes to doing business with authoritarian regimes such as China, so long as it profitable for them. Along with index providers such as Morgan Stanley Capital International (MSCI), there also appears to be little concern amongst asset managers for exposing American investors to Chinese companies that have not even met the most basic U.S. auditing standards. 

These oligopolies are more than willing to facilitate the flow of American investor money into countries like China, Russia, and Saudi Arabia who have a long and demonstrated track record of human rights, climate, and civil liberty abuses. Where is their “corporate responsibility” when it comes to this? The reality is this oligopoly uses its market power when it’s convenient and turns a blind eye when it’s not.

The trouble is that it’s not just BlackRock and other members of the “oligopoly” that are turning a blind eye to China. So is the Securities and Exchange Commission under Chairman Jay Clayton, an alumnus of Goldman Sachs. The Clayton SEC has allowed Chinese companies to be registered in U.S. stock and bond markets even though, in addition to failing to meet this country’s statutorily mandated accounting standards, they refuse to disclose material risk. That would include CCP-tied companies that engage in human rights abuses, are sanctioned by the U.S. government and/or build weapon systems designed to kill Americans.

Two influential members of the Senate Banking Committee, Sens. John Kennedy (R-LA) and Chris Van Hollen (D-MD) wrote the SEC’s Investor Advocate on March 5, 2020, expressing their concern about this “regulatory loophole that allows Chinese companies to list in the United States without complying with the regulatory and auditing standards required of companies listed in the U.S.  This loophole has exposed billions of retail investor dollars to Chinese companies that could be outright frauds, arms of the Chinese Communist Party, or involved in cyber espionage against the UnitedStates.”

Some Wall Street insiders speculate that such sweetheart arrangements are motivated by Clayton’s desire to curry favor with a financial sector to which he intends to return post-government service. The same consideration may be operating with respect to another Goldman Sachs alum, Treasury Secretary Steve Mnuchin, who also relentlessly champions financial and other concessions to the PRC (for example, see here).

Such a propensity is evident in Secretary Mnuchin’s strong support for one of Larry Fink’s most controversial agenda items – an impending investment of the roughly $600 billion portfolio of the federal government’s retirement system, which BlackRock manages, in malevolent and other Chinese corporations. If this decision to mirror the Morgan Stanley Capital International All-Country ex-U.S. World Index, which is now imminent, is allowed to proceed, Fink will have put President Trump in the unenviable and untenable position of compelling U.S. military personnel and their civilian counterparts to invest in CCP weapons manufacturers and the Party’s other odious companies. 

For nearly a year, the “Committee on the Present Danger: China” has been warning (see, for example, here, here, here, here and here) about the CCP’s penetration of our capital markets and urging the countermanding of that decision which the Federal Retirement Thrift Investment Board (FRTIB) initially took in 2017 with implementation to occur this year. Unfortunately, the FRTIB reaffirmed it late last year despite strenuous, bipartisan objections on Capitol Hill and from influential veterans. Unless Mr. Trump intervenes, it will go into effect in the near future.

Perhaps in the interest of ensuring that no such intervention is forthcoming, the Chinese Communist Party just sweetened the pot for their friends at Goldman Sachs and Morgan Stanley: According to a decision announced on March 27th, those companies will be allowed to own majority stakes in local Chinese securities firms. (Given the CCP’s track record, it seems implausible that this arrangement will actually translate into the sort of corporate control – it would in a country where the rule of law governs, rather than the whims of the Party.) Both companies are expected to increase their investments accordingly. That will mean rewarding with more American dollars the regime that inflicted the Chinese virus upon us – with devastating effect for our people and economy. It will translate into further financing of myriad other threats we are increasingly facing from Communist China.

Donald Trump has wisely and repeatedly called for an end to our reliance on Chinese supply chains. We all now understand they involve not just steel, electronics, and rare earth minerals, but critical medicines and healthcare-related gear.  In a White House press conference on March 24th, he forcefully declared:

We should never be reliant on a foreign country for the means of our own survival. I think we’ve learned a lot. This crisis has underscored just how critical it is to have strong borders and a robust manufacturing sector. For three years, we’ve embarked on a great national project to secure our immigration system and bring back our manufacturing jobs….

Our goal for the future must be to have American medicine for American patients, American supplies for American hospitals, and American equipment for our great American heroes. Now both parties must unite to ensure America is truly an independent nation in every sense of the word.

Donald J. Trump, March 24, 2020

To his credit, Mr. Trump understood the necessity of decoupling from Communist China long before he confronted its COVID-19 virus. The pandemic, however, has made such disengagement not just vital; it is now absolutely imperative.

If we seek to be truly an “independent nation,” however, we must address the ultimate bilateral supply chain with China – the seemingly limitless supply of U.S. hard currency being supplied by the likes of Larry Fink to an adversary that makes no secret of its intent to defeat usand that is using such financing to enable the realization of such an ominous goal. 

President Trump is absolutely right to say that we are at war with an unseen enemy in the form of the Chinese virus. He’s also correct that he has, consequently, been thrust into the role of a wartime president. And he has properly expressed concern about and vowed to punish harshly war profiteering. As things stand now, however, no one is better positioned to profit from the COVID-19 outbreak and the economic pandemic it has unleased than Larry Fink’s BlackRock. Besides its aforementioned role arbitrating government handouts to big companies that prompted the President to admire Fink’s intelligence, his company was just appointed asset manager of the emergency credit facilities Congress authorized the Federal Reserve to set up last week. This step was taken in the middle of the crisis with no transparency and it epitomizes elitist crony capitalism at its absolutely worst.  The obvious potential for not just self-enrichment, but serious conflicts-of-interest, has prompted the Fed frantically to conjure up various safeguards intended to shore up public confidence in its problematic dealings with BlackRock.

History is replete with troubling examples of businessmen we were told loved this country profiting at its expense. In particular, as “Committee on the Present Danger: China” member and retired Marine Colonel Grant Newsham has recently observed, American capitalists have provided material support for our enemies in the past. vNewsham links to a stunning account of such treachery that appeared in the Washington Post on November 30, 1998. Notably, it reported that Adolf Hitler so admired Henry Ford that he “kept a life-sized portrait” of the legendary automaker – and anti-Semite – beside his desk. In 1938, Ford was actually awarded Nazi Germany’s highest decoration for foreigners in recognition of his auto company’s help to the Third Reich. 

For its part, General Motors balked at retooling U.S. manufacturing lines to support our response to the threat posed by that time’s enemy (sound familiar?), even as its German subsidiary helped the Fuhrer crank out war materiel. Worse yet, that American company’s help was deemed so vital to Germany’s rearmament effort that its architect, Albert Speer, declared in 1977 that Hitler “would never have considered invading Poland” without synthetic fuel technology provided by General Motors.

In addition to the enemy best described as the Chinese Communist Party virus, we must be increasingly concerned as well about the possibility that, in its wake, the Party may think we are so disabled and/or distracted that this is the time for its forces to invade Taiwan. Were that to happen, history will record Larry Fink and BlackRock as having played at least as big, and as reprehensible, a role as Henry Ford and General Motors did in enabling Hitler’s malevolence.  

In an extraordinarily important essay – which the Washington Post placed online on March 12th but did not publish in its print edition – columnist Josh Rogin astutely noted that “a potentially even bigger problem [than the coronavirus] is Wall Street indexes and related funds drastically increasing their stakes in opaque and often criminal Chinese companies, without disclosing the risks to millions of American investors.One of the driving forces behind that threat is Larry Fink.  He may be among the smartest people in the country. But, like Henry Ford, he’s helping enable the other team.

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