BlackRock’s Dominance Being Scrutinized

Money manager Blackrock (BLK), which started in a one-room office 21 years ago and now manages $1.3 trillion in assets, is fast emerging as one of the nation’s financial powerhouses. But, according to NYT –  it is the company’s highly prized role as a government adviser and contractor that is now drawing attention.

From NYT: By dint of its expertise and track record, [Blackrock] has won contracts to help the government manage the complex rescues of Bear Stearns, the American International Group and Citigroup.

It also won a bid to carry out a Federal Reserve program to stimulate the moribund housing market, and it has been hired to help evaluate Fannie Mae and Freddie Mac

BlackRock’s dominance has prompted the Fed to seek an alternative partner as it prepares to expand its rescue efforts…And Treasury is holding off announcing the winning bidders for…. the $1 trillion federally subsidized plan to purchase troubled assets from banks… BlackRock is widely expected to win one of the contracts…

Can a company that is being paid to price and sell troubled assets for the government buy the same kinds of assets for private clients without showing preference? And should the government seek counsel from a company whose clients stand to make or lose billions if those policies are enacted?

“They have access to information when the Federal Reserve will try to sell securities, and what price they will accept. And they have intricate financial relations with people across the globe,” Senator Charles E. Grassley, Republican of Iowa, said. “The potential for a conflict of interest is great and it is just very difficult to police.”

“How can one company have so much control over the process?” said Scott Amey, general counsel at the Project on Government Oversight… “Isn’t there somebody else they can turn to?”

James R. Wilkinson, who served until January as the chief of staff to the former Treasury secretary, Henry M. Paulson Jr., described BlackRock’s co-founder and CEO, Laurence D. Fink, as a “patriot.” He added, “He is willing to help our country when we need it most.”

Mr. Fink said he was proud that his company was helping pull the economy back from the brink, and he bristled at the suggestion of impropriety.

Wilkinson, nothing against Larry. We think he is a smart guy and a good bussinesman. Howevever,  your definition of patriotism when tens of million dollars in commission fees are in play, it’s not a very convincing argument. It’s a nice try at spinning, but nothing more than that.

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