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Larry Fink’s $12 Trillion Shadow
By Suzanna Andrews
und from a humiliating failure to become the financial fulcrum of Washington and Wall Street? Through a series of interviews, the author probes his role in the crisis, his unique risk-assessment system, and the growing concern he inspires.
Considering the enormous power he is believed to wield, it’s remarkable how few people have heard of Larry Fink. In political and business circles—among the men who travel the now well-worn corridor between Washington and Wall Street—Fink, the chairman and C.E.O. of BlackRock, the giant asset-management firm, is described as possibly the most important man in finance today. But mention his name to most people and they draw a blank. Despite his considerable wealth, he is virtually unknown on the society circuit in Manhattan, where he has an apartment on the Upper East Side, or in Aspen, where he also has a home. In North Salem, the affluent enclave north of New York City where he and Lori, his wife of 35 years, have a 26-acre farm, he is perhaps slightly better known, if only because a number of Wall Street bankers have estates there. But still—just a few months ago—when one of his neighbors, a prominent New York agent, furious that a popular horse path through the Fink estate had been blocked off, was told who owned the property, her response was: “Who is Larry Fink?”
Yet among the men who run Wall Street, it would be hard to find anyone who is not at least a little bit in awe of Larry Fink. While some—especially those who have known him the longest—snicker privately about how clearly the 57-year-old seems to relish his “transformation” in the last year and a half “into a Wall Street statesman,” its top consigliere, and the leading member of the country’s financial oligarchy, there is nothing but admiration for the vast power of BlackRock. In December, when Fink’s $13.5 billion acquisition of Barclays Global Investors was finalized, BlackRock, the company he founded 22 years ago, officially became the largest money-management firm in the world. A global colossus—with $3.3 trillion in assets under its direct management and another $9 trillion it supports—BlackRock manages about $1 trillion of pension and retirement funds for millions of Americans and oversees the investments of scores of institutions around the world: from state and local governments to college endowments, from Fortune 500 companies to the sovereign-wealth funds of, among others, Abu Dhabi and Singapore.
BlackRock’s vast reach in the global markets is not, however, its only source of influence these days. That Fink pulled off the Barclays deal in the aftermath of 2008’s financial meltdown is, in itself, impressive, but he did more than merely survive the wreckage unscathed. Indeed, it is hard to argue that anyone, or any firm on Wall Street, gained as much stature from the economic crisis as did Fink and BlackRock. At the height of the disaster, when the American economy was on the brink, it was to Fink that Wall Street’s C.E.O.’s—including J. P. Morgan Chase’s Jamie Dimon, Morgan Stanley’s John Mack, and A.I.G.’s Robert Willumstad—turned for help and counsel. As did the U.S. Treasury and the Federal Reserve Bank of New York, whose top officials turned to Fink for advice on the financial markets and assistance on the $30 billion financing of the sale of Bear Stearns to J. P. Morgan, the $180 billion bailout of A.I.G., the $45 billion rescue of Citigroup, and those of Fannie Mae and Freddie Mac at $112 billion and growing.
Today, through an array of government contracts, BlackRock has effectively become the leading manager of Washington’s bailout of Wall Street. The firm oversees the $130 billion of toxic assets that the U.S. government took on as part of the Bear Stearns sale and the rescue of A.I.G.; it also monitors the balance sheets of Fannie Mae and Freddie Mac—which together amount to some $5 trillion—and provides daily risk evaluations to the New York Fed on the $1.2 trillion worth of mortgage-backed securities it has purchased in an effort to jump-start the country’s housing market.
If Larry Fink is currently “at the hub of the wheel of American capitalism,” as his friend Ken Langone, the co-founder of Home Depot and a former director of the New York Stock Exchange, puts it, he has achieved this position largely in the shadows. Even on Wall Street, until recently, there were people who only vaguely knew what he did. According to William D. Cohan, a former investment banker and the author of the best-selling account of Bear Stearns’s collapse, House of Cards, there were many bankers at the firm who for months had no idea how deeply Fink and BlackRock were involved in the dismantling of their company. “He’s like the Wizard of Oz,” Cohan says. “The man behind the curtain.”
When they speak of what Larry Fink has achieved, Wall Street C.E.O.’s use the sort of gushing encomiums that are usually overheard in Hollywood pitch meetings: “unbelievable, completely remarkable”; “spectacular”; “brilliant.” If so many turn to him for advice now, it is “because he understands business backwards and forwards, he understands risk, and he knows the markets,” says Fink’s friend John Mack, the chairman of Morgan Stanley. He also “hasn’t made the big mistakes, and some people have,” adds Mack, whose firm was saved by $10 billion of tarp funds, since returned, and a capital infusion from a Japanese bank—a deal which BlackRock helped to value. Considering his profound understanding of the markets, his gold-plated Rolodex, and his intimate knowledge of the culture and management of nearly every major Wall Street firm, some C.E.O.’s even suggest privately that Fink should be considered for the next Treasury secretary—if the embattled Timothy Geithner does not survive his current term.
But BlackRock’s enormous and growing influence and its sheer size—too big to fail, some say—has begun to raise questions. “It’s like the Blackwater of finance, almost a shadow government,” says one senior bank executive, referring to the mountain of government contracts awarded to the firm. Although others—including the massive California-based Pacific Investment Management Company—have benefited from the gravy train of post-bailout government jobs, none appears to have gained nearly as much as BlackRock. Fink’s firm has been granted a privileged view into a broad swath of the financial markets, raising questions, says James Bianco, the C.E.O. of Bianco Research, about how it is handling possible conflicts of interest. That BlackRock was awarded key contracts with no competitive bidding, in a process enveloped in secrecy, has also raised hackles in Congress and led to questions about Fink’s long-standing relationships with senior government officials, particularly former Treasury secretary Henry Paulson and Geithner, his successor.
“You see a lot of concentration now in the financial industry of people who are more connected than brilliant,” says Janet Tavakoli, the president of Tavakoli Structured Finance and the author of Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street. “So why BlackRock? Not to take anything away from Larry Fink, but all the contracts awarded to BlackRock, in the way they’ve been awarded, deserves some question.”
The Yenta of Wall Street
It is the polished, calm, measured Fink—the “Wall Street Wise Man”—that one sees on television, often on CNBC, where he has appeared with increasing frequency. Tall, balding, and bespectacled—pontificating about interest rates, the dollar, bond yields, and financial regulatory reform—he speaks softly, in a tone that is authoritative and bland, which is nothing like the man off the air.
Passionate, “intense, very intense,” Fink, in person, friends say, is above all “blunt,” “very opinionated.” “He is a very strong personality,” says J. Tomilson Hill, the vice-chairman of the Blackstone Group, the $100 billion asset management and advisory firm. “He will give you a point of view when a lot of people don’t want to be pinned down.” Part of the reason men on Wall Street not only like Fink but, says Hill, “really trust him” relates to BlackRock’s unusual status on Wall Street. As an asset manager, BlackRock trades only money that belongs to its clients. Unlike other Wall Street C.E.O.’s, whose firms trade for their own account and whose advice to others and loyalty to their clients are often subordinated to their own quest for profits, Fink is perceived as objective.
But it is Fink’s willingness to take a stand, many of his peers say, that really distinguishes him. “There is no hidden agenda with Larry,” says Ken Langone. “He’s right out front. He doesn’t run for the hills like some other so-called business leaders.” And he doesn’t mince words, as in telling Goldman Sachs chairman Lloyd Blankfein, “What the fuck were you thinking?,” when he learned that Goldman was trying to buy as much as $1 billion of Fannie Mae tax credits last November in a deal—widely criticized as yet another Goldman money grab—that was eventually nixed by the Treasury on the ground that it would have cost the U.S. government far more than Fannie would have gained.