Theme: Incentives

BLACK ROCK’S ROLE IN THE FED TRANSACTIONS

by Herbert Hackett

BlackRock was the broker between the Fed and the Treasury. The Treasury owns the assets, the Fed provided the money at zero interest, BlackRock brokered the deal for free.

—Would you if you can, explain what broker means in this context for the audience.—

Well, the most layman term I can use is that BlackRock was the middleman. The Treasury instructed what it wanted to purchase, BlackRock went out and arranged the deal, and then using funds from the Fed (at zero interest) the Treasury gave the money to BlackRock, who then gave the money to the other party to transfer the assets over to the Treasury.

The most important detail of course, is the fact that BlackRock did this without receiving any sort of commission or “cut” of the money that it was transferring for the purchases. In other words, they were in a way “commandeered” or “conscripted” to fulfill this role.

Once the deal is done, BlackRock no longer has any part of the deal. They didn’t make anything from it, they don’t own any of the assets.

—Why would a broker like Black Rock want to do this?—

More likely than not they didn’t have much choice. The treasury and by extension the Executive branch, with the permission of the legislative branch (remember this whole thing was approved by Congress) enabled the government to compel BlackRock to do this by law.

Not that it’s any detriment to them, of course. At worst it could be seen as a waste of time, but at best they can use this as an opportunity to say, “Look at the deal we arranged! Trillions of dollars and assets transferred without a single hitch. You too could benefit from our services!”

Before this event, BlackRock was already the biggest in the world at what they do. If nothing else this has only solidified their name in that respect.