David Dayen at The Intercept has ferreted out that Larry Fink, CEO of the giant asset manager BlackRock, is keen to become Treasury Secretary, and has positioned himself accordingly. He’salready has such a strong influence on Hillary’s Clinton’s thinking to the degree that even Andrew Ross Sorkin has taken note of how she closely she echoes on financial service industry matters: “…“could have been channeling Laurence D. Fink.” This might seem to be a happy coincidence were not it not for the way Fink has curried favor with as having strong ties to Treasury by virtue of having hired former staffers. Per Dayen:
Fink’s most telling hire, however, is Cheryl Mills, arguably Clinton’s most trusted confidante. Mills was Clinton’s chief of staff at the State Department, was deputy White House counsel in the Bill Clinton administration, and is on the board of directors of the Clinton Foundation. Fink hired Mills for the BlackRock board of directors in October 2013, in what observers mused was a ploy to insinuate himself into the Clinton inner circle.
Among other BlackRock officials with ties to Clinton: Senior Managing Director Matthew Mallow is a “Hillblazer” who has helped raise $100,000 or more in donations. Clinton held a fundraiser earlier this month at Mallow’s New York City home. There is no indication of Fink himself contributing financially to the Clinton campaign.
Now the not giving money to Clinton could be a bigger deal than it seems. When Bill became President, he went to great lengths to appoint people who had been loyal donors, particularly long-standing donors, down to low-level roles. Someone I knew who wound up as the #2 in one of the major departments was quite open in saying how he was unqualified for the role, the only reason he got it was for being a early Clinton contributor, and described in some detail how the incoming Administration was rewarding its backers. I am pretty sure the only reason he told me was that this was common knowledge in DC at the time.
Now the Clintons may have moved on from these loyalty tests, or Fink could have satisfied them via other means, say by giving to a PAC or the Clinton Foundation. Nevertheless, he’s also cultivated ties with Treasury through various hires, such as long-estalished banking industry dealmaker Ken Wilson, and Chris Meade, former Treasury general counsel.
As Dayen stresses, Clinton has not ruled out a Treasury Secretary from Wall Street. Indeed, she would probably argue privately that the job requires one, since they need to be able to talk to the markets, and the Bush Administration Treasury Secretaries who were mere corporate executives, like John Snow and Paul O’Neill, were generally scored somewhere between lightweight and lousy.
But appointing someone from Government Sachs or the other Bob Rubin haunt, Citigroup, might be a bit too controversial. By contrast, asset managers like BlackRock are almost never in the headlines outside the business section, and even there, not very much. But that’s no reason to be encouraged.
First, BlackRock, along with Pimco, managed to escape being designated a SIFI, meaning systemically important financial institution. On one level, that may not seem so crazy, since asset managers aren’t part of the central plumbing of financial markets (the payments system and capital markets trading). But that line isn’t as tidy as it seems. Asset managers were bailed out in the crisis just past, via the extension of guarantees to money market funds. But the flip side is that the usual risk-reduction approaches for being a SIFI are measures like holding more equity, which make no sense in the fund management context (the risks are at the fund level, and funds hold no equity; holding more equity at the parent level is not going to do much if destabilizing runs were to take place at funds, which are legal entities they merely manage, not own. Admittedly, there are other checks, like on counterparty risk, that would be germane). Nevertheless, it may be a mistake to be so sanguine, since the effect of Dodd Frank and other post-crisis interventions has been to shift risks out of the banking system on investors….which include asset managers like BlackRock. And who would be better able to plead their case than someone with deep knowledge of that industry?
Second, the big cause for pause is Fink’s devotion to the idea that Social Security should be privatized. From Dayen:
Fink has also promoted the privatization of Social Security, while mocking the idea of retiring at 65, which is easy for a business executive who sits at a desk all day to say, rather than working on an assembly line or as a waiter. Fink owes his initial backing at BlackRock to Pete Peterson, the former commerce secretary who has been at the forefront of the campaign to cut or privatize Social Security. He sat on the steering committee of the Campaign to Fix the Debt, a stalking horse for Peterson’s ideas.
Privatizing Social Security is another big business looting opportunity. Social Security is extraordinarily efficient from an administrative standpoint, even before you get to the fact that a retirement plan ultimately depends on the future earning power of the economy. But rather than focus on things that support that, like wage growth and productive investment, our elites promote the barmy logic of trying to starve the economy by limiting or even more insanely, eliminating Federal government debt.
Private accounts will always be worse due to the much greater costs of running them. And that’s why Wall Street salivates over the idea of privatizing Social Security: retail investment is the highest fee part of the market, so the more they can do to get policymakers to drive assets in that direction, the more big financiers will make.
And there’s every reason to doubt Clinton’s claim that she won’t cut or privatize Social Security. Bill was ready to privatize Social Security, but l’affaire Monica intervened. Ordinary Americans need to thank her for her service, in both senses of the word.
Measures that lower Social Security payouts in real terms, like chained CPI, have been given the Orwellian label of “strengthening Social Security.” As Lambert said in a 2015 post, Hillary Clinton on Social Security Expansion: Words are Wind. A Cold Wind.:
- Clinton will not commit to Social Security expanson
- Clinton would like to turn Social Security into a welfare program, destroying it
- Clinton would like a Social Security Commission, and past such commissions have produced unconscionable results.
In other words, if Clinton wins the Presidency and announces Larry Fink as her Treasury Secretary nominee, NC readers will recognize this as a Timothy Geithner moment, that electioneering promises have just been repudiated. Be warned.