Demonstration of January 9, 2020 against the pension reform project, Paris, France. Photo by Jeanne Menjoulet, Flickr.
In her latest article, PBI Chair Ellen Brown explores how BlackRock, the world’s largest asset manager and “shadow bank”, has emerged from the shadows to deploy billions of dollars in bailout money from the Federal Reserve. BlackRock has been called “almost a shadow government,” although no part of it actually belongs to the government. Its first use of its expansive new emergency power was to purchase “exchange traded funds” (ETFs), mainly owned by BlackRock itself. Ellen writes:
“In fact, these ETFs needed a bailout; and BlackRock used its very favorable position with the government to get one.”
“The ETFs were trading well below the value of their underlying bonds, which were dropping like a rock. Some ETFs were failing altogether. The problem was something critics had long warned of: while ETFs are very liquid, trading on demand like stocks, the assets that make up their portfolios are not. When the market drops and investors flee, the ETFs can have trouble coming up with the funds to settle up without trading at a deep discount; and that is what was happening in March.
“According to a May 3 article in The National, ‘The sector was ultimately saved by the US Federal Reserve’s pledge on March 23 to buy investment-grade credit and certain ETFs. This provided the liquidity needed to rescue bonds that had been floundering in a market with no buyers.’
“Prof. Clements states that if the Fed had not stepped in, ‘a ‘doom loop’ could have materialized … ’”