[pause in the entry]
Do you realize how absurd everything I just wrote is? I could not make fiction up that was this outlandish. I watched Wall Street again this weekend and I was LAUGHING out loud how small the figures were in 1987 when the movie was made. Wow, let's do this crazy deal for and Bud Fox can make $800,000! What a sense of entitlement these characters (I mean the REAL life ones, not the movie ones) have. $160M pay packages to be let go; $87,000 rug man who was STILL fighting for his bonuses as he was trying to be brushed out the door by Bank of America after the government was the only reason his firm was alive; aides who worked for mere weeks at Merrill and got hundreds of millions [Sep 17, 2008: Thain's Aides May Get $200M for Weeks of Work]. And all that is paid for by us in the end. Nothing really has changed - that's the part that should scare you. Our politicians are captured by the oligarchs and financial infotainment TeeVee celebrates it while signaling *this* is a return to health. I only wish the greater peasantry had any clue of what was going on out here.
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Well as Fink was being considered for the head honcho role for Merrill, Larry - unlike John Thain - was less interested in future shower curtain and area rug choices, and more interested in actually knowing what he was getting into on the business side. He demanded to see the books of Merrill Lynch before accepting a role he WAS offered. [Nov 5, 2007: Merrill Offers Job to Blackrock CEO Fink] Merrill would not do it. So for that outrageous request, he was passed over. For Thain. Who apparently - with dollar signs in his eyes - could care less about fundamentals or looking at books. Which pretty much describes the way Wall Street works now - as long as a easy scheme is around to make some quick bucks who cares about the backstory.
You know how the story goes from there.
Anyhow, Blackrock (BLK) has now become the largest asset manager in America (well, the world actually) - and Fink has been the driving force from inception. Sure there has to be some favoritism somewhere along the line - its a major financial firm after all (they are managing some of the Fed's assets from this or that bailout or program) - but generally they are a conservative outfit of longer term thinkers. [Mar 24, 2008: Blackrock Continues to be Interesting] [May 8, 2008: Blackrock is Fix It Firm to Manage Risky Assets of Others in Distress] [Dec 6, 2007: Blackrock Swoops in to Help Florida] Fink speaks him mind, and says the truth. As a blog writer who does the same (or at least my version of the truth) I appreciate it. The company reported earnings this week, but since we don't own BLK anymore I did not break out the report on the site. You can see it's back in its role of out performer as it was early in the financial mess before anything related to finance was taken out and shot.
That said, a very interesting blurb in the FT.com from Fink. Remember all those better than expected earnings from Goldman (GS) and JPMorgan (JPM)? We have discussed how much is from trading (rather than banking) especially for Goldman (i.e. we are now sponsoring a hedge fund with US explicit backstop via too big too fail) and both firms benefited from the lack of competition in so many of their markets as their peers are either extinct or weakened. And what happens when you have less competition? You know.
- Larry Fink, BlackRock's founder and chief executive, on Tuesday took aim at the luxurious trading profits enjoyed by Wall Street banks, saying that they have taken advantage of reduced competition to charge their customers more for even basic trades.
- There are fewer players. There is very little capital being committed by these dealers, Mr Fink said. They're just taking the spread between the bid and the ask [the price gap between buyers and sellers] and they are making very luxurious returns, he added.
- Mr Fink said that in the past investment managers including BlackRock relied on Wall Street to be the safety guards to the capital markets. (note: never let foxes guard the hen house) And in many cases they have dropped that responsibility and now it is falling on some of the large investment management firms to make sure the securitisation market is being protected.
- Mr Fink, who made his comments as BlackRock reported better-than-expected second-quarter results, added that he was looking at ways to reduce that spread to save his clients money. With the planned merger with Barclays Global Investors scheduled to close by the end of the year, BlackRock is set to become by far the largest money management firm in the world, with $2,700bn under management. Such scale should give Mr Fink even more clout as he seeks to reduce the cost of trades.
- Strong trading profits, especially in fixed income, interest rates and currencies, have been a lifesaver for Wall Street banks over the past six months. Helped by unusually large spreads between bid and offer, financial groups such as Goldman Sachs, JPMorgan Chase and even Citigroup, experienced record revenues in their investment banking businesses.
- Large banks have benefited from the demise of once fierce competitors such as Bear Stearns and Lehman Bros.
Hey Larry, that's how s a free marketworks - when the government picks winners and losers and build ring fences around the winners it coddles (and their precious bond holders), and then in return gets massive political contributions for said protection. Wait a second, that's how the mafia works. Ok nevermind - right here in my textbook entitledFree Markets in America Circa 2006 it says clearly in chapter 3 this is indeed how free markets work. FOX News also confirmed free markets are the way to go, and America is executing it perfectly. (Hold on, my flag pin just fell off)
So are we good Larry? Our banks are taxpayer supported and now have free reign for the next 50-100+ years (make it 500) knowing that any future batch of bad decisions will ALWAYS be bailed out by the US taxpayer. So if they do well, they win - if they do bad, they win too.... as Bill Gross at PIMCO calls this, it is a win/win/win for all parties involved.
Since these investment banks have gone from privately held partnerships to publicly run capital hoovers - their actions have been completely different. We outlined it in this piece [Feb 11, 2008: Investment Banks - Are you Dear Investor...the Sucker?] And almost no one... has actually made money investing with them over the long run. But wow, the amount of money those inside the firms has made has been magnificant. And despite the biggest debacle since the 1930s they have kept the status quo. In fact the remaining players have strengthened it. Free market capitalism - rocking and rolling.
*************** On a side note congratulations to our friends at ZeroHedge who made CNBC (the hard way) - actually this 3 minute piece coincides very nicely with the theme of this piece. The US government has literally said to oligarchs - we want you to take risk and make as much money as possible - we (the people) are here to help and backstop you at every turn. Go forth and take advantage of the peasants! Reverse Robin Hood is now an institutionalized federal policy. Towards the end of the clip ZeroHedge gets a mention... Boo Yah. Go team Moronic Bloggers! (I'm a card carrying member)