It’s off to the races today for BlackRock. The New York Fed, with authority from the Federal Reserve Board and backstopped with taxpayers’ money, will begin the first phase of the Fed’s unprecedented leap into shoring up the sagging prices of investment grade corporate debt and junk bonds. BlackRock has been selected by the New York Fed to be the investment manager for these bailout facilities and will begin Phase I today by buying up Exchange Traded Funds (ETFs) containing investment grade corporate bonds as well as junk bonds. Making the situation particularly dicey is that BlackRock just happens to be one of the largest purveyors of said ETFs.
The screaming conflict-of-interest that this raises in the minds of many is not ruffling any feathers at the New York Fed (which is itself a bundle of conflicts wrapped in a fraud monetization spigot that creates money out of thin air.) The New York Fed has swiftly dismissed this problem with the following language in its Investment Management Agreement with BlackRock:
“The Manager shall treat BlackRock-sponsored ETFs on the same neutral footing as ETFs sponsored by other entities…If the holdings of BlackRock-sponsored ETFs by the Company at any time exceeds or is expected to exceed the then-current market share of BlackRock-sponsored ETFs in the corporate bond ETF market on average (calculated with reference to the most recently ended calendar month), the Manager will notify the Company and consult with the FRBNY, as managing member of the Company, to review the holdings of the Company and implement such adjustments as the FRBNY may direct.”
The New York Fed’s answer to teetering highly-leveraged corporate debt is to set up a highly-leveraged bailout facility run by Wall Street insider, BlackRock, which is also managing U.S. securities purchases for the central bank of Israel.
The stimulus bill known as the CARES Act allocated $454 billion of taxpayers’ money to effectively bail out all of the New York Fed’s bad supervisory decisions over the past decade. The $454 billion has been designated as “loss absorbing capital” to soak up the first 10 to 25 percent of losses in the Fed’s alphabet soup list of bailout facilities. The New York Fed will use $75 billion of the $454 billion for its two corporate bond buying programs, the Primary Market Corporate Credit Facility and the Secondary Market Corporate Credit Facility. Those programs will be leveraged by an approximate factor of 10 to 1 to create $750 in corporate bond bailouts. Given the size of the corporate bond problem, we strongly suspect that’s just the beginning.
