Who Will Hold Wall Street Accountable?
BlackRock and other Wall Street firms have sold billion-dollar lies to U.S. investors.
The nation’s oldest consumer advocacy group, Consumer Research (CR), sent a letter to 10 US governors. It warns that BlackRock, the world’s largest asset management firm, is putting US investors and America’s national security at risk by funneling billions of dollars into the Chinese market and China’s state-owned enterprises.
It was an extraordinary step taken by CR, a nonprofit organization founded amid the Great Depression in 1929 and has since dedicated itself to serving consumer well-being. BlackRock is the world’s largest asset management firm, and it has close to $10 trillion assets under its management as of 2020. CR’s letter to the governors aims to raise awareness that BlackRock is taking billions of dollars from US investors, including many state-run pension plans to bet on China, and “in so doing, they are putting American security at risk, along with billions of dollars.”
CR said it chose to write to these governors because they represent “top ten states whose public pension funds are invested in BlackRock and, therefore, potentially at risk based on the issues we outline in our Consumer Warning.” CR also issued a "Consumer Warning report" to accompany the letter. Through both the letter and report, CR gives three reasons why US consumers and political leaders should be concerned about BlackRock.
First, CR identifies BlackRock's CEO Larry Fink as one of the loudest cheerleaders of the Chinese Communist Party (CCP). Fink has tirelessly supported Beijing's policies, even though these policies were at odds with the values Fink champions at home.
Fink designated himself as the leader for improving corporate governance, corporate transparency, and disclosure in the US. He reportedly played a crucial role in "getting the Business Roundtable to adopt its August 2019 statement that a corporation should serve all stakeholders."
Yet, in 2017, when Hong Kong-traded Chinese companies proposed a corporate governance change, which would require their boards to consult Chinese Communist Party committees before making any significant decisions, BlackRock voted in favor of the change. Critics pointed out that such a proposal would "reduce shareholder influence and entrench the party's role" in corporate governance.
During the Sino-U.S. trade negotiation under the Trump administration, Beijing tapped Fink and his Wall Street buddies for assistance. After the trade negotiation concluded, Fink went to Beijing and told senior party leaders that “BlackRock should be a Chinese company in China.” Such bootlicking of the CCP from an American CEO is simply embarrassing.
Like many American corporate executives, Fink promotes social justice and corporate responsibility at home. Yet, BlackRock invests in Hikvision and iFlytek, two Chinese companies that the United States government added to its blacklist for human rights abuses against Uyghur Muslims in Xinjiang. According to CR, BlackRock increased its holding of Hikavision after the company was blacklisted.
At the height of the COVID19 pandemic, despite numerous reports about the CCP’s cover-up in the early days of the outbreak and its suppression of doctors and journalists who spoke the truth, Fink affirmed his commitment to the CCP. He sent a letter to BlackRock’s shareholders, stating, “I continue to firmly believe China will be one of the biggest opportunities for BlackRock over the long term, both for asset managers and investors, despite the uncertainty and decoupling of global systems we’re seeing today.” It seems nothing will dissuade Fink from his commitment to China and the CCP.
The second reason CR's letter gives is how BlackRock's investments in China have put U.S. national security at risk. BlackRock invests in Chinese companies that have close ties to the Chinese military and are helping the CCP advance its ability to challenge the United States in areas such as telecommunication, semiconductor, space, and more. For example, one Chinese company BlackRock invested in is China SpaceSat, which plays a key role in increasing the Chinese military's capability in space.
CR warns that "BlackRock's unabashed gusto for Chinese markets flies in the face of concerns about China's ascendant standing in the world, its authoritarian model of government, and its ambitions to supplant the U.S. as the pre-eminent world power." In conclusion, "BlackRock's investment choices are not only risking the security of U.S. pensions but the security of our nation as a whole."
Third, CR argues that "BlackRock's dependence on Chinese investments and relationship with the Chinese Communist Party put investors' money at extraordinary risk" in six areas. One risk CR identifies is that many U.S. investors thought they obtained ownership of these companies when they invested in BlackRock's funds that hold stakes in Chinese companies. In truth, they own shares in shell companies set up as Variable Interest Entities (VIEs) in places such as Cayman Island. Since these VIE shares do not represent ownership, they offer foreign investors minimal legal rights or protections in the event of corporate fraud or the CCP's economic crackdown.
For example, Blackrock has reportedly been one of the most prominent investors in Evergrande, China’s largest homebuilder. Evergrande defaulted on billions in debt due to the company’s excessive borrowing and the changing regulations in China. U.S. investors who hold Evergrande bonds through BlackRock have no recourse in the eyes of a Chinese court and have no way to recover even a portion of their losses. Essentially, BlackRock and other Wall Street firms have sold a billion-dollar lie to U.S. investors.
Since summer this year, the CCP launched a crackdown on China’s largest technology firms, private education businesses, video game makers, and food-delivery companies. Bloomberg estimates that the Chinese government’s action has wiped out $1.5 trillion in value of these companies.
Yet, according to CR’s report, “Even though BlackRock has taken major losses in its Chinese holdings this year, BlackRock is increasing its investments and encouraging its clients to do the same...BlackRock was still all-in on China.”
Given the size of BlackRock's assets and its omnipresence in the U.S. and international financial markets, any American who has a retirement account and any U.S. public and private pension funds likely hold mutual funds and exchange-traded funds run by BlackRock. Therefore, it is unrealistic to tell U.S. investors to merely understand the risks BlackRock has exposed them to and take their money somewhere else. There is nowhere else to put their money because too many Wall Street firms have kowtowed to the CCP and are as committed to the Chinese market as BlackRock has.
None of the governors that CR sent the letter to has responded so far. The only option left for U.S. investors is to contact their Congressional representatives to demand actions that will hold Wall Street accountable for putting U.S. investors' hard-earn money and America's national risk at risk. Without such legislation, Americans will wake up one day and realize that we have lost our freedom and financed our own destruction through Wall Street.
Op-ed in the Federalist
When I read this news, it broke my heart: an Afghan mother sold one of her newborn twins, a baby boy, to a childless couple for $104. She had no food for her baby boy or her seven other children. Her husband works as a day laborer, earning only $1 a day. Joe Biden’s abrupt withdrawal in August left behind a country that is experiencing what a United Nations official calls ”the worst humanitarian crisis we’ve ever seen.” Read more here. As we enjoy our blessed abundance this holiday season, please say a prayer for those who are suffering.
Good article, Helen. It's outrageous that so many greedy capitalists will do anything to make a buck. They are gladly selling the communists the rope to hang them with. Unfortunately, not only will the greedy CEOs be hanged -- but all the rest of us as well.
And by the way, Larry Fink has an appropriate last name -- because he is a fink! And so are all the others like him, who have no real concern for human rights abuses, national security, or even their own investors. They are pretentious phonies who suck up to the CCP for short-term personal gain. It's despicable.
You're right that the only solution is for Congress to act to prevent these abuses. Free trade is important. But we need to carve out narrow exceptions for rogue regimes like China's, so that American companies don't profit from slave labor, or jeopardize investors or our national security.