Smoking the BlackRock

It’s one thing for your cantankerous grandfather to go Grandpa Simpson and bellyache about the bratty privilege of millennials and Gen Z.

But for a BlackRock executive to rant about the entitlement of kids these days? That’s rich — extremely rich considering that it comes from a man who makes $25 million a year. And speaking of entitlement, Kapito’s fortune is built entirely on other people’s money.

Kapito landed a job at investment banking firm First Boston in 1979 after graduating from Penn’s Wharton School a few years after Donald Trump.  There, he met Larry Fink, and together they helped pioneer the mortgage-backed securities market. Fink and Kapito convinced Freddie Mac to let First Boston take mortgages, pool them, slice them, and sell them as securities to offload $1 billion in mortgages.

In 1988, the pair founded BlackRock under the umbrella Blackstone Group but later broke up with the private equity firm and struck out on their own. Together, they gobbled up billions of dollars in new business through ruthless acquisitions that one former executive called “an extraordinary exercise in the Machiavellian method” and by churning out new financial products.

BlackRock did for investing what Henry Ford did for the car, says the Financial Times. Sure, but imagine if Ford built a car that drove off a cliff en masse. That’s a crude way to describe the way that the mortgage-backed security market bubble burst, helping trigger the credit crisis in 2007 and rocking the entire global financial system, leading to the Great Recession.

BlackRock took a big hit, but avoided the fate of Bear Stearns and Lehman Brothers by divesting itself from some of the multitrillion-dollar mortgage securities markets before the roof caved in. Soon, everyone from foreign central banks to Wall Street rival companies to the state of Florida were begging for help in dealing with $1 trillion in securities that nearly drowned the entire financial system.

Tens of millions of Americans suffered enormously from the financial crisis. But arguably the sharpest blow was reserved for millennials, who entered the workforce at a time of economic contraction and high unemployment and have become saddled with debt as they try to put together a semblance of an adult-seeming life.

The Thanos of Finance

“Can This Man Save Wall Street?” asked CNN about Fink, BlackRock’s CEO. Sure. After all, who better to defuse a bomb than the one who originally planted it?

Over the past decade and a half, BlackRock has amassed unimaginable money and power. The company’s $10 trillion of assets are worth more than the GDP of all countries on the planet except the United States and China. And there’s a growing pipeline of personnel between its headquarters and the White House — a “shadow government” as the Intercept has called it.

Donald Trump had Fink on speed dial in early 2020 to get advice on dealing with markets and then — voilà! — the US Federal Reserve hired BlackRock to purchase, get this, commercial mortgage-backed securities. It was the worst kind of nostalgia for the aughts.

“I didn’t know Larry Fink had been made God,” billionaire investor Sam Zell told CNBC in 2018. “I just wonder whether America is really ready for Vanguard and BlackRock to control the New York Stock Exchange, because that’s what’s happening,” he added.

Kapito has a lower profile than his partner Fink, but maybe being God’s right-hand man long enough has gone to his head. Otherwise, it’s hard to imagine how he got the nerve to badmouth the younger generation suffering from bleak material conditions that BlackRock had some hand in creating.

Yet somehow financially precarious and debt-burdened young people are the entitled ones? Ok, boomer.