$15 Trillion Money-Making Machine | How BlackRock Became Too Powerful to Ignore by @landsxscapes on 3Speak
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Larry Fink, the guy running Black Rock is really the president of the United States. If we look at the kind of influence he's got. Wait a minute, these guys essentially have a monopoly. Well, how big is Black Rock? Ladies and gentlemen, Black Rock is the most powerful and according to U.S. politicians, the most evil company in the world. Black Rock, the largest asset manager in the world. He can get a meeting with any company on the planet. Jensen Yuam built Nvidia from scratch, and today he owns 3.7% of Nvidia. But BlackRock? BlackRock owns 8.02%. Steve Jobs owns less than 1% of Apple, but BlackRock owns 7.97% of Apple. Bill Gates owns 1.34% of Microsoft, but BlackRock owns 8.18% of Microsoft. And just like this, the big three, which includes Black Rock, State Street, and Vanguard. They own a huge stake in almost every SNB-500 company. And BlackRock alone controls over $15 trillion in assets. Do you realize how much $15 trillion is? It is more than the GDP of India, Japan and France combined. And BlackRock is a company that never made a chip, they never made a phone, they have no factory, and they have never made a physical product in their existence. But even then, A failed banker somehow turned it into the most powerful company on Earth, so powerful that the US government itself is now afraid of BlackRock. Black Rock is an extremely dangerous company. What Larry Fink and BlackRock have done, they are trying to suppress investment in the fossil fuel industry in America. The question is, how did a company that make nothing end up owning everything? Why is the US government itself afraid of a failed banker's idea and what does it teach us about the dirty secret of American capitalism? But before we get into that story, I have something very important to tell you. Just like Black Rock, even you can own a piece of Nvidia, Apple, Google, Meta, and even BlackRock itself, sitting right here in India. And here's where every Indian investor needs to hear this. In 2010, $1 cost you $45,000. Today, it's over 90. So even when your Indian portfolio is doing well in rupees, your global purchasing power is silently leaking every single year. And it's not just currency. The US and Indian markets move on completely different cycles. Some years, India wins, some years, US wins. So betting your entire portfolio, on just one economy is a risk that most people don't even realize they're taking. This is where Westid comes in to help you. It lets you invest in Nvidia, Apple, Google, Microsoft, Meta and Black Rock, which are companies that aren't even listed in India. So if you want to be a part of their growth journey, Westid is one of the simplest ways to do it from India. and starting with WESTED is super easy. Your KIC happens right inside the WESTED app via Digi Locker and that to in just a few minutes. NIS can open accounts too and not just resident Indians. The best part is you don't even need a US bank account. Your money moves through bank integrations straight from your existing Indian account. Once you're in, you get access to 10 ,000 plus US stocks in ATFs, Fractional investing starting at just $1 and India compliant tax reports built in for effortless filing. And if picking individual stocks isn't your thing, Westid also offers curated managed portfolios built by experts where you can access themes like AI, semiconductor, blockchain, genomics and more. You also get access to global funds that give you diversified exposure. across sectors and geographies managed by the world's top fund managers like Black Rock, Goldman Sachs, Vanguard, Fidelity and more. So if you want to diversify beyond India using a safe and regulated platform, check out Westit from the link in the description. This is a tweet that dates back to 1980s. During this time, a banker named Larry Fink was known as the King of Wall Street because he designed a money printing machine. Now look how bankers make money from thin air. Larry Fink saw that the banks had a unique problem. After lending $100 million in home loans, they had to wait for 30 years to get the money back. So he used an instrument called collateralized mortgage obligations. Let me explain how it works and you will know how the Wall Street bankers make millions of dollars. Let's say there is a stack of 30 -year home loans paying 9% interest on a principal of $100 million collectively. Now, as a Wall Street Packager, we can split these $100 million into 100 units, so that if a buyer buys one unit of this bond for $1 million, when the family pays their AMI to the bank, the buyer can get $9% interest, or $90,000 in their first year, and they keep getting the principal amount as the families keep paying their AMIs. So it's a bond, but its underlying asset is a home loan. So this pool collectively generates $9 million of interest in year one, plus principal as the family repays the loan. But the problem with home loans is that nobody knows when the principal comes back, because sometimes people might default on home loans. And this is where Larry Fink designed a genius strategy. He cut this asset into three parts. So instead of selling everyone an equal slice of the loans, he sold three bonds with the payment queue. For example, Bond A has a size of $50 million but only paid 6% interest. Bond B had a size of $30 million and paid 7% interest. And lastly, Bond C had a size of $20 million paying 8% interest. So now, every time a homeowner pays their principal, the money first goes to Bond A, that is why they are the safest. As a result, they also get the lowest interest. After Bond A is fully paid for, the money goes to Bond B. and then it goes to bond C. So if you look at this arrangement, bond C holders take the maximum risk, because if anybody defaults, they are the first ones to lose money. As a result, they also get the highest interest in the queue, which is 8%. So if you do the math at $100 million, bonds A, B, and C, together, earn $6.7 million in interest. Whereas if you remember the math of homeowners, they are paying $9 million in interest. So this remaining $2 million was Fink's pure profit. So yeah, that's how bankers in Wall Street make millions of dollars by just restructuring math without making a single physical product. And that is why this money was a money printing machine. But you know what, ironically, this is also the thing. that killed Larry Fing's reputation. Now, most people think the risk is when the home loans aren't paid. But the problem with this instrument was the complete opposite. People actually paid their home loans so early that the interest completely vanished. In simple words, let's say a family called Millers borrowed $200,000 at 9% interest for 30 years. Their EMI comes out to be $1,609 a month. Now, Fing's Poole bought this loan and now collects $1,609 every month from the Millers. But a year later, there's another bank around the corner that starts offering fresh loans at just 7% interest. So what will the millers do? The millers will take a new loan of $198,634 at 7%, take this cash, go to the old bank and pay off the old loan in full and walk out so that they can now start paying their EMI at 7% interest. So do you realize what just happened? The 9% interest stream that was supposed to run for 30 years. completely vanished. That is all Fink lost $100 million and eventually got fired. This is when he realized the importance of risk prediction. And he saw that every other trader in Wall Street is making the same stick. When the Latin American debt crisis broke out in the 1980s, bankers lost money. When the dot-com bubble happened, investors lost money. When the 2008 crisis happened, bankers lost everything. And strangely, no economist, no analyst, or no banker could ever predict a crash. In fact, even the closure of the state of Hormuz shook up the market and cost the bankers trillions of dollars. So, he sat down to understand why do Wall Street's smartest traders make such a stupid mistake? And he found the answer in 1988. So in 1988, Fink and Seven Partners started a company inside Blackstone Group's office in New York and called it Blackstone Financial Management, later to be renamed as Black Rock. and they built a magical risk machine in Black Rock. You know what they did? They kept on collecting as much data as they possibly can and as many variables as they possibly can. This included something as simple as in oil crash all the way to wars and even tsunamis. And they ran a program to understand how each of these disasters will affect bonds, loans, credit histories, interest rates, and millions of market data points. This software is even today known as one of the greatest softwares ever built by Mankind. And this software, funnily, is called Aladdin. Massive computerized system called Aladdin. I still believe there is no other organization can do what Alada does today. It becomes the brain and beating heart of Larry's new empire. In simple words, Aladdin is like Chad Gipity but for market predictions. So if you ask the software, what happens to your portfolio if the interest rates rise, what happens to your portfolio if oil price collapses, or what happens to the portfolio if the borrower stop paying, it will give you the most accurate information possible so that you can make your bets accordingly. And guess what? All they needed to gain relevance and trust in the market was a goddamn recession. And you know what? God actually gifted them a recession in 2008. 2008 was a tumultuous year for the economy. It was the worst day on Wall Street since the crash of 1987. The biggest banks on Earth were dying because of the exact same family of instruments that Fink pioneered, which was mortgage-backed securities. These mortgage-backed securities were sliced into bonds, just like Bond A, B, and C, and in 2008, homeowners stopped paying EMI, and all these bonds started failing. Now, look at the problem statement. If you remember, a bank basically collates 5 ,000 home loans together into a $100 million bond, and then they sell it to the investors in three tiers, bond A, B, and C. But the problem was the banks had no idea which of those 5,000 home loans were actually risky. Yes, the banks had no idea which of those people will default. Why? Because home prices were crashing, the stock market was crashing, companies were going bankrupt, people are losing jobs, and borrowers were actually walking away from their own homes. So how could they predict who would pay the home loan and who wouldn't? And this is where Fing's Aladdin became a magical tool for the American economy. You remember what I told you about it? It can tell you what will happen if a recession happens like Chad GPD can tell you about today's news. Because Aladdin had 20 years of context, data and variables. So guess what? The American government itself called BlackRock to fix this loan crisis so that they could identify which loans are bad loans and which loans need to be written off. And when BlackRock solved this problem for the government of America, it went from $1 trillion in assets under management. to $3 trillion in assets under management. That is how BlackRock won the Trust of America. And this is where Fing's team built one of the most powerful financial machines in human history. You know what they did? They bought a company called Aishairs and got their hands on a financial instrument called ETFs. ETS stands for exchange traded funds. I'll explain what ETF is and how it works, but as of now, look at what Larry Fink spotted. For decades in America and in India, the middle class plan was absolutely simple. You hand your money to a fund manager in a mutual fund, she picks the winners, you pay her a 1.5% fee, whether she wins or she loses. So if you start with $11,000 at a $2% fee, that's $220 in year one. But over 30 years, as your corpus grows to $174,494, at a 2% fee, you have already paid $79,310. Now, although 2% looks very little, there was just one problem. Most of the time, the comparison for our fund's performance is done with SNP 500. But the problem is, if the SNP 500 gives you a 10% return and your fund manager gives you a 15% return, he'll be considered an absolute genius. But if he gave you a 9.5 % return, he'll be considered a complete failure. And the fun fact is, over 15 years, almost 90% of American fund managers failed to beat the SNP 500. So a bunch of investors said, if SNP 500 is the benchmark, why not just copy the SNP 500? That is how the concept of index fund, or later called, ETF was born. Now, here's how ETF actually works. You see, the SNP 500 is basically the list of 500 of the largest publicly traded companies in the United States. So let's say today, that list starts like this. NVDA 7.29%, Apple 6.55%, and so on and so forth. Now the fund completely copies this list. So if you hand the ETF $10,000, there is no meeting and nobody reads a balance sheet. A simple program. divides your money by those exact percentage points. So, $729 will go to Nvidia, 655 will go to Apple, and so on and so forth. Eventually, you will own a piece of all 500 companies in the exact proportion, as the index says. So now, if the SNB finder goes up by 5%, your portfolio also goes up by 5%. And you're very happy because you've practically done, but 90% of the fund managers fail to do. But if the SNP 500 goes down by 10%, you are completely okay with it because the entire market is anyways down. Now, the game-changing thing about ETFs is that you're not paying for the brilliance of a fund manager. You are simply paying a program to blindly shuffle your money in a pattern, which is why, while the active funds charge you 1 .5% fee, the index ETF only charge you 0.03%. At $10,000, the difference is $150 and $3.00. At a million dollars, That difference is $15,000 versus $300. That is how ATFs work. And this is what Larry Fing bet on way before anybody else at his kill. and after 2008, he already had the trust of America. So you know what he did? In 2008, he bought Aishers, the biggest ETIF business on the planet. America fell in love with ETFs, and as Americans invested in BlackRock's ETFs, BlackRock got $6 trillion in ETFs and $15 trillion in total assets under management. So do you realize? BlackRock has $6 trillion with a 0.03 % commission running on autopilot. That is how, BlackRock became a money-making machine. And every dollar invested in their SMP 500, bought them a stake in Nvidia, Apple, Microsoft, and 497 of the most powerful companies on Earth. That is how BlackRock today owns 8.18 % of Microsoft, 8.02% of Invidia, 6.69% of Google, and 7.75 % of Coca-Cola, and so on and so forth. This is the magic of ETS that got them enormous stake in the Fortune-Finded companies. So now the question over here is, the story so far seems pretty good. A failed banker, found a gap in the market, built a trillion-dollar company, became a billionaire. End of story. Then the question is, Why is Black Rock being called evil and why are the American politicians so concerned about Black Rock? Well, as it turns out, Black Rock isn't alone. There are two more companies called Vanguard and State Street. Together... These three companies roughly control 72% of every equity ETF dollar in America. In fact, Cambridge researchers found that they're the single largest shareholder in 438 of America's 500 biggest companies. I repeat, they're the largest shareholders in 438 of America's 500 biggest companies. And as such large shareholders, they also get voting rights, and with voting rights comes the extraordinary power to bend the markets for profits. Now listen to this. On 27th of November 24, the Attorney General of Texas and 10 other states sued all three companies for a strange case. These three firms held massive stakes in seven of America's nine major coal producers. This included 30% in Peabody Energy and 34% in arch resources. These are the two biggest coal producers in America. On top of that, they owned big stakes in the power companies that burn that coal. They have 24% of Duke Energy, 26 % of Vistra, and 24% of American electric power. And lastly, amongst the BitTech companies that end up buying all this energy, they own major stakes in Microsoft and Amazon. So if you see, they have the stakes in the miners, burners and the buyers at the same time. And here's where the dots connect. Between 2020 and 2021, all three join the same climate clubs. Net Zero Asset Managers with Black Rock and State Street also signing onto Climate Action 100 plus. And according to the lawsuit, they used those clubs to signal a shared commitment. And this commitment was to cut coal output by more than 50% by 2030. So you know what happened? Coal output from these companies fell by 19%. Coal prices rose by 25%. And when coal got expensive, Electicity got expensive. and ordinary Americans had to pay more for using the same electricity. This is the reason why the Attorney General's complaint says that these companies constricted supply and enable the investment companies to produce extraordinary revenue canes. Now, the trial is still ongoing, but Vanguard has already settled for $29.5 million. And even though the final verdict isn't out yet, think about how much power these three companies have on the American economy. So do you realize if this kind of power gets concentrated in just two to three companies, they can practically manipulate any economy? For example, if the same thing happened in the Indian pharma industry, these companies can prevent drug prices from dropping, insurance bills from dropping, and healthcare will become a disaster for the common man. The same could be the case with education, where they can push banks to push student loans and universities to hike up prices. By the way, healthcare and college education are already a disaster for the common man in terms of affordability in the United States of America. and this is where capitalism becomes dangerous. Now there are many such stories, but these are all borderline conspiracy theories, so I'm not going to get into it. But if you take a step back and think about the progress of economy, and correlate that directly with the progress of civilization, you will realize something strange about capitalism. In a capitalistic economy, a cyclist is bad for the economy, and a sick person is great for the economy. Why? Because a cyclist needs no car, no service centers, no medicine, needs no doctors, no surgeries, no tests, and he will also consume very less fuel and take less debt. But a sick person? A sick person spends money on medicine, doctors, insurance, surgeries, fuel and loans. So a sick person is great for the economy and a cyclist is bad for the economy. This is when you have to ask yourself, What exactly are you building the economy for? Would you rather have a healthy economy with sick people or a modest economy with healthy people? And when we learn to draw that line as a society, we will draw that line between conscious capitalism and evil capitalism. Because if you just bucket both of them as capitalism, we will never know when we'll cross that line and life will become very, very difficult for common man. So the economy will be progressing, but the life of a common man will be absolutely disastrous. in the US, in some cases, that is already the case, and I just hope this does not happen in India. This is the dark truth of capitalism that we all need to learn and ensure that our country never gets into. That's all for my Saturday, guys. If you learn something available, please make sure to hit the like button to support our work. And for more such insightful political and business case studies, please subscribe to our channel. Thank you so much for watching. I will see you in the next one. Bye-bye.