By Pam Martens and Russ Martens: August 7, 2020 ~
Earlier this year, Wall Street On Parade reported that the Chairman of the Federal Reserve, Jerome Powell, had an upward range of $11.6 million invested with the investment management firm, BlackRock, and its iShares Exchange Traded Funds, according to Powell’s 2019 financial disclosure form.
Powell’s 2020 financial disclosure form is now available. It was signed by Powell on May 15, 2020 and it shows that Powell’s holdings in BlackRock investments have reached an upward range of $24.95 million – an increase of $13.35 million over the prior year’s upward range. (See Editor’s note below.)
The date that Powell signed his latest financial disclosure, May 15, is noteworthy. It means that more than 45 days after the New York Fed had hired BlackRock to manage its commercial mortgage-backed securities program and its $750 billion primary and secondary purchases of corporate bonds and ETFs in no-bid contracts, Fed Chairman Powell saw no reason to avoid the conflict of interest of allowing BlackRock to continue managing upwards of $25 million of his own personal money.
According to a statement released by the New York Fed, BlackRock was retained on March 24 to manage the $750 billion corporate bond buying programs for the Fed. The commercial mortgage-backed securities contract was entered into with BlackRock on March 25. The contract includes this language:
“…the Manager is hereby appointed as the FRBNY’s [Federal Reserve Bank of New York] agent in fact, and it shall have full power and authority to act on behalf of the Account with respect to the purchase, sale, exchange, conversion, or other transactions in any and all stocks, bonds, other securities, or cash held for investment subject to the Agreement…
“The Manager shall initially meet at least weekly with the FRBNY and any other investment managers participating in this FOMC directive to discuss strategy. Absent agreement from the FRBNY, these meetings should be attended only by individuals at the Manager who are behind the ethical wall established by the Manager…
“The Manager acknowledges that all information and material that comes into the possession or knowledge of the Manager on or after March 22, 2020…including the identity and amount of the assets held in the Account…shall be considered to be confidential and proprietary…providing the FRBNY, at the expense of the FRBNY, with all reasonable assistance in resisting or limiting disclosure.”
The ethical wall between the New York Fed and BlackRock would have no reason to include the Chairman of the Federal Reserve Board of Governors in Washington, D.C. Despite that, Powell has conducted four confidential phone calls with BlackRock’s CEO, Larry Fink, since March, lasting a total of 90 minutes. The first call on March 19 lasted 30 minutes; there were two calls in April, one on April 3 and one on April 9, both lasting 15 minutes. May is the last month of Powell’s calendar that is currently available. It shows a call between Powell and Fink on May 13 lasting 30 minutes.
Powell was asked about three of these phone calls by New York Times reporter Jeanna Smialek at his press conference on July 29. The exchange went as follows:
Jeanna Smialek: “Hi, Chair Powell, thank you for taking my question. You talked to Larry Fink at BlackRock in March, April and May according to your public calendars. I was wondering if you could tell us a little bit about what you talked about? And if the topic of those conversations was the corporate credit facilities, how did you handle potential conflicts of interest during those conversations?”
Jerome Powell: “So BlackRock is just our agent. You know, we make the policy decisions in conjunction with our colleagues. And they just execute our plans. I actually don’t remember exactly what I would have been talking with him about. But you know, he’s the head of a major service provider. He generally checks in to find out whether we’re okay with the quality of the service that BlackRock is providing. I don’t have the daily face-to-face interaction with anybody else at BlackRock or, as you can see, three phone calls in the course of a few months. It wasn’t very many. So I think, you know, their conflicts are managed extremely carefully in the contractual arrangements we have with them. And again, I would have — I can’t recall exactly what those conversations were, but they would have been about what he is seeing in the markets and things like that to generally exchanging information. And he’s typically trying to make sure that we are getting good service from the company that he founded and leads. I’d say that’s his main objective when we talk.”
The most dangerous section of Powell’s explanation is the phrase “exchanging information.” The Chairman of the Federal Reserve sits on a pile of market-moving information and is expressly forbidden from “exchanging information” with a Wall Street investment manager if it is inside information. That’s why any phone calls of this nature are problematic and raise serious red flags.
In addition, BlackRock is not Powell’s agent for the emergency loan facilities. The contracts that BlackRock has signed say specifically that BlackRock is the agent for the New York Fed, which has been delegated by the Federal Reserve Board of Governors, where Powell sits as its Chair, to oversee these bailout loan facilities.
As we have been reporting since last September when the Fed opened the money spigots to Wall Street’s trading houses while refusing to provide the names of the firms receiving hundreds of billions of dollars in loans weekly, Fed Chairman Powell keeps promising transparency to the American people and then failing miserably to provide it.
Editor’s Note: The ranges imposed by the federal government for its financial disclosure forms are absurd. For example, some of Powell’s individual positions at BlackRock are listed in a range of $1 million to $5 million. If we used the lower range, it would capture only 20 percent of Powell’s actual position if it is at the high end. Thus, we have elected to use the higher end range.