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Larry
Fink's $12 Trillion Shadow
Vanity Fair – April
2010
By Suzanna
Andrews
“You see a lot of concentration
now in the financial industry of people
who are more connected than brilliant,” says
Janet Tavakoli, the president of Tavakoli
Structured Finance and the author of
Dear Mr. Buffett: What an Investor
Learns 1,269 Miles from Wall Street. “So
why BlackRock? Not to take anything away
from Larry Fink, but all the contracts
awarded to BlackRock, in the way they’ve
been awarded, deserves some question.”
When
A.I.G. was bailed out by the New York
Fed, that same week, BlackRock was again
brought into the company—this time
to evaluate and advise the government on what to do with the
$100 billion of A.I.G. assets, including the now infamous credit-default-swap
portfolio that the Fed had taken over. For several months, BlackRock
would have two teams working inside A.I.G.—one working
for the company’s management, the other for the Fed. It
was a situation so rife with potential conflicts of interest,
says Charles Hallac, that for a while neither team was told about
the other. By then, BlackRock had already been hired to monitor
the troubled portfolios of Fannie Mae and Freddie Mac. In December
2008, BlackRock would get yet another contract from the New York
Fed, this time to value $301 billion of Citigroup’s loans
and securities, most of which the U.S. government guaranteed
against losses as part of its bailout of the giant bank.
And shortly
after Bear Stearns collapsed, Fink advised investors to put their
money into riskier, high-yield debt, just before
that market tanked. BlackRock, as Janet Tavakoli
points out, also contributed its share to the toxic-asset morass—with
close to $8 billion of collateralized-debt-obligation deals that
defaulted in 2007 and 2008.
[JT Note: The $8 billion doesn’t count Blackrock’s
other mortgage meltdown related CDO investments or its blown
up corporate CDOs.]
But BlackRock’s most public and costly mistake—for
its clients, at least—was its purchase of the iconic Manhattan
housing complex Stuyvesant Town and Peter Cooper Village, a $5.4
billion deal that went into default in early January.
End of Excerpt
Janet
Tavakoli is the president of Tavakoli
Structured Finance, a Chicago-based firm
that provides consulting to financial institutions
and institutional investors. Ms. Tavakoli
has more than 20 years
of experience in senior investment banking
positions, trading, structuring and marketing
structured financial products. She
is a former adjunct professor of derivatives
at the University of Chicago's Graduate
School of Business. She is the author of: Credit
Derivatives & Synthetic
Structures (John
Wiley & Sons,
1998, 2001), Structured
Finance & Collateralized
Debt Obligations (John
Wiley & Sons, 2008).
Janet
Tavakoli's book on the global financial meltdown is Dear
Mr. Buffett: What An Investor
Learns 1,269 Miles From
Wall Street (Wiley 2009)
Clients
of Tavakoli Structured Finance
have the benefit of proprietary consultation, which is
not available in any other paid or public forum. Clients
also commission proprietary research and analysis.
TSF
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