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jerryking : u.s.treasury_department   10

BlackRock’s black box: the technology hub of modern finance
FEBRUARY 24 2020 | Financial Times | by Richard Henderson in New York and Owen Walker in London.

In the depths of the 2008 financial crisis, the US government turned to Larry Fink, founder of BlackRock, for help.

As the crisis deepened, Mr Fink spoke to Hank Paulson, US Treasury secretary, in brief, urgent calls. He offered the Treasury and Federal Reserve a powerful tool to gauge risk in the assets at the centre of the havoc. The arrangement would net BlackRock tens of millions of dollars in government contracts, awarded largely without a tender process, put it at the forefront of the fintech revolution and cement Mr Fink’s standing at the intersection of politics and finance.

At the heart of this exchange was Aladdin, BlackRock’s vast technology platform. The system links investors to the markets, ensures portfolios hold the right assets and measures risk in the world’s stocks, bonds and derivatives, currencies and private equity.

Aladdin’s influence has surged since the financial crisis. Today, it acts as the central nervous system for many of the largest players in the investment management industry — and, for several huge non-financial companies........Vanguard State Street Global Advisors, the top half the top 10 insurers by assets, as well as Japan’s $1.5tn government pension fund, the world’s largest. Apple, Microsoft and Google’s parent firm, Alphabet — the three biggest US public companies — all rely on Aladdin to steward hundreds of billions of dollars in their corporate treasury investment portfolios.....Yet the true reach of Aladdin is unknown outside of BlackRock......Aladdin has fuelled BlackRock’s all-conquering rise by tightening its links with customers and diversifying its revenues. But the platform’s success has opened up new challenges. Competitors are fast developing rival platforms that are taking some of its business. The system’s scale — unparalleled for technology offered by a fund manager — has also created possible conflicts of interest. Most of all, its importance as a fintech hub has raised the prospect of a regulatory backlash.

The world’s most powerful risk management system threatens to become a liability for its owner.....Platforms like Aladdin are not covered by regulations, but as markets and investing become more reliant on technology the functions of these systems could play a role in future decisions whether or not to regulate...Aladdin’s sprawling influence has prompted fears that it, or BlackRock, could act as a chokepoint if either faced a shock — a cyber attack, a rogue line of code or a sudden crisis for the company — destabilising the financial system.....Although Aladdin does not tell asset managers what to buy or sell, the worry is that if a large enough portion of global assets respond to the warnings that Aladdin gives off, trillions of dollars will react to events — such as the outbreak of a pandemic or war in the Middle East — in the same way, causing dangerous *herding behaviour*......Aladdin creates the potential for “groupthink” .......Aladdin’s critical role within high-profile companies also makes it a prime target for cyber crime. .....Aladdin’s risk tools are designed to support, rather than replace, portfolio managers.....The scale of BlackRock’s dominance in both the investment industry and in providing its plumbing has led to potential conflicts of interest. As the world’s biggest asset manager, BlackRock is among the top shareholders of most listed companies globally, including many Aladdin clients.........Aladdin — which stands for asset, liability, debt and derivative investment network — began as a simple ledger for bond portfolios shortly after BlackRock was founded in 1988. As it grew, BlackRock extended its use for certain clients. The first was General Electric, which in 1994 was selling Kidder Peabody, the beleaguered brokerage, but was unsure how to price the assets on its balance sheet. A series of similar one-off arrangements eventually led BlackRock to offer Aladdin as a product in 2000.....Powerful trends have buffeted Aladdin’s rise. Investing has become more electronic and reliant on big data. As the tools that process the information have become more complex, investors, fund managers and insurers have turned to larger platforms such as Aladdin to replace multiple specialised systems.
Aladdin  analytics  asset_management  BlackRock  conflicts_of_interest  crisis  cyber_security  economic_downturn  financial_system  government_contracts  hackers  Hank_Paulson  herd_behaviour  institutional_investors  Laurence_Fink  one-time_events  origin_story  packaging  platforms  portfolio_management  regulators  risk-managment  rivalries  Second_Acts  systemic_risks  tools  trends  U.S._Federal_Reserve  U.S.Treasury_Department  Wall_Street 
4 weeks ago by jerryking
Opinion | Robert E. Rubin: Philosophy Prepared Me for a Career in Finance and Government - The New York Times
By Robert E. Rubin

Mr. Rubin was secretary of the Treasury from 1995 to 1999.

April 30, 2018

Raphael Demos. Professor Demos, an authority on Greek philosophy, was Harvard’s Alford Professor of Natural Religion, Moral Philosophy and Civil Policy. But to me, when I took a class with him my sophomore year, he was a genial little man with white hair and an exceptional talent for engaging students from the lecture hall stage, using an overturned wastebasket as his lectern. Professor Demos would use Plato and other great philosophers to demonstrate that proving any proposition to be true in the final and ultimate sense was impossible. His approach to critical thinking planted a seed in me that grew during my years at Harvard and throughout my life. The approach appealed to what was probably my natural but latent tendency toward questioning and skepticism.

I concluded that you can’t prove anything in absolute terms, from which I extrapolated that all significant decisions are about probabilities. Internalizing the core tenet of Professor Demos’s teaching — weighing risk and analyzing odds and trade-offs — was central to everything I did professionally in the decades ahead in finance and government.......Demos crystallized for me the power of critical thinking: asking questions, recognizing that there are no provable certainties and analyzing the probabilities. And that, coupled with my coffeehouse lessons, was the best preparation one could have — not just for a career but also for life.
Robert_Rubin  Colleges_&_Universities  Harvard  philosophers  philosophy  Plato  Wall_Street  Goldman_Sachs  career_paths  advice  life_skills  probabilities  decision_making  critical_thinking  U.S.Treasury_Department  Greek  tradeoffs 
may 2018 by jerryking
One Firm Getting What It Wants in Washington: BlackRock - WSJ
By RYAN TRACY and SARAH KROUSE
Updated April 20, 2016

The Problem: BlackRock believed that the U.S. Federal Reserve was leaning towards designating it as a source of financial system risk, like other big banks, and as such, be “too big to fail”.

What Was At Stake: the designation “systemically important” would draw BlackRock in for greater oversight by the Federal Reserve which would mean tougher rules and potentially higher capital requirements from U.S. regulators.

The Solution: BlackRock didn't take any chances. The company began spending heavily on lobbying and engaging policymakers. Executives at the firm began preparing for greater federal scrutiny of their business in the months following the 2008 financial crisis. BlackRock aggressively prepared a counter-narrative upon discovered a Treasury Department’s Office of Financial Research report that asset-management firms and the funds they run were “vulnerable to shocks” and may engage in “herding” behavior that could amplify a shock to the financial system. The response took the form of a 40-plus-page paper rebutting the report. The firm suggested that instead of focusing on the size of a manager or fund, regulators should look at what specific practices, such as the use of leverage, might be the source of risks. While other money managers such as Fidelity and Vanguard sought to evade being labeled systemically important, BlackRock’s strategy stood out.
BlackRock  crony_capitalism  Washington_D.C.  risks  lobbying  too_big_to_fail  asset_management  advocacy  government_relations  influence  political_advocacy  policy  U.S._Federal_Reserve  systemic_risks  Communicating_&_Connecting  U.S.Treasury_Department  counternarratives  oversight  financial_system  leverage  debt  creating_valuable_content  think_differently  policymakers  policymaking 
april 2016 by jerryking
Training Wheels for Treasury Secretaries - WSJ
By HOLMAN W. JENKINS JR..
Updated Dec. 11, 2002

Public choice holds that politicians and government officials have interests, like anyone else, and understanding these interests is a better guide to their behavior than some disembodied notion of the "public good." In the words of Prof. Buchanan, "If you want to improve politics, improve the rules, improve the structure. Don't expect politicians to behave differently. They behave according to their interests."
public_choice  appointments  Holman_Jenkins  interests  politicians  organizational_structure  public_servants  politics  U.S.Treasury_Department  incentives  self-interest  public_goods  behaviours 
february 2015 by jerryking
Steering Clear of Sanctions - The CFO Report - WSJ
July 8, 2014 | WSJ | By RACHEL LOUISE ENSIGN, SAMUEL RUBENFELD and MAXWELL MURPHY.

The U.S. blacklist names nearly 6,000 entities and individuals that are off-limits to U.S. companies and—in some cases—their foreign subsidiaries.

The list changes often: the Treasury Department’s Office of Foreign Assets Control added almost 500 names last year, and this year has added nearly 240, including Igor Sechin, chief of Rosneft. More than 350 names were crossed off this year, largely due to the removal of most remaining sanctions on Colombia’s Cali drug cartel.

Treasury penalties for violating sanctions this year have totaled about $1.2 billion, largely because of the department’s share of the BNP penalties.

“We call them Powerball penalties now,” said Judith Lee, a sanctions specialist and partner at Gibson, Dunn & Crutcher LLP, referring to their size.

As the U.S. tries to exert more geopolitical influence with financial levers, rather than military might, multinational companies are at risk of running afoul of its sanctions. Many sanctions programs have different rules for different countries. Individuals on the list often are reputed to operate networks of companies with little transparency. And the penalties can be extracted by a range of U.S. authorities.

When it comes to sanctions, “the U.S. government is effectively deputizing all of these companies to be their own policemen,” said Ms. Lee.
sanctions  U.S.Treasury_Department  geopolitics  multinationals  blacklists  penalties  economic_warfare 
august 2014 by jerryking
Aiming Financial Weapons From Treasury War Room - NYTimes.com
By ANNIE LOWREYJUNE 3, 2014

“The United States needs to remain involved in the world, but does not necessarily need to remain involved just through military power,” said David S. Cohen, Treasury’s under secretary for terrorism and financial intelligence, who is sometimes described within the administration as President Obama’s favorite combatant commander. “There are other ways of projecting U.S. power that are consequential.”

Mr. Cohen oversees the obscure Office of Foreign Assets Control, the engine that creates and administers the steadily increasing number of financial sanctions. They are a policy tool once considered largely ineffectual but are now used against a wide range of actors, from Iran’s revolutionary guard to Mexican drug traffickers to cronies of President Vladimir V. Putin of Russia....Sanctions have also become a central policy lever with Iran, Syria, South Sudan and North Korea — as well as drug cartels, arms traders and terrorists. In no small part, their swelling number is because of their improved potency, analysts said: Today’s sanctions tend to be “smart,” narrow rather than broad, and designed to pressure elites rather than squeezing average citizens....Legal changes during the Bill Clinton and George W. Bush administrations bolstered the tool. Analysts started focusing on travel bans and asset freezes, rather than whole-country or whole-industry sanctions. The interconnectedness of the global economy has also made sanctions stronger.

“We’re very nuanced about how to use the tool and, I think, very thoughtful about it,”
Iran  geopolitics  U.S.Treasury_Department  statecraft  21st._century  travel_bans  asset_freezes  sanctions  North_Korea  interconnections  economic_warfare  economic_policy  specificity  hard_power  rogue_actors  policy_tools  potency  global_economy 
june 2014 by jerryking
Geithner to join private equity firm - WSJ.com
November 16, 2013 | WSJ | Associated Press.

Warburg Pincus said that Geithner would advise the firm on strategy, investing, investor relations and other topics. The New York-based firm has been involved in buyouts of such well-known companies as luxury department store chain Neiman Marcus and contact lens maker Bausch + Lomb....Geithner has spent most of his career in government, although he had an early stint at Kissinger Associates, the consulting firm formed by former Secretary of State Henry Kissinger. Geithner joined the Treasury Department in 1988 and served as undersecretary for international affairs during the Clinton administration. He worked at the International Monetary Fund from 2001 until 2003 before being named president of the New York Fed.

Private equity firms pool money from clients such as pension funds and other institutional investors to buy companies or stakes in companies. They try to improve the financial results of a company with the goal of reselling it at a profit.
Second_Acts  private_equity  Wall_Street  Tim_Geithner  U.S.Treasury_Department  Warburg_Pincus 
november 2013 by jerryking
Bailout overseer Geithner wisely gives the bank jobs a miss
Nov. 18 2013 | Reuters Breakingviews via - The Globe and Mail | by Daniel Indiviglio
Bailout overseer Geithner wisely gives the bank jobs a miss
Second_Acts  private_equity  Wall_Street  Tim_Geithner  U.S.Treasury_Department  Warburg_Pincus 
november 2013 by jerryking
In ‘Treasury’s War,’ Missiles for a Financial Battlefield - NYTimes.com
August 31, 2013 | NYT | By BRYAN BURROUGH.

THE 21st century has ushered in new kinds of warfare that don’t involve soldiers wielding weapons. One type, cyberwarfare, seems to have drawn the most commentary and analysis. A less publicized type of attack, financial warfare, is covered in “Treasury’s War,” a useful new book by one of this strategy’s architects, Juan C. Zarate, a former assistant Treasury secretary. ... “Treasury’s War” chronicles an array of the department’s enforcement efforts, from corralling informal Middle Eastern money-transfer networks useful to Al Qaeda to tracking Saddam’s missing millions. But the heart of the book is the emergence and evolution of Section 311 of the Patriot Act, which allows the Treasury Department to designate any bank in the world as a “primary money-laundering concern” and prevent it from doing business with any American bank.

In today’s financial world, where every bank wants to do business with every other bank, and where New York and the United States dollar remain of paramount importance, “hitting” a bank with a Section 311 order has the effect of transforming it into an overnight pariah. Mr. Zarate cites example after example in which 311’s have all but destroyed rogue banks that had been important conduits for money flows involving, for example, Al Qaeda or Iran....“Geopolitics is now a game best played with financial and commercial weapons,” Mr. Zarate writes. “The new geoeconomic game may be more efficient and subtle than past geopolitical competitions, but it is no less ruthless and destructive.”
books  book_reviews  Iran  al_Qaeda  geopolitics  U.S.Treasury_Department  statecraft  money_laundering  21st._century  interconnections  sanctions  economic_warfare  economic_policy  banks  policy_tools 
september 2013 by jerryking
The Colossus of Wall Street -
December 9, 2010 | BusinessWeeK | By Sheelah Kolhatkar and
Sree Vidya Bhaktavatsalam.

Bestride the bond and equity markets, counseling the Treasury and the Fed, BlackRock CEO Larry Fink is the most influential man you've never heard of.
BlackRock  CEOs  government_contracts  Laurence_Fink  Sheelah_Kolhatkar  U.S._Federal_Reserve  U.S.Treasury_Department 
december 2010 by jerryking

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