Pam Martens and Ross Martens: October 21, 2021 ~
Last year, during the financial crisis, Federal Reserve Chairman Jerome Powell had five secret phone calls with BlackRock Chairman and CEO Larry Fink. The first call on March 19 lasted 30 minutes; There were two calls in April, one on April 3 and the other on April 9, and both lasted 15 minutes. A phone call between Powell and Fink on May 13 lasted 30 minutes. And one on November 20 lasted 10 minutes.
That’s a total of 100 minutes the US central bank chief spent on the phone with the man who heads the company that also manages a significant portion of Powell’s fortune through the iShares Exchange Exchange Funds. The dates and times of the phone calls come from Powell’s daily calendars published to the public.
Powell’s phone calls with Fink continued this year. On February 5, Powell had a 30-minute phone call with Fink. On March 1st of this year, there was a bizarre one-hour virtual meeting between Fink, the Federal Reserve Board of Governors, and Federal Reserve staff. (Powell’s daily calendars are only available until August of this year.)
There is a growing impression that Fink is serving as an advisor to the Federal Reserve while his company, BlackRock, also manages a significant portion of Powell’s fortune. See our previous report: BlackRock authored the rescue plan before a crisis occurred – and now it has been appointed by three central banks to implement the plan.
The Fed also awarded BlackRock three no-bid contracts in 2020 to manage the Fed’s corporate bond purchase programs. Under these contracts, BlackRock was allowed to purchase its exchange-traded funds.
We are now learning from Crane Repo data, that a significant portion of the Fed’s overly generous reverse repo has landed in BlackRock money market funds. Crane Repo data shows that as of September 30, the money market BlackRock Liquid FedFund held $84 billion in reverse repo agreements of the Federal Reserve while the BlackRock Liquid T-Fund had $65 billion.
The Fed announced on June 16 that it will start paying 0.05 percent interest on its reverse repo agreements overnight. His previous average was big, round to zero. The one-day rate of 0.05 percent is incredibly high considering that the six-month Treasury yields the same 0.05 percent, as of this morning.
At the time of the Federal Reserve’s announcement in June, Credit Suisse’s Zoltan Bozar wrote:
“… the Fed made a policy mistake: to raise the RRP facility when an increase is not strictly necessary is one thing, and to raise it ‘unduly high’ – as one fund manager put it, ‘yesterday we couldn’t even of gaining one basis point per year; Getting endless cards in five cardinal points from the most trusted counterparty is a dream come true. “
You can call it a “dream come true” or you can also call it the Federal Reserve’s support for privately owned money market funds.
The reverse repo process, known as ON RRP (for an overnight reverse repo agreement) is operated by the Federal Reserve Bank of New York – as is almost all trading activity by the Fed, including the massive bailouts on Wall Street for the past two years. 2008 and 2020.
The way a Reverse Repo works is as follows: The Open Market Trading Desk at the Federal Reserve Bank of New York sells a security (usually a Treasury security) to an approved counterparty with an agreement to repurchase the same security at a specified price at a specified price in time. The future, usually the next day. The difference between the sale and repurchase price, adjusted for the length of time between the sale and purchase, is the implied interest rate.
BlackRock’s Institutional Fed Money Market acknowledges that its return is being supported. He notes in his fact sheet that the unsupported yield will be negative at -0.11 percent. It also reports that 39.74 percent of its portfolio holdings are reverse repo from the Federal Reserve Bank of New York.
BlackRock’s institutional T-Fund is even more curious. Its fact sheet says its 1-day, 7-day, and 30-day return is only 0.01 percent. The fact sheet also shows that 43.96 percent of its portfolio holdings are reverse repo agreements with the New York Federal Reserve and that its “unsupported” yield will be negative 0.12 percent.
Fed Chairman Jerome Powell has a lot of his fortune run by BlackRock while BlackRock gets all these great deals from the Fed definitely worth adding to any thorough investigation of conflicts of interest among Fed officials.
But it’s also worth noting that BlackRock’s money market funds aren’t the only ones whose returns are backed by the Federal Reserve. According to Crane Repo data, as of September 30, the following money market funds were also among the main users of this generous 0.05% Federal Reserve payout on Reverse Repos. (The dollar amounts in parentheses represent the amount each fund held in the New York Fed’s reverse repo as of September 30, 2021.)
Hermes consolidated government commitments ($62.3 billion)
Fidelity Cash Central Fund ($51.5 billion)
Fidelity government cash reserve ($66.5 billion)
Fidelity State Money Market ($74.5 billion)
US government money market JPMorgan ($89.4 billion)
Morgan Stanley Corporate Liquidity Government ($79.8 billion)
Vanguard Federal Money Market Fund ($65.2 billion)
Vanguard Market Liquidity Fund ($53.8 billion)
The Fed was surprising as the reverse repo rate soared overnight to a daily total of over $1.4 trillion From being virtually non-existent a year ago. Crane Repo data indicates that money market funds hold approximately $1.4 trillion in Fed Reverse Repos. (See chart above).
The overarching question is how much is this 0.05 percent Federal Reserve paying to support corporate profits at these billionaire-headed companies?