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King of Wall Street — Guest post by Rainer Hank

BlackRock founder Larry Fink revolutionized the financial industry. His career shows that success cannot be planned — but that particular ingredients make success a lot more likely.

The man wears boring suits and rimless glasses that no sensible optician would recommend. He is neither particularly original nor particularly inspiring. From the looks, you would not guess that his firm manages more than 10 trillion dollars in assets – more than twice as much as the entire hedge fund sector. Understatement is part of his self-marketing. It serves as camouflage for his power.

Laurence “Larry” Fink is his name. His company is called BlackRock and it is the world’s largest asset manager. His firm invests money on behalf of pensioners, oligarchs, and students, for sovereign wealth funds and for small savers alike. In Germany, BlackRock became known outside the financial industry when the CDU politician Friedrich Merz worked as a lobbyist for Fink. That job may have cost Merz the succession of Angela Merkel.

Fink is a revolutionary. It is thanks to him and his industry that investing in equities has become attractive for a broad swath of the population. I know that from experience. Investing in stocks was an expensive hobby for Germans for decades. For years, my bank sold me complicated funds, which ensured the bank employees’ employment and wages, but I left the table rather empty-handed.

Fink’s team: you can’t do it without some toughness

Fink and his colleagues do not claim to beat the market with ingenious ideas. Fink’s product is as boring as his looks: most of the dollars invested in their funds track stock market indices such as the S&P500, the DAX, or the EuroStoxx. And not even this idea comes from Fink himself. It goes back to the economist Eugene Fama and his theory of “efficient markets,” according to which even the smartest person can’t beat the market.

When former Federal Reserve Chairman Paul Volcker scoffed in 2008 that the only recent innovation of significance in the financial industry was the invention of the ATM, he must have overlooked index funds and ETFs. Index funds originated in the 1970s but did not make their breakthrough until after the turn of the millennium. Contrary to what many people think, capitalism is not there for the capitalists, but for the poor, whom it can make rich. Index funds illustrate the point. With a savings plan of 100 euros per month, a fortune of almost 100,000 euros could be built up over the past thirty years.

Given the number of movies about Wall Street heroes and villains, it is surprising that the life of Larry Fink hasn’t long since been made into one. Now there is at least a partial biography of Fink in a forthcoming book by Financial Times journalist Robin Wigglesworth (“Trillions. How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever”). Fink’s life proves that success can’t be planned. But that a few things make success easier, maybe even more likely. One is: failure can be a blessing. Another is: loyal friends are key. Another: the right moment has to be seized. In particular, financial crises are opportunities to get rich. And: You can’t succeed without being tough on yourself and others.

Responsible for a loss of one hundred million dollars

Fink grew up near Los Angeles. His father had a shoe store (the success story of the children of shoe salesmen is yet to be written), his mother was an English teacher. He studied political science; he was hardly interested in economics. Because he was interested in money, however, he applied to Wall Street, but was rejected by Goldman Sachs. “A blessing for me,” he told Robin Wigglesworth. Instead, he started his career in 1976 in the bond business of the investment bank First Boston, where he quickly became a star. It was there that he met Robert Kapito, who remains his right-hand man to this day. Kapito is the man for the rough parts, Fink is the smooth talker.

Ten years later, in 1986, Fink was responsible for a one-hundred-million-dollar loss at First Boston, due to his failure to hedge the sudden plunge in interest rates. The former candidate for the CEO post became a pariah instead. He forestalled his oustingS by resigning. The defeat spurred his ambition: He found a generous financier in Stephen Schwarzman, owner of the private equity firm Blackstone, with whom he later fell out. He christened his own company BlackRock because of Blackstone’s good reputation (and is thus responsible for me confusing the two companies for a while). Then, in the middle of the 2009 financial crisis, Fink and his close friend Kapito were able to buy out cash-strapped Barclays Bank’s ETF division, iShares. From that point on, the business with “passive” index funds developed into a sure-fire success. By mid-2021, BlackRock’s iShares division alone had $3 trillion in assets under management.

A case for the antitrust authorities!

The Hollywood narrative demands that the hero’s rise is followed by a deep fall. There is no sign of that yet. There are estimates that index funds will soon hold half the shares of the 500 most important American companies. A concentration of economic power that is possibly more dangerous than the more frequently discussed power of Google, Amazon, or Facebook. Paradoxically, BlackRock’s danger may lie precisely in its passivity. If, roughly speaking, both “my” company and my competitor’s shares are owned by Fink, the drive to compete aggressively is lacking. It’s enough to get in good with Fink.

A case for the antitrust authorities! A few years ago, a Wall Street banker warned of “secret socialism”: a completely passive economy is worse than a centrally planned economy, because it overrides entrepreneurial initiative and the desire to take risks, so the argument went. Will total capitalism ultimately be overturned? Dialecticians from the school of Hegel and Marx would be delighted.

Yoga for economists, Part 1: why thinking like an economist causes unhappiness

Sounds like a stretch? Hear me out.

We face a global mental health crisis. Economists, even those studying happiness and well-being, are far from contributing solutions. Perhaps the field is too young to expect that? I think it’s worse. A look back at the thousands of years of study of human well-being in the Eastern traditions suggests that we economists may be causing a chunk of the problem by the way we think – and the way we confidently teach generations of students is “the right way” to think, not only about economics but about our private lives as well.

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The U.S. FTC is targeting common ownership – or is it?

The U.S. competition agencies issued a Notice of Proposed Rulemaking (NPRM) that advises of proposed updates to the Hart-Scott-Rodino (HSR) notification rules. Bloomberg celebrated this news as an indication that the FTC is about to scrutinize common-ownership positions of index funds, which have aroused antitrust concerns in recent years.[1] Insiders from the agency also suggested I should view the NPRM as a success of the common ownership research agenda to date. After reviewing the proposed rules, I am a bit more cautious in my optimism than previous commentators about the rule change, and indeed worried about particular aspects of it. In this post, I explain why.

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Caesar Augustus and Europe’s Refusal to Understand the Big Data Economy

“In those days Caesar Augustus issued a decree that a census should be taken of the entire Roman world. This was the first census that took place while Quirinius was governor of Syria. And everyone went to their own town to register.”

It’s hard to fathom the incredible costs this first census imposed on the administration, and on the population. By stark contrast, collecting data today is so cheap that we do it without noticing.

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