Laurence was 23 years of age when he first started in investment banking. Born in 1952, Larry’s mother was a English teacher while his father owned a shoe store. Holding a bachelors degree in political science and an MBA from UCLA, Larry got his first break at a firm called First Boston, where he was put in charge of the bond department.
His passion for real estate led him towards pioneering the mortgage-backed securities market in the USA. He worked up the corporate ladder, making the investment firm $1 billion in his tenure, and becoming the youngest managing director of First Boston.
But all of that came crashing down within days. The year before 1987 Black Monday, in the second quarter of 1986, Larry took a bet with the interest rates. He thought that with the booming property and cheap loanable funds, that interest rates would go up.
Instead, interest rates dropped further. Losses on his trade were compounding. Within a day, Larry lost $100 million. This all happened at a time when people were speculating that Larry, only in his mid 30’s, was going to become the CEO of First Boston.
And just like that, the hate begins.
Forget about the billion dollars the kid generated for the firm. That’s all in the past. What matters is the present! That is as loyal as Wall Street gets.
Larry promised to learn from his mistakes and to never make risky trades again. But the bosses didn’t care. Colleagues ridiculed him. People insulted him. As soon as the losses took record for the quarterly earnings, the resentment was widespread in the company and outside it. The executives acted as though he didn’t exist.
“You are only as good as your last trade” – Wall St
Larry Fink worked for First Boston for a whole decade, until he was “let go” in 1988. After he was done, First Boston publicly declared that he was fired.
Confidence crashed. Dignity trashed. Self-esteem rock bottom. And reputation worth less than the ground he walked on. Larry was reeling.
Shocked at how Wall Street treated its own people, Larry vowed to never put himself in such position again. He sought out to rectify what brought him to his knees; his poor understanding of risk management. When he started to research his mistakes, he found out how little he and Wall Street in general, understood about risk, and that the basis of what what makes up the system;- governments, pension funds, corporation – all relied on Wall Street to hedge their risk.
In the same year of getting fired, Larry started his own company, with a special department that offered risk management.
Larry borrowed $5 million from Blackstone founders to set up his own group. By 1993, in just five years, Larry grew his assets under management to $20 billion. And after a disagreement with Blackstone founders, he split to form what is officially become independently known as BlackRock. Here’s a small article on what Blackstone does; An Acquisition: How Hilton Survived the GFC
The very mistake that ousted him from the company he started with, set the foundations of BlackRock’s success. The company possesses a risk management power house that runs thousands of computers, running sophisticated software that hypothesizes and generates simulated scenarios in financial positions as prophylactic responses to the slightest change within the economy.
Its risk management is so ahead of its time, that the company was the last man standing during the financial crisis of 2008, unmatched for its shrewd capacity to identify risk. When the crisis hit, BlackRock went shopping, buying up assets from Bear Stearns, AIG, Fannie Mae and Freddie Mac. BlackRock was the leading bailout for Wall Street. And it did all this silently. Check out BlackRocks stock performance here $BLK – MSN.
By 2016, the assets under BlackRock were greater than the GDP of any nation across the globe less China, US and the EU, managing $5 trillion.
Now, in the COVID pandemic, BlackRock made a deal with the Federal Reserve to run a bond purchasing scheme in a bid to help re-stabilize the economy. This is just a fancy way of saying more bailouts are on the way. At the time of writing this, BlackRock is buying up hundreds of billions of dollars of debt from large companies that have been shook by the pandemic. As of now, BlackRock is managing 9 trillion dollars of assets.
What does BlackRock do now?
Everything. From bonds, stocks, real estate, to advising central banks, financial ministries, running pension funds, insurance companies and having large equity in almost every US big tech corporations, US banks, oil and gas conglomerates, including defense contractors. And bailouts.
BlackRock is now too big to fail, and concerns of conflict of interest are being raised, with the company having influence capacity in almost every business it has a stake in. Companies that issue bonds to raise capital, find BlackRock as their buyer who already are a significant shareholder of the company selling the bonds. They are so big and entrenched within the financial system, it has generated its own complexity to the extent that its operations don’t make much sense anymore.
Larry is now one of the most powerful men on the planet.