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$15 Trillion Money-Making Machine | How BlackRock Became Too Powerful to Ignore — Transcript

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0:00Larry Fink, the guy running BlackRock,
0:02>> [music]
0:02>> is really the president of the United
0:04States if we look at the kind of
0:05influence he's got. Wait a minute. These
0:08guys essentially have a monopoly. Well,
0:10how big is BlackRock?
0:13>> Ladies and gentlemen, BlackRock is the
0:15most powerful, and according to US
0:17politicians, the most evil company in
0:19the world.
0:21>> [music]
0:23>> BlackRock, the largest asset manager in
0:25the world.
0:26>> [music]
0:27>> He can get a meeting with any company on
0:30the planet.
0:32>> [music]
0:32>> Jensen Huang built Nvidia from scratch,
0:35and today he owns 3.7% of Nvidia. But
0:38BlackRock, BlackRock owns 8.02%.
0:41Steve Jobs owns less than 1% of Apple,
0:44but BlackRock owns 7.97% of Apple. Bill
0:47Gates owns 1.34% of Microsoft, but
0:50BlackRock owns 8.18% of Microsoft. And
0:53just like this, the big three, which
0:54includes BlackRock, State Street, and
0:57Vanguard, they own a huge stake in
0:59almost every S&P 500 company. And
1:02BlackRock alone controls over 15
1:04trillion dollars in assets. Do you
1:06realize how much 15 trillion dollars is?
1:08>> [music]
1:09>> It is more than the GDP of India, Japan,
1:11and France combined. And BlackRock is a
1:13company that never made a chip. They
1:15never made a phone. They have no
1:17factory, and they've never made a
1:18physical product in their existence. But
1:21even then, a failed banker somehow
1:23turned it into the most powerful company
1:25on Earth. So powerful that the US
1:27government itself is now afraid of
1:29BlackRock.
1:30>> BlackRock is an extremely dangerous
1:33company. [music]
1:33>> What Larry Fink and BlackRock have done,
1:35they are trying to suppress investment
1:37in the fossil fuel industry in America.
1:41>> The question is, how did a company that
1:43make nothing end up owning everything?
1:45Why is the US government itself afraid
1:47of a failed banker's idea? And what does
1:49it teach us about the dirty secret of
1:51American capitalism? But before we get
1:53into that story, I have something very
1:54important to tell you. Just like
1:55BlackRock, even you can own a piece of
1:57Nvidia, Apple, Google, Meta, and even
1:59BlackRock itself, sitting right here in
2:01India. And here's why every Indian
2:02investor needs to hear this. In 2010, $1
2:05cost you 45 rupees. Today, it's over 90.
2:07So, even when your Indian portfolio is
2:09doing well in rupees, your global
2:10purchasing power is silently leaking
2:12every single year. And it's not just
2:14currency. The US and Indian markets move
2:16on completely different cycles. Some
2:18years India wins, some years US wins.
2:20So, betting your entire portfolio on
2:22just one economy is a risk that most
2:24people don't even realize they're
2:25taking. This is where Vested comes in to
2:27help you. It lets you invest in Nvidia,
2:29Apple, Google, Microsoft, Meta, and
2:31BlackRock, which are companies that
2:32aren't even listed in India. So, if you
2:34want to be a part of their growth
2:35journey, Vested is one of the simplest
2:37ways to do it from India. And starting
2:39with Vested is super easy. Your KYC
2:41happens right inside the Vested app via
2:43DigiLocker, and that too in just a few
2:45minutes. NRIs can open accounts, too,
2:47and not just resident Indians. The best
2:49part is you don't even need a US bank
2:51account. Your money moves through bank
2:52integrations straight from your existing
2:54Indian account. Once you're in, you can
2:56access to 10,000 plus US stocks and
2:57ETFs, fractional investing starting at
2:59just $1, and India-compliant tax reports
3:02built in for effortless filing. And if
3:04picking individual stocks isn't your
3:05thing, Vested also offers curated
3:07managed portfolios built by experts,
3:09where you can access themes like AI,
3:11semiconductor, blockchain, genomics, and
3:13more. You also get access to global
3:15funds that give you diversified exposure
3:17across sectors and geographies, managed
3:19by the world's top fund managers like
3:21BlackRock, Goldman Sachs, Vanguard,
3:23Fidelity, and more. So, if you want to
3:25diversify beyond India using a safe and
3:27regulated platform, check out Vested
3:29from the link in the description.
3:36This is a story that dates back to
3:371980s. During this time, a banker named
3:39Larry Fink was known as the king of Wall
3:41Street because he designed a
3:42money-printing machine. Now, look how
3:44bankers make money from thin air. Larry
3:47Fink saw that the banks had a unique
3:49problem.
3:49>> [music]
3:50>> After lending 100 million dollars in
3:51home loans, they had to wait for 30
3:53years to get the money back. So, he used
3:55an instrument called collateralized
3:57mortgage obligations. [music] Let me
3:58explain how it works and you will know
4:00how the Wall Street bankers make
4:01millions of dollars.
4:03>> [music]
4:03>> Let's say there is a stack of 30-year
4:05home loans paying 9% interest on a
4:07principal of $100 million collectively.
4:10[music] Now, as a Wall Street packager,
4:12we can split these $100 million into 100
4:14units so that [music]
4:16if a buyer buys one unit of this bond
4:18for $1 million,
4:19when the family pays their EMI to the
4:21bank, the buyer can get 9% interest or
4:24[music] $90,000 in their first year and
4:27they keep getting the principal amount
4:29as [music] the families keep paying
4:30their EMIs. So, it's a bond, but its
4:33underlying asset is a home loan. So,
4:35this pool collectively generates $9
4:37million of interest in year one plus
4:39principal as the family repays the loan.
4:42But, the problem with home loans is that
4:44[music] nobody knows when the principal
4:45comes back because sometimes people
4:47might default on home loans. And [music]
4:49this is where Larry Fink designed a
4:51genius strategy. He cut this asset into
4:53three parts. So, instead of selling
4:55everyone an equal slice of the loans,
4:58>> [music]
4:58>> he sold three bonds with a payment
5:00queue. For example, bond A has a size of
5:02$50 million,
5:04but only paid 6% interest. Bond B had a
5:07size of $30 million
5:09and paid 7% interest. And lastly, bond C
5:12had a size of $20 million paying 8%
5:15interest.
5:16>> [music]
5:16>> So, now every time a homeowner pays
5:18their principal, the money first goes to
5:21bond A. That is why [music] they are the
5:23safest. As a result, they also get the
5:25lowest interest. After bond A is fully
5:28paid for, the money goes to bond B and
5:31then it goes to bond C. [music] So, if
5:33you look at this arrangement, bond C
5:34holders take the maximum risk because if
5:37anybody defaults, they are the first
5:39ones to lose money. As a result, they
5:41also get the highest interest rate in
5:43the queue, which is 8%. So, if you do
5:45the math at $100 million,
5:47bonds A, B, and C together earn $6.7
5:51million in interest. Whereas, if you
5:54remember the math of homeowners, [music]
5:55they are paying $9 million in interest.
5:58So, this remaining $2 million was Fink's
6:00pure profit. So, yeah, that's [music]
6:02how bankers in Wall Street make millions
6:04of dollars by just restructuring math
6:06without making a single physical
6:08product. And that is why this money
6:10[music] was a money printing machine.
6:13But, you know what? Ironically, this is
6:15also the thing that killed Larry Fink's
6:17reputation. Now, most people think the
6:19risk is when the home loans aren't paid.
6:21But, the problem with this instrument
6:22was the complete opposite. People
6:24actually paid their home loans so early
6:26that the [music] interest completely
6:28vanished. In simple words, let's say a
6:30family called Millers borrowed $200,000
6:33at 9% interest for 30 years. Their EMI
6:36comes out to be $1,609
6:38a month. Now, Fink's pool bought this
6:41loan and now collects [music] $1,609
6:44every month from the Millers. But, a
6:46year later, there's another bank around
6:48the corner that starts offering fresh
6:50loans at just 7% interest. So, what will
6:53the Millers do? The Millers will take a
6:55new loan of $198,634 [music]
6:58at
7:01go to the old bank, and pay off the old
7:03loan in full and walk out so that
7:06>> [music]
7:06>> they can now start paying their EMI at
7:087% interest.
7:10So, do you realize what just happened?
7:12The 9% interest stream that was supposed
7:14to run for 30 years completely vanished.
7:17That is how Fink lost $100 million and
7:19eventually got fired. This is when he
7:21realized the importance of risk
7:23prediction. And he saw
7:24>> [music]
7:24>> that every other trader in Wall Street
7:26is making the same mistake. When the
7:28Latin American debt crisis broke out in
7:30the 1980s, bankers lost money. When the
7:32dot-com bubble happened, investors lost
7:34money. When the 2008 crisis happened,
7:37bankers lost everything. And strangely,
7:39no economist, no analyst, or no banker
7:42could [music] ever predict a crash. In
7:44fact, even the closure of the Strait of
7:46Hormuz shook up the market and caused
7:48the bankers trillions of dollars. So, he
7:51sat down to understand, why do Wall
7:53Street's smartest traders make such a
7:55stupid mistake?
7:56>> [music]
7:56>> And he found the answer in 1988. So, in
7:581988, Fink and seven partners started a
8:01company inside Blackstone Group's office
8:03in New York and called it Blackstone
8:05Financial Management, later to be
8:07renamed as BlackRock.
8:10And they built a magical risk machine in
8:12BlackRock. You know what they did? They
8:15kept on collecting as much data as they
8:17possibly can and as [music] many
8:19variables as they possibly can. This
8:21included something as simple as an oil
8:23crash all the way to wars and even
8:26tsunamis. And they ran a program to
8:28understand how each of these disasters
8:30will affect bonds, loans, credit
8:32histories, interest rates, and millions
8:34of market data points.
8:36This software is even today known as one
8:38of the greatest softwares ever built by
8:40mankind. And this software, funnily, is
8:42called Aladdin.
8:46>> Massive computerized [music]
8:47system called Aladdin.
8:49>> I still believe there there is no one no
8:51other organization can do what Aladdin
8:53does today.
8:55>> It becomes the brain and beating heart
8:58of Larry's new empire.
9:03>> [music]
9:03>> In simple words, Aladdin is like ChatGPT
9:06but for market predictions. So, if you
9:08ask the software, what happens to your
9:09portfolio if the interest rates rise,
9:11what happens [music] to your portfolio
9:12if oil price collapses, or what happens
9:15to the portfolio if the borrowers stop
9:16paying, it will give you the most
9:18accurate information possible so that
9:20you can make your bets accordingly. And
9:23guess what? All they needed to gain
9:25relevance and trust in the market was a
9:27goddamn recession. And you know what?
9:30God actually gifted them a recession in
9:322008.
9:36>> 2008 was a tumultuous year for the
9:38economy.
9:39>> It was the worst day on Wall Street
9:41[music] since the crash of 1987.
9:46>> The biggest banks on earth were dying
9:47because of the exact same family of
9:49instruments that Fink pioneered, which
9:51was mortgage-backed securities.
9:54These mortgage-backed securities were
9:55sliced into bonds just like bond A, B,
9:58and C. And in 2008, homeowners stopped
10:01paying EMI and all these bonds started
10:03failing. Now, look at the problem
10:05statement. If you remember, a bank
10:07basically collates
10:08>> [music]
10:08>> 5,000 home loans together into a hundred
10:11million-dollar bond. And then, they sell
10:13it to the investors in three [music]
10:14tiers: bond A, B, and C. But the problem
10:17was the banks had no idea which of those
10:20[music] 5,000 home loans were actually
10:22risky. Yes, the banks had no idea which
10:25of those people will default. Why?
10:27[music] Because home prices were
10:28crashing, the stock market was crashing,
10:30companies were going bankrupt, people
10:32were losing jobs, and borrowers were
10:34actually walking away from their own
10:36homes. So, how could they predict who
10:38would pay the home loan and who
10:40wouldn't?
10:41And this is where Fink's Aladdin became
10:43a magical tool for the American economy.
10:46You remember what I told you about it?
10:47It can tell you what will happen if a
10:49recession happens like ChatGPT can tell
10:51you about today's news. Because Aladdin
10:53had 20 years of context data and
10:56variables. So, guess what? The American
10:58government itself called BlackRock to
11:00fix this loan crisis so that they could
11:02identify which loans are bad loans and
11:04which loans need to be written off.
11:06And when BlackRock solved this problem
11:08for the government of America, it went
11:10from one trillion dollars in assets
11:11under management to three trillion
11:13dollars in assets under management. That
11:15is how BlackRock won the trust of
11:17America. And this is where Fink's team
11:19built one of the most powerful financial
11:21machines in human history. You know what
11:23they [music] did? They bought a company
11:25called iShares and got their hands on a
11:27financial instrument called ETFs.
11:28[music]
11:29ETF stands for exchange-traded funds.
11:32I'll explain what ETF is and how it
11:33works, but as of now, look at what Larry
11:35Fink spotted. For decades in America and
11:38in India, the middle class plan was
11:41absolutely simple. You hand your money
11:43to a fund manager in a mutual fund. She
11:45picks the winners. You pay her a 1.5%
11:47fee whether she wins or she loses. So,
11:50if you start with $11,000 at a 2% fee,
11:52that's $220 in year one. But over 30
11:55years, as your corpus grows to $174,494
11:59at a 2% fee, you have already paid
12:02$79,310.
12:04Now, although 2% looks very little,
12:06there was just one problem. Most of the
12:08time, the comparison for a fund's
12:10performance is done with S&P 500. But
12:13the problem is, if the S&P 500 gives you
12:15a 10% return and your fund manager gives
12:17you a 15% return, he'll be considered an
12:19absolute genius. But if he gave you a
12:229.5% return, he'll be considered a
12:25complete failure.
12:27And the fun fact is, over 15 years,
12:29almost 90% of American fund managers
12:32failed to beat the S&P 500. So, a bunch
12:35of investors said, "If S&P 500 is the
12:38benchmark, why not just copy the S&P
12:41500?" That is how the concept of index
12:45fund or later called ETF was born.
12:48Now, here's how ETF actually works. You
12:50see, the S&P 500 is basically the list
12:52of 500 of the largest publicly traded
12:55companies in the United States. So,
12:56let's say today that list starts like
12:58this: Nvidia 7.29%, Apple 6.55%, and so
13:02on and so forth. Now, the fund
13:04completely copies this list. So, if you
13:06hand the ETF $10,000, there is no
13:08meeting and nobody reads a balance
13:10sheet. A simple program divides your
13:12money by those exact percentage points.
13:15So, $729 will go to Nvidia, $655 will go
13:18to Apple, and so on and so forth.
13:20Eventually, you will own a piece of all
13:22500 companies in the exact [music]
13:24proportion as the index says. So, now,
13:27if the S&P 500 goes up by 5%, your
13:29portfolio also goes up by 5% and you're
13:31very happy because you've practically
13:33done what 90% of the fund managers fail
13:35to do. But, if the S&P 500 goes down by
13:3810%, you're completely okay with it
13:41because the entire market is anyways
13:42down.
13:43Now, the game-changing thing about ETFs
13:45is that you're not paying for the
13:46brilliance of a fund manager. You are
13:48simply paying a program to blindly
13:50shuffle your money in a pattern, which
13:53is why while the active funds charge you
13:551.5% fee, the index ETF only charge you
13:590.03%. [music]
14:01At $10,000, the difference is $150 and
14:05$3. At a million dollars, that
14:08difference is [music] $15,000
14:10versus $300.
14:13That is how ETFs work. And this is what
14:16Larry Fink bet on way before anybody
14:18else at his skill. And after 2008, he
14:21already had the trust of America. So,
14:23you know what he did? In 2008, he bought
14:25iShares, the biggest ETF business on the
14:27planet. America fell in love with ETFs
14:29and as Americans invested in BlackRock's
14:31ETFs, BlackRock got $6 trillion in ETFs
14:35and $15 trillion in total assets [music]
14:38under management. So, do you realize
14:40BlackRock has $6 trillion
14:42with a 0.03% commission running on
14:45autopilot. That is how BlackRock became
14:48a money-making machine. And every dollar
14:51invested in their S&P 500 bought them a
14:54stake in Nvidia, Apple, Microsoft, and
14:57497 [music]
14:58of the most powerful companies on Earth.
15:01That is how BlackRock today owns 8.18%
15:04of Microsoft, 8.02% of Nvidia, 6.69%
15:07[music]
15:08of Google, and 7.75% of Coca-Cola, and
15:12so on and so [music] forth. This is the
15:13magic of ETFs that got them enormous
15:15stake in the Fortune 500 companies. So,
15:18now the question over here is the story
15:19so far seems pretty good. A failed
15:21banker found a gap in the market, built
15:23a trillion-dollar company, became a
15:24billionaire, end of story. [music]
15:27Then the question is, why is BlackRock
15:29being called evil, and why are the
15:31American politicians so [music]
15:32concerned about BlackRock? Well, as it
15:34turns out, BlackRock isn't alone. There
15:36are two more companies called Vanguard
15:38and State Street. Together, these three
15:40companies roughly control 72% of every
15:44equity ETF dollar in America. In fact,
15:47[music] Cambridge researchers found that
15:49they're the single largest shareholder
15:50in 438 of America's 500 [music]
15:54biggest companies. I repeat, they're the
15:56largest shareholders in 438 of America's
16:00500 biggest companies.
16:01>> [music]
16:01>> And as such large shareholders, they
16:03also get voting rights, and with voting
16:05rights comes the extraordinary power to
16:07bend the markets for profits. Now,
16:09listen [music] to this. On 27th of
16:11November, 2024, the Attorney General of
16:14Texas and [music] 10 other states sued
16:16all three companies for a strange case.
16:18These three firms held massive stakes in
16:20seven of America's nine major coal
16:22producers. This included 30% in Peabody
16:24Energy and 34% in Arch Resources. These
16:27are the two biggest coal producers
16:29[music] in America. On top of that, they
16:31owned big stakes in the power companies
16:33that burn that coal. They have 24% of
16:35Duke Energy, 26% of Vistra, and 24% of
16:38American Electric Power. And lastly,
16:40amongst the big tech companies that end
16:42up buying all this energy, they own
16:44major stakes in Microsoft and Amazon.
16:46So, if you see, they have the stakes in
16:47the miners,
16:48>> [music]
16:48>> burners, and the buyers at the same
16:51time. And here's where the dots connect.
16:52Between 2020 and 2021, all three joined
16:55the same climate clubs, Net [music] Zero
16:57Asset Managers, with BlackRock and State
16:59Street also signing on to Climate Action
17:00100+, and according to the lawsuit, they
17:03used those [music] clubs to signal a
17:05shared commitment. And this commitment
17:07was to cut coal output by more than 50%
17:10by 2030. So, you know what happened?
17:12Coal output from these companies fell by
17:1419%. Coal prices
17:16>> [music]
17:16>> rose by 25% and when coal got expensive
17:20electricity got expensive and ordinary
17:22Americans had to pay more for using the
17:24same electricity. This is the reason why
17:26the Attorney General's complaint says
17:28that these companies constricted supply
17:30and enabled the investment companies to
17:32produce extraordinary revenue gains. Now
17:34the trial is still ongoing [music] but
17:36Vanguard has already settled for a 29.5
17:38million dollars and even though the
17:40final verdict isn't out yet, think about
17:42how much power these three companies
17:44have on the American economy. So do you
17:46realize if this kind of power gets
17:47concentrated in just two to three
17:49companies, they can practically
17:50manipulate any economy. For example, if
17:53the same thing happened in the Indian
17:54pharma industry, these companies can
17:56prevent drug prices from dropping,
17:58insurance bills from dropping and health
18:00care will become a disaster for the
18:01common man. The same could be the case
18:03with education where they can push banks
18:05to push student loans and universities
18:07to hike up prices. By the way, health
18:09care and college education are already a
18:11disaster for the common man in terms of
18:13affordability in the United States of
18:15America. And this is where capitalism
18:16becomes dangerous. Now there are many
18:18such stories but these are all
18:19borderline conspiracy theories so I'm
18:21not going to get into it but if you take
18:23a step back and think about the progress
18:25of economy and correlate that directly
18:27with the progress of civilization,
18:30you will realize something strange about
18:31capitalism.
18:32In a capitalist economy, a cyclist is
18:35bad for the economy and a sick person is
18:37great for the economy. Why? Because a
18:39cyclist needs no car, no service
18:40centers, no medicine, needs no doctors,
18:43no surgeries, no tests and he will also
18:45consume very less fuel and take less
18:47debt. But a sick person, a sick person
18:50spends money on medicine, doctors,
18:52insurance, surgeries, fuel and loans.
18:55So a sick person is great for the
18:57economy and a cyclist is bad for the
18:59economy.
19:00This is when you have to ask yourself,
19:02what exactly are you building the
19:03economy for? Would you rather have a
19:05healthy economy with sick people or a
19:07modest economy with healthy people? And
19:09when we learn to draw that line as a
19:11society, we will draw that line between
19:13conscious capitalism and evil
19:15capitalism. Because if you just bucket
19:17both of them as capitalism, we will
19:19never know when we'll cross that line,
19:20and life will become very very difficult
19:23for common man. So, the economy will be
19:25progressing, but the life of a common
19:27man will be absolutely disastrous. In
19:30the US, in some cases, that is already
19:32the case, and I just hope this does not
19:34happen in India. This is the dark truth
19:37of capitalism that we all need to learn
19:40and ensure that our country never gets
19:42into. That's all for my side today,
19:44guys. If you learned something valuable,
19:45please make sure to hit the like button
19:47to support our work. And for more such
19:49insightful political and business case
19:50studies, please subscribe to our
19:52channel. Thank you so much for watching.
19:53I will see you in the next one. Bye-bye.
20:02>> [music]

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