Larry Fink, the BlackRock CEO who has found himself playing a central role in our recent financial tumult time and again, gave a speech today at a conference put on by NYU’s Schack Institute of Real Estate. It was a pretty good speech, so even though I’m getting around to it late in the day, I thought I’d put up a greatest hits version of what he said. Namely:
•We are starting to see some stability in financial markets. The $9 trillion being committed by central banks around the world has, in fact, had something of a calming effect. In September, BlackRock saw a $55 billion run on its money markets (even with no credit issues), but now that money is coming back in.
•The way to fix the housing crisis is to roll out a program similar to the one we had for servicemen returning from the second World War. The rough idea is that the feds put up $30 billion to $50 billion a year in subsidies for the next few years to lower interest rates by 4 to 4.5 percentage points on new mortgages and refinances. (Fink is hardly the first person to make the argument that the quickest way to stabilize home prices is to gin up demand. His belief that modifying loans one by one is too slow to help may or may not be related to BlackRock’s adventures in subprime mortgage CDOs.)
•Overall, it’s a really good thing governments have stepped in like they have. About 80% of the time, capitalism doesn’t need protection from the government. But then there are the tails of the distribution—both on the upside and on the down. We’re now in one of those tails. Letting Lehman go, though… no one at the time understood what a big mistake that would be.
•One of the things we’ll have to do to get the economy back on track is an FDR-style stimulus package in terms of job creation.
•The equity markets will rally between now and the end of the year. We’re seeing a huge re-allocation from bonds to equities, partly because declines in stock prices have made institutional investors like pension funds underweight in equities. We might get back to where the market was on October 30. But not where it was on September 30.
•Foreign investors are really angry about all those crappy assets we sold them. We’re going to have a lot of Treasuries to sell, so we better hope they get over their anger. BlackRock trading partners in Saudi Arabia, Singapore and Kuwait called when Barack Obama was elected president to say they were really proud of what America did on Election Day, that it made them believe America is, in fact, the place they always thought it was. This sentiment will make it easier for us to sell them our debt.
•Why the SEC has not yet reinstated the uptick rule is a true mystery.
UPDATE: A number of people have either commented or e-mailed about this post, wanting to know more. It looks like I might be able to send you a link to Fink’s full speech early next week. But that’s not for sure yet—I’ll keep you in the loop.