Most Canadians have never heard of Larry Fink. An American, he is the biggest money manager in the world. His firm, BlackRock, has over $4 trillion it directs on behalf of clients.
Fink is famous in the financial world. For one thing, he was a key figure in the development of mortgage-backed securities, sometimes called CDOs or collateralized debt obligations.
These were the instruments that in 2007 all of a sudden no one wanted to buy, so no one could sell. Portfolios full of worthless CDOs led to a break down in the world financial system, creating the crash of 2007-08, which was followed by the great recession.
You will have noticed it is still with us in the form of stagnating Western economies.
Would you be surprised to learn that Larry Fink has been given a lead role in financing the Liberal government’s public infrastructure program?
The main promise of the successful 2015 Trudeau election campaign was to invest in Canada’s future by borrowing money today to build needed infrastructure for the long term. Two consecutive years of $10 billion in new spending was promised.
Borrowing to spend on public infrastructure makes great sense. Lots of financial institutions need government bonds for their portfolios. Demand is so strong, the interest rates governments have to pay are at record lows.
Cheap money coupled with pressing needs for rapid transit, hospitals, recreational and cultural facilities, and to “green” public building made the Trudeau promise a winner, and not just electorally.
With 2017 coming up, the infrastructure program still awaits unveiling.
On Monday afternoon, Fink convened a Toronto meeting for Trudeau and his key ministers with a large conclave of big money managers. It was at the Shangri-La Hotel, fittingly, since Shangri-La signifies “a remote beautiful imaginary place where life approaches perfection: utopia.”
It is clear that world private finance attended because they expect to make lots of money from the Trudeau government’s pledge to renew Canada’s aging and inadequate built environment of public facilities.
Fink hired the former head of the Canada Pension Fund Investment Board Mark Wiseman to be a lead director of BlackRock. The Trudeau government named Dominic Barton to head its potent Economic Advisory Council. In 2014 Wiseman and Barton co-authored an article in the Harvard Business Review calling for pooling of big money and investment in long-term projects. Public infrastructure figured in this scenario.
Making what have been considered “illiquid assets” (because not for sale on the market) into attractive investment ventures for pension funds, sovereign wealth funds, mutual funds and other financial vehicles was what Wiseman and Barton were promoting in print. Now they get to do it in person with the Liberals.
The Economic Advisory Council headed by Barton recently recommended the Trudeau government establish a Canadian Infrastructure Bank. In his Fall Economic Update, Finance Minister Morneau supported the idea.
The Toronto meeting this week is part of the process of giving private finance a role in owning and operating Canadian public infrastructure.
Public-private partnerships (P3) projects have been widely promoted around the world, including in Canada. The Canadian Infrastructure Bank is the chosen vehicle for making this happen on an even bigger scale.
David Macdonald of the CCPA has pointed out it will cost about $6 billion more for the Trudeau government to convert $20 billion in public infrastructure plans into privately operated-and-owned P3 projects.
Writing in The Globe and Mail, Andrew Jackson questioned the need for a Canadian Infrastructure Bank dedicated to leveraging private finance into dominant positions within the public sector.
Economist Michal Rozworski has explained how P3 projects work: a “combination of higher user fees, subsidies or cuts elsewhere to make up for these guaranteed profits to private investors.”
How is the Canadian public interest served by bringing in private financiers to make money operating and owning what rightfully belongs to Canadian citizens?
Duncan Cameron is former president of rabble.ca and writes a weekly column on politics and current affairs.
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