BlackRock, Inc. (NYSE:BLK) is the world’s largest asset manager, with UBS AG (NYSE:UBS) in second place reporting $2.28 trillion in AUM. BlackRock is far ahead of the pack, but is there a limit on how big a firm should get, and, if so, has BlackRock reached it?
Back in the early days of the financial crisis, “too big to fail” was often said without irony. In the wake of the Lehmann Brothers collapse, it was believed that another shock to the system could cause a major worldwide depression. While it appears that global economy has doubled-dipped, the threat of a second big firm going out of business could have created even bigger problems in the global economy.
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The same logic was used more recently to justify the fine levied on HSBC Holdings plc (LON:HSBA) (NYSE:HBC) after it was charged with laundering money for terrorists, drug dealers, Iran and Libya, among others. Nobody at the company is going to be tried criminally, despite the blatantly criminal nature of their acts.
But what about BlackRock? The company is bigger than any other, if it began to act recklessly, very bad things could happen to the world economy. If a firm can be so big that it would be impossible to allow it to fail, should there be a legal limit on the size a firm can be, to avoid such a situation from occurring?
It’s clear to everyone that the punishment levied on HSBC plc (NYSE:HSBC) was wrong. The precedent set in 2008 was that no matter how poorly you perform economically you can’t be held responsible. The precedent we’re setting now is that no matter which laws you break, laundering money for Iran and Libya has to be tantamount to treason, if you’re important enough you can’t be held responsible.
With this in mind, let’s get a little outlandish, assume that BlackRock, Inc. (NYSE:BLK) can do whatever it wants, and look at some of the things that the firm could do with $4 trillion if it cashed out (all hypothetical).
1, Pay Off A Big Chunk Of The Debt: Total public debt in the US is around $11 trillion as of January. BlackRock Inc. (NYSE:BLK) could pay off a massive chunk of this if it saw fit. Americans, including President Obama and House Speaker John Boehner, would rest easier at night if the debt fell by35% overnight.
2, Buy Apple, and Google, and Microsoft, and Yahoo: And so many more, Apple Inc. (NASDAQ:AAPL) is the world’s most valuable company. It’s current market cap is around $470 billion, Google Inc (NASDAQ:GOOG) is worth more like $230 billion. If BlackRock, Inc. (NYSE:BLK) wished, it could purchase pretty much the entire tech industry, assuming an instantaneous trade with no demand squeezed price hikes.
3, Pay Off Half Of All Mortgages: Total Mortgage Debt in the United States was around $8 billion at the end of the third quarter of 2012. BlackRock could pay half of that, buying houses for a huge amount of Americans.
4, $13,333 For Each American or $571 for Each Human:$4 trillion dollars isn’t actually that much when spread across major populations. If BlackRock, Inc. (NYSE:BLK) were hijacked by the ghost of Che Guevara tomorrow each human would only get $570, a huge amount in Guinea Bissau, but not much in New York City.
5, Paper Over Rhode Island 10 times: If printed into $4 trillion dollar bills, the devastating inflationary effect of the injection would devalue the currency to such a degree that the only logical use of the bills would be to bury Rhode Island in ten layers of $1 dollar bills, hopefully bringing in some tourist traffic.