The sheer scale of BlackRock’s finances makes its influence on the world unlike that of any other company. Now one of its board members in Germany, Friedrich Merz, wants to succeed Chancellor Angela Merkel.Friedrich Merz, Angela Merkel's old political rival, has set his sights on replacing her as head of the Christian Democratic Union (CDU) and potentially the German government. Should he be successful, he would be the first German leader to come directly out of the so-called shadow banking system, whose growing power many believe helped caused the subprime mortgage catastrophe of 2007-2008 and the global recession that followed.
Merz heads the supervisory board of the German branch of BlackRock, the biggest asset management corporation in the world, which controls some $6.3 trillion (€5.56 trillion) in assets — twice Germany's gross domestic product.
Two German researchers, political scientist Peter Grottian and finance expert Werner Rügemer, held a press conference in Berlin on Wednesday to warn against letting Merz take control of the German government, and to complain that the shadow banking system is not being properly explained in the media even with Merz as a frontrunner in the race to replace Merkel. Shadow banks are generally defined as financial institutions that operate like banks but aren't subject to the same regulatory systems.
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Shadow power
According to Grottian and Rügemer, BlackRock is the "biggest organizer of capital in the western world," owning shares in some 18,000 companies, including "all 30 German DAX companies, of course."
The 14-page dossier they presented on Wednesday shows that BlackRock is the global leader in a number of financial operations that specifically aid the super-rich: Shell company organization (it manages more letterbox firms than anyone else in the world), "dark pool" financial markets (unregulated markets where major financial institutions trade securities), and organizing monopolies (such as the takeover of Bayer by Monsanto, completed this year).
Police searched BlackRock's offices in Munich earlier this month as part of an investigation into the "cum-ex" tax evasion scandal, which cost European taxpayers some €55 billion. That investigation is related to the period 2007 to 2011, five years before Merz joined the company, but Rügemer says that "small scandals" like this are only made possible by a lucrative business that BlackRock is heavily involved in: The short-term lending of shares.
"Trading these shares is the business model," said Rügemer. "They are lent to other members in the financial market for a day, for two weeks, or maybe three months, so that these lenders can do more business with them and evade taxes by claiming tax rebates on them they never paid in the first place."
CDU politicians have always maintained a close relationship with Germany's major corporations, but the academics believe that Merz's candidacy for the leadership marks a completely new closeness. "The power of capital in CDU governments was always more or less hidden, and it never aspired to representation in the top political positions," said Rügemer. "But that's different with Merz. The fact that the most highly-paid lobbyist of BlackRock is not just making contact with the chancellery and saying, 'please don't make such tough laws,' but that he himself wants to be CDU leader and chancellor — that's the difference."
Merz presents his successful finance career, developed in his nine-year absence from politics, as an advantage in the CDU leadership race. If the polls can be believed, many party members seem to agree. "Of course they do," said Rügemer, "because they don't know that BlackRock is destroying the economy."
Dark pools and shadow banks
Grottian, meanwhile, called the publicity that Merz's candidacy for the CDU has created an "opportunity," because so much of BlackRock's power derives from the way it works beneath the media radar. "We already see from BlackRock's press releases that all this is getting a little dangerous for them, that they're coming out of the darkness," he said. "They don't want that. This debate really should start now."
"If this had been a traditional locust company that had pounced on rising rents or property developments, we would have noticed," he added. "But this way we don't see it."
Other researchers have previously come to similar conclusions about BlackRock. "There has never been a company like BlackRock before," said Heike Buchter, who published a book on BlackRock in 2015, in a recent interview with the IPG Journal. "No one else has comparable access to companies, governments, regulators, and central banks than BlackRock."
The financial power wielded by BlackRock is well illustrated by the fusion of pharmaceutical giant Bayer and agrochemical company Monsanto, which was approved by the EU earlier this year. BlackRock is a major shareholder in both companies, "and they organized that fusion in the last few years. … And their business model is not about expecting a dividend at the end of the year, but the constant speculation of their shares rising and falling."
The dossier also illustrates how BlackRock's influence on companies extends into policymaking: over the past few years, BlackRock has become heavily invested in companies that have bought up public housing in the past two decades, which is driving up rent prices in all of Germany's cities, while at the same time lobbying to keep rent caps weak. Similarly, BlackRock is a major shareholder in Amazon, which is resisting any deal with trade unions in Germany.
This all chimes in with Merz's career and politics: he has sat on the boards of several major companies in the last few years, including Commerzbank, HSBC, the insurance company AXA, and the German real estate developer IVG. During his career as a Bundestag member he opposed the minimum wage and argued for cutting social benefits and limiting the power of trade unions. His rise to the German chancellery would effectively complete his agenda.
