In the CARES Act, Congress created a number of programs to deal with the economic fallout of the coronavirus pandemic. They haven't gone particularly well, but the next phase of the federal government's plan has an entirely new potential for actual harm.
The Paycheck Protection Program depended on banks to administer the program, which in many cases seemed to route loans to their best, largest customers rather than to the struggling small businesses for which the program was intended. The Small Business Administration has directly administered the Economic Injury Disaster Loan program, and it's gone even worse. Loan advances that were promised within days of application still, in many cases, have not arrived, and it's nearly impossible for applicants to check on the status of their applications.
And of course, there is the enhanced unemployment insurance program, in which many workers are bringing in more income through unemployment than they did through employment. The additional $600 per week that Congress guaranteed unemployed workers is now widely seen as a costly mistake.
But Congress also gave the Federal Reserve $500 billion through the CARES Act, with $454 billion to be used at the Fed's discretion. The Fed is, in turn, trusting some enormous investment firms to carry out this mission—and that's where the potential for more problems emerges.
For instance, the Fed's tapping of BlackRock, a global investment fund, to dispense tens of billions of dollars in bond purchases immediately resulted in a letter of concern signed by seventeen Republican senators.
Why the concern? Because BlackRock has been aggressively leading the charge for "ESG"—environmental and social governance—which essentially translates to pressuring public corporations to adopt the political agenda of a small but influential group of environmental and social justice activists. The senators are justifiably concerned that BlackRock will use these taxpayer dollars the same way it pledges to carry out all of its investment and shareholder decisions—demanding that companies they invest in implement policies related to climate change, social justice, sustainability and other political agendas.
Tasked and funded by the Federal Reserve to buy billions of dollars in corporate bonds, will BlackRock favor companies that adhere to their ESG agenda? Will they refuse to buy corporate debt of fossil fuel companies? Will corporate executives feel pressured to adopt ESG policies in order to curry the favor of Larry Fink, BlackRock's CEO?
BlackRock is not the only large investment firm pushing ESG, but Larry Fink has been among the most outspoken. And there's evidence that Fink's actions have themselves been the result of pressure from activist groups. Frustrated with their lack of success getting their agenda through Congress, increasingly activists have turned to shareholder activism rather than legislation as a way to get their political agenda implemented.
At the tail end of last year, the fund manager received a proposal from two activists groups, demanding it ramp up its activism on climate issues. The proposal was subsequently withdrawn after BlackRock agreed to join the ClimateAction100+ pressure group and committed to a "discussion focusing on 2020 votes on shareholder resolutions in the 2020 proxy season."
In our system of government, policy change is supposed to represent the consent of the governed and be implemented through the legislative branch. Policy change is not supposed to be imposed on the American people by influential Wall Street money managers who use their leverage to pressure the companies in which they invest.
Larry Fink and BlackRock have pledged to do exactly that with their investment. But the American people have not extended their consent of the governed to people like Larry Fink and firms like BlackRock to shape American policy.
In fact, the kind of forced ESG investing championed by BlackRock is contrary to the best interests of the American investors who save for retirement and their children's education through vehicles like IRA, 401(k)s and 529 savings plans. What American investors want from their investments is maximum return—not politicized investing. Asset managers should be meeting their fiduciary duty to investors by seeking maximum return without regard to political agendas. BlackRock doesn't do that.
The job of economic recovery is critical, and the American people are counting on Congress and the Fed to get it done. Having already entrusted the Fed with hundreds of billions of taxpayer dollars to buy up corporate debt, Congress must insist that the debt purchases be made for exclusively economic reasons. And the Federal Reserve must ensure that BlackRock not advance its political agenda using precious taxpayer dollars.