Wednesday Morning Rant [Joe Mannix]

Last month, a piece of news related to the war in Ukraine largely flew under the RADAR: Ukraine and the US financial system are starting their postwar planning in earnest. The Financial Times (via archive.is) reported that US banking majors and the government of Ukraine are negotiating deals to handle financing for postwar reconstruction activities in that country.

America's largest bank (JP Morgan Chase) and what is perhaps America's most powerful investment house (BlackRock) are working with Ukraine to set up a postwar reconstruction bank to attract and manage investments after the conflict ends. The idea behind this is that low-cost or zero-cost funds can be used to seed the bank, which can then crank up the leverage by attracting private investment capital:

No formal fundraising target has been set but people familiar with the discussions say the fund is seeking to raise low-cost capital from governments, donors and international financial institutions and leverage it to attract between five and 10 times as much private investment.

According to the World Bank, Ukraine will need at least $400 billion to handle postwar reconstruction - a number that is almost certainly an underestimate given that the war is still going on and the deep level of corruption in Ukraine. But to solve the capital problem, BlackRock is sure of the answer:

"So many of today's long-term challenges are best addressed through blended finance and this is one. You need these vehicles to mobilise capital at scale," said BlackRock vice-chair Philipp Hildebrand ...

But don't dare call it profiteering! It isn't, because JPMC and BlackRock are doing this gratis:

BlackRock and JPMorgan are donating their services, although the work will give them an early look at possible investments in the country. ...

But it isn't just about money, of course. Those level-headed, even-handed, trustworthy and honest banking majors will help to overcome investor trepidation about going into business with one of the world's most corrupt governments:

"The notion is that this initial seed capital would be a de-risking mechanism, and it would create the potential for private sector capital to come in at scale" said Brandon Hall, co-head of BlackRock's Financial Markets Advisory arm. "Ukraine will have its own organisation to source and syndicate these local investment opportunities."
...
"Our view is that if you have a strong governance structure and an internationally credible set of stakeholders who are in the leadership position in this fund, then that will go a long way," Hall said.

Call me a cynic if you'd like, but I think that this will probably work well. It will work well in that everyone involved will get stupendously rich while Ukraine builds some substandard infrastructure and flashy but ultimately pointless projects. In the end, Ukraine will be bankrupt and the investors will take major losses, but the ruling powers in Ukrainian government and American finance will skim breathtaking sums for themselves. Kind of like belt-and-road.

All of this, of course, is predicated on military victory. They are assuming that victory is fait accompli and it's only a matter of time. Since victory is assured, it's time to get rich.

posted by Open Blogger at 11:00 AM

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