14Paradox of Paradoxes
— Too Aggressive a Foreign Policy Translates to a Slavish Dependence on Foreign Government Funding
Washington’s era of foreign military adventures has put it into a wall-building mode to keep out the Latin American immigrants on whom it depends increasingly to do the slugging, underpaid work of the land. Yet at the same time it is trying to cope with its deepening financial troubles with the help of foreign government financing ("sovereign funds") of the sort that it had turned down as incompatible with its security interests just two years ago. The Wall Street Journal (25/1, "Lobbyists Smoothed the Way for a Spate of Foreign Deals" by Bob Davis and Dennis K. Berman) recounts a bizarre tale: "Washington – Two years ago Congress pressured the Arab emirate of Dubai to back out of a deal to manage US ports. Today Persian Gulf states, China and Singapore have snapped up $37 billion worth of stakes on Wall St., the bedrock of the American financial system. Lawmakers and the White House are welcoming the cash, and there’s hardly a peep from the public."
Subprime Debt and Accountancy have Created the Need for Foreign Financing of Washington
"This is no accident. The warm reception reflects millions of dollars in lobbying by both overseas governments and their Wall St. targets – aided by Washington veterans of both parties, including Republican big-time fund-raiser Wayne Berman. Also easing the way: the investments have been carefully designed to avoid triggering close US government oversight.
"US banks, deeply weakened by the ongoing credit crisis, clearly need the cash. Meanwhile investment pools funded by foreign governments have trillions to invest. And Washington, though suspicious of foreign governments, deems it suicidal to oppose aid to battered financial companies. ‘What would the average American say if Citigroup is faced with the choice between layoffs of 10,000 or more foreign investments?’ asks NY Democrat Sen. Charles Schumer, who played a central role in killing the Dubai port investment but has applauded the recent version of the same sort of thing?
"But by making investments by foreign governments seem routine, Washington may be ushering in a deep change in the US economy without assessing the longer-term implications. Some economists warn that these stakes could provide autocratic governments with an important say in how the US companies do business, or give them access to sensitive information or technology. People familiar with the government’s review processes say US military officials worry that a foreign government, especially China, may be able to coax an executive into turning over secrets.
"Former Treasury Secretary Lawrence Summers counsels that there should be a very strong presumption in favour of allowing willing buyers to take non-controlling stakes in companies, but it is imaginable that government-related entities investing in the US will be motivated to strengthen their national economies, making political points, reward or punish competitors, or suppliers, or extract know-how.
"Sovereign funds from Russia to the Middle East, meanwhile, are seeking opportunities."
"In nearly every case, US financial companies are escaping detailed US government review by limiting the size of stakes they sell to government invest funds. The Multi-agency Committee on Foreign Investment in the US led by the US Treasury can recommend that the President block foreign acquisitions on national security grounds. Congress can block deals by pressuring companies or passing legislation.
"Under the CFIUS rules a passive stake – one in which investors don’t seek to influence a company’s behaviour – or is presumed not to pose national security problems. Neither is a small voting stake, usually of less than 10%. During the recent string of deals, usually of less than 10%. Financial companies meeting these requirements have not had to go through 30-day initial reviews."
However, you do not have to be a dyed-in-the-wool cynic to take that as a measure of Washington’s desperate financial needs rather than of its civility – especially to small countries. If it stopped building walls to keep out desperate would-be emigrants whose homelands it has contributed to disrupt, it would improve its image. Perhaps the helpful point could be made if all its relationships with other peoples were seen in the light of an advertising or public-relation campaign.
And, of course, it should do something about bringing back to the curricula in its universities the work of generations of good and even great economists who taught us how to work our way out of the Great Depression, finance a world war, and the reconstruction of the world. All that has been jettisoned to produce the execrable standing abroad of the great American nation today. I was about to say "and their bankers," but I bit my tongue. Those bankers, crowned as the Neroes of our age, are at the root of our problem.
"As Wall Street thirsts for fast and huge capital infusions, sovereign wealth funds look like an oasis. These government-financed pools have about $2.8 trillion in assets, which Morgan Stanley estimates could grow to $12 trillion by 2015 as Middle Eastern funds bulk up oil receipts and Asian ones expand from trade surpluses."
Unfortunately, the accountancy, budgeting, banking laws, and the foreign policies seem all focused to avoid their own accumulation of sovereign funds. That is leading to some very rending situations.
– from Economic Reform, February 2008