12 January 2008

Welcome China's Money

In November I wrote an entry in this blog about sovereign funds, in connection with what I saw as an amusing editorial lapse on the part of The New York Times.

Click here.

As a refresher: these are what the name suggests: pools of capital amassed by governments in countries where revenue exceeds government operating expenses, generally managed by a quasi-public authority.

The issue underlying that little chuckle at the Times expense, though, wasn't all that compelling to my mind. It took a while for that to change.

Later in November, the Senate Banking Committee held a hearing on the subject, "assessing the economic and national security implications" of such funds and their investments in the U.S. After all, at least on first blush, such a fund's managers would act for political reasons. They've got no significant "bottom line" contraints such as private sector hedge funds or banks, wherever they might be headquartered, do have.

Evan Bayh chaired the hearing. That is a straw in the wind right there. Evan Bayh is the fifth ranking Democrat on the committee. When the fifth ranked chairs a hearing on a subject, that subject clearly doesn't yet have a high profile on the national radar screen.

And in his opening remarks, Bayh did his best impression of a high-wire walker at the circus. On the one hand this. On the other hand that. Let's find the right balance. Okay, and let's yawn on cue.

Click here for his scintillating opening statement.

So ... the Banking Committee hearing did nothing to make the issue seem worthy of a close watch from yours truly.

But then in December, (on the 10th) Judge Posner discussed it at some length on his blog, a vent he shares with professor Becker. I came across Posner's comments only this week, and they are -- as the best of Posner's writings often is -- both logical and counter-intuitive. I love it.

Here's a quote:

"[The] purchase of assets by foreign nations, even when they are hostile or potentially hostile to us, does not threaten U.S. welfare or security. The purchase of a company from its owners places money in the hands of those owners that they can invest for a higher return--if they did not think they could do this, they would not sell the company. So such a purchase is wealth-enhancing. It does not undermine our national security just because the purchaser is a foreign government, but on the contrary enhances our security because the investment is a hostage. It's as if to guarantee China's good behavior the president of China sent his family to live in the United States."

This week, the GAO has acknowledged the receipt of a request from a Senator to look into various questions about sovereign wealth funds and their interests in major US institutions. We'll see if Posner's view (call it pragmatic complacency?) gets a public airing as a result.

1 comment:

Lady Broadoak said...

I am crossposting this to my blog.

This was fascinating. You are right about Posner - and the MSM is getting away with (more than) financial murder given the current set of economic/military circumstances.

This was a really good blog item to my mind.

WATCH Evan Bayh REAL carefully; I do. This HiLIARy "Wall St" Clinton's real "shadow" personality, imho.

Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.