[Texgreen] Foreigners are buying up the USA

[Roger Baker]

Darn, where did they get all those trillions from? But given current =20
reality, they should use their increased power and influence in a =20
kind and gentle way, right? So lets have our bankers and their =20
bankers get drunk together and maybe they will bond. -- Roger

..... =93As Asian countries and petro states get rich, they certainly =20=

have the money to try to exert influence,=94 said Kenneth S. Rogoff, =20
professor of politics and public policy at Harvard. =93We don=92t want =20=

that influence to be channeled in a reckless way. There has to be =20
transparency in company governance and financial governance to =20
protect against it.=94 Mr. Paulson and the deputy Treasury secretary, =20=

Robert M. Kimmitt, have traveled to China, Russia and the Persian =20
Gulf to urge top financial officials to adopt greater disclosure of =20
their investment practices and to ban government subsidies or other =20
forms of incentives for their overseas investment activities....


                   =20
***************************************************************

http://www.nytimes.com/2007/08/21/business/worldbusiness/21wealth.html

A Fear of Foreign Investments

By STEVEN R. WEISMAN
Published: August 21, 2007

WASHINGTON, Aug. 20 =97 For years, the Bush administration has shrugged =20=

off concerns about the trillions of dollars that the United States =20
owes to China, Japan and oil-producing countries in the Middle East, =20
arguing that these debts give no undue leverage to foreign governments.

But at a time of global financial instability, the administration has =20=

started to worry that foreign governments are increasingly converting =20=

their dollar holdings into investment funds to acquire companies, =20
real estate, banks and other assets in the United States and =20
elsewhere. The fear is that these so-called sovereign wealth funds =20
could destabilize markets or provoke a political backlash.

In response, the Bush administration is pressing the International =20
Monetary Fund and the World Bank to examine the behavior of these =20
funds, which control up to $2.5 trillion in investments, and develop =20
possible codes of conduct for them. Among the proposed rules would be =20=

an obligation to disclose investment methods and to avoid interfering =20=

in a host country=92s politics.

Officially, the United States welcomes all investments, except those =20
that could compromise national security. =93Money is naturally going to =20=

gravitate toward dollar-based assets because of the strength of our =20
economy,=94 the Treasury secretary, Henry M. Paulson Jr., said in an =20
interview. =93I=92d like nothing more than to get more of that money. =
But =20
I understand that there=92s a natural fear that they=92re going to buy =
up =20
America.=94

Still, a note of caution can be heard. One of the American concerns =20
is philosophical. The United States has for years preached the gospel =20=

of privatization, calling on other countries to sell their government-=20=

owned industries.

Now, with sovereign wealth funds, many experts are asking whether =20
cross-border investment is evolving into cross-border =20
nationalization, raising the prospect of government interference in =20
free markets, only this time, in other countries=92 markets.

Another concern is the sheer size and potential growth of these =20
funds. Their estimated $2.5 trillion in assets exceeds the sum =20
invested by the world=92s hedge funds. Moreover, Morgan Stanley, in a =20=

widely cited study, projects that these investment funds could grow =20
to a staggering $17.5 trillion in 10 years.

Though sovereign wealth funds do not appear to have played a role in =20
the recent turmoil in global markets, experts say they could in the =20
future, in favorable or unfavorable ways =97 by selling assets abruptly =20=

and precipitating a crisis, or by bailing out funds or companies that =20=

are in trouble.

=93They could become either the source of the problem or part of the =20
solution,=94 said Edwin M. Truman, senior fellow of the Peterson =20
Institute for International Economics. =93When you have foreign =20
governments holding stocks and bonds, not just Treasury securities, =20
you have to ask whether they will be a stabilizing force or a =20
destabilizing force.=94

Mr. Truman said it would be easy to imagine that in a future global =20
crisis, Mr. Paulson might be calling not just central bankers but =20
also the directors of sovereign wealth funds. =93He may be calling them =20=

right now, for all we know,=94 he added.

The funds are a product of decades of the United States importing =20
more than it exports. High energy prices have yielded trillions for =20
oil and natural gas producers, from Norway and Russia to the Middle =20
East, while the American thirst for imports of other goods and =20
services has built up the reserves of China, Japan and other Asian =20
exporters.

The political furor over these funds so far has been limited. Efforts =20=

this year by China and Singapore to buy stakes in Barclays Bank in =20
Britain, and by Qatar to take over Sainsbury=92s supermarket chain in =20=

Britain, have caused little stir in Britain.

Neither Dubai=92s bid for Barney=92s, the American retailer, nor China=92s=
 =20
purchase of nearly a 10 percent stake in Blackstone this year has =20
produced an outcry in the United States, although there has been some =20=

repercussion in China over the recent losses in the Blackstone =20
investment.

But in Germany, where there is concern about Russia=92s buying up =20
pipelines and energy infrastructure and squeezing Europe for =20
political gain, Chancellor Angela Merkel has warned that purchases by =20=

foreign governments or government-controlled companies pose a risk.

=93How do we actually deal with funds in state hands?=94 Ms. Merkel said =
=20
at a news conference in July. =93This is a phenomenon which until now =20=

has not existed on such a scale.=94

Probably the most political turbulence caused by a sovereign wealth =20
fund occurred when Temasek Holdings, the state-owned investment =20
branch of Singapore, purchased a stake in the company owned by the =20
prime minister of Thailand, Thaksin Shinawatra. The deal fed =20
antigovernment demonstrations that led to his ouster in a coup in 2006.

The worry is that beyond the possibility of foreign funds pushing up =20
prices on bonds, stocks and real estate, they might exercise =20
inappropriate control politically or in the private sphere.

Mr. Truman of the Peterson Institute is one of many experts urging =20
the United States, the International Monetary Fund and the World Bank =20=

to draw up codes of conduct that would keep politics out of =20
investment decisions and require the funds to share information about =20=

the composition of their portfolios and their investment strategies.

=93A government is a different type of animal in the investing world,=94 =
=20
he said. =93We call them sovereign wealth funds, but once you=92re =20
operating outside your own borders, you=92re not sovereign in the same =20=

sense.=94

Others favor requiring the funds to place their investment decisions =20
in the hands of nonpolitical managers.

=93As Asian countries and petro states get rich, they certainly have =20
the money to try to exert influence,=94 said Kenneth S. Rogoff, =20
professor of politics and public policy at Harvard. =93We don=92t want =20=

that influence to be channeled in a reckless way. There has to be =20
transparency in company governance and financial governance to =20
protect against it.=94

Mr. Paulson and the deputy Treasury secretary, Robert M. Kimmitt, =20
have traveled to China, Russia and the Persian Gulf to urge top =20
financial officials to adopt greater disclosure of their investment =20
practices and to ban government subsidies or other forms of =20
incentives for their overseas investment activities.

The administration is also telling these countries they must open =20
their properties to American investments if they want to invest in =20
the United States.

In an interview, Mr. Kimmitt said sovereign funds seemed to be acting =20=

on sound financial practices and not political motivations, at least =20
so far. =93When I was in China and Russia, I was struck by the degree =20=

to which, although I was talking to government officials, it was like =20=

talking to asset managers,=94 he said.

Sovereign wealth funds have been around for decades. The Kuwait =20
General Reserve Fund was established in 1960. The Abu Dhabi =20
Investment Authority was established in the 1970s and today has =20
investments totaling roughly $800 billion, making it the world=92s =20
largest such fund.

With $300 billion in its fund, Norway is seen by many financial =20
experts as a model for disclosure of portfolio strategy, holdings and =20=

methods. But it is also unabashedly political, recently withdrawing =20
its investment in Wal-Mart, citing accusations that the company has =20
violated child-labor laws and scuttled efforts by employees to unionize.

But China and Middle East countries have a long way to go before they =20=

are as transparent as Norway is. Some experts wonder what would =20
happen if China took over an American pharmaceutical company and =20
pressed for changes in prescription drug programs. Likewise, what =20
would the reaction be if an Arab government demanded a bailout or tax =20=

break for its company in return for supporting peace talks in Iraq or =20=

Israel?

=93If these funds buy into a big Fidelity mutual, they make standard =20
kinds of investments that the Yale endowment makes,=94 said Lawrence H. =20=

Summers, the economist who served as Treasury secretary and president =20=

of Harvard. =93But if they make more direct investments, they become =20
meaningful actors in the economy, and that raises many more questions.=94

President Bush recently signed a bill to streamline the process of =20
screening and possibly rejecting purchases of American companies by =20
foreigners on national security grounds. But these account for only =20
about 10 percent of such purchases, the Treasury Department says.

A huge outcry resulted when a company controlled by Dubai tried to =20
take over the management of several ports in the United States and =20
when a Chinese-government-owned oil company sought to buy Unocal, =20
suggesting that Americans might not accept increasing amounts of =20
foreign government purchases.

In both cases, the concern of American politicians was that national =20
security assets were at stake. But in the 1980s, national security =20
was not at risk when Americans recoiled over Japanese companies=92 =20
purchases of high-profile properties like movie studios and =20
Rockefeller Center.

=93The Bush administration is right to look at this phenomenon, not =20
with alarm but some attention,=94 said Stephen Jen of Morgan Stanley. =20=

=93What needs to be more transparent is the strategy and governance of =20=

these funds, so you don=92t suspect of them some dark geopolitical =20
strategy in their investments.=94=