Fire Sale! Buy Your American Company Here. Cheap
By Joe Rothstein
Editor, USPolitics.einnews.com
April 7, 2008
Every day must seem like Christmas to the world's new sovereign wealth funds.
A "sovereign wealth fund" is the name we now give to foreign governments with excess money to invest. "Sovereign wealth fund" sounds more professional than Abu Dhabi, Inc., but the name is a distinction without much difference.
As major banks and brokerage houses such as Citigroup, UBS, Lehman Brothers and others implode under the weight of their poor management and risky investments, they need to sell assets and raise more capital. Abu Dhabi is sitting on more than $600 billion in very available dollars. Singapore, Kuwait and China have more than $200 billion. Even Russia, which not long ago was virtually bankrupt, has more than $100 billion. Saudi Arabia is forming a $900 billion fund.
In recent months Abu Dhabi bought a 4.9% stake in Citigroup for $7.5 billion. Kuwait invested $3 billion in Citigroup and $2 billion in Merrill Lynch.
Persian Gulf states own major stakes in Nasdaq stock market, the London stock exchange, the Carlyle Group, MGM Mirage, Chrysler, Travelodge, and countless other important U.S. companies. The head of the Kuwait fund told the Washington Post recently "I would like build a trophy portfolio of some of the most prestigious names in business." He said he was particularly eyeing U.S. telecommunications companies and more financial firms.
What an opportunity! Fire sales like these don't come along very often. Persian Gulf nations, China, Russia and others are sitting there with piles of cash while the U.S. is back on its heels financially. As a nation, the U.S. is zillions of dollars in debt. The dollar has dropped 20% against the euro in the last few months. And we lose tens of billions of dollars in additional wealth each month because we buy more from China, India, Japan, Europe and others than we sell them in return.
If Abu Dhabi came along today with a proposal to manage U.S. ports, as it did a few years ago when they made such a bid, there would be significant financial pressure to let them do it.
How did the world's richest and most powerful nation get into such a fix? It's not hard to figure out.
--Failure to develop an energy policy that would curb our need for imported oil.
--Budget deficits that now total $9 trillion+, requiring constant borrowing and debt financing.
--Nonsensical reliance on heavyweights in the financial markets who we expected to regulate themselves.
--Failure to do anything to stop the train wreck that created the credit crisis, despite so many early warnings.
--Blind worship at the altar of "globalization" that stripped so much industry, and so many jobs from the U.S. without concern for the long term consequences.
--Too many years of failure by U.S. presidents and members of Congress to invest in those things that help build a nation, such as education and transportation infrastructure, while wasting too much on things that tear us down, like a trillion dollar Iraq war.
So now cash and credit-starved U.S. companies are standing in line, hat-in-hand, asking some of the world's most repressive regimes to bail them out. And this won't be a temporary phenomena. With $100+ oil, each month we transfer $1.5 billion in U.S. wealth to six Persian Gulf states. The global total of sovereign funds could reach $12 trillion by 2015 as a result of further oil revenues and capital appreciation. Morgan Stanley says that the 25 largest sovereign wealth funds now manage $2.3 trillion in assets, an amount larger than the entire hedge fund industry. By 2015, the Persian Gulf countries' sovereign wealth funds alone are expected to grow to $5-6 trillion.
So, you might ask, what's the big deal? Business is business. Isn't it good to have as many developing countries as possible participating in the free market system?
Yes, if these truly are and remain business deals. But many of the largest transactions have been settled with fuzzy lines between business interests, Gulf state interests and the personal interests of the richest people who live there. The capitalist system assumes that private companies' prime objectives will be to maximize shareholder assets. But governments often have different agendas than their private enterprises, particularly when the governments are undemocratic, dictatorial and not answerable to their public at large.
Exhibit A: The transfer of intellectual property China requires from private business as a condition of working there or selling into their market.
Similar concerns were raised many years ago about the Japanese, who went on a buying spree in the 1980s that included that American icon Rockefeller Center. But a Japanese business buying a commercial real estate property is obviously of a different stripe than a foreign government buying a major worldwide bank or trading market. And the deeper these countries set the hook into the U.S. economy, the more vulnerable we become to their political agendas.
We've come quite a distance since we worried about buying too many cheap Chinese-made consumer goods through Wal-Mart and lobbied OPEC to keep oil prices in the $25 a barrel range. Back then our business and government leaders apparently believed the U.S. was rich enough to absorb most anything the rest of the world threw at us.
But now the game is getting serious. We're the debtors. We're the ones short on cash and credit. We're the nation doing the financial hemorrhaging.
The Bush administration's answer to all of this is to reorganize some agencies of government and let the private sector find a way to police itself better in the future. What else would you expect from an administration that did so much to get us into this fix?
Don't expect candidates during this year's campaigns to spell out their 10 point programs for restoring the nation's wealth and economic balance. But let's hope that those who get elected have one. And that they move quickly to turn this ship of state around.
Joe Rothstein, editor of US Politics Today, is a former daily newspaper editor and long-time national political strategist based in Washington, D.C. |
