The Challenge of Sovereign Wealth Funds

There are lots of worries about sovereign wealth funds and what countries who have amassed large amounts of financial assets might do with the money. For example, if a foreign country decides to invest in and take majority control of the Wall Street Journal, CBS, or key strategic industries in the economy, are we completely comfortable with that? Is there a line that shouldn't be crossed? In the Vox EU article below, Philipp Hildebrand develops a voluntary code of conduct for investments by sovereign wealth funds with an eye toward avoiding protectionist responses to acquisitions by countries controlling the funds.

Here's another potential solution. In financial markets, savings are made available in two ways, through direct and indirect finance. When the relationship is direct, the borrower and lender are known, e.g. if I buy a stock in a company, I know which company received my money and the company knows who bought the stock, it knows who lent them the money. In essence, though brokers, etc. may be involved, these transactions are "face to face". Think of a loan from friend as an example - and also all the problems, hard feelings and so on that come with a loan from a a friend as compared to, say, a small loan of the same amount from a bank.

With indirect finance, it's different. In this case, the borrower does not know for sure who borrowed their money, and the lender does not know for sure who provided the funds. A traditional bank plays this role. A large number of depositors put their money into a bank, the deposits are pooled together into one big "loanable fund", and somewhere else in the bank the money is lent to borrowers that appear to be acceptable credit risks. When I deposit a dollar in a bank, I don't know for sure which of the many borrowers receives that dollar - nobody bothers to keep track - and the borrower does not know who provided the money behind the loan.

[Source: Mishkin's Money and Banking Text]

I think a lot of the problems we are worried about with sovereign wealth funds could be avoided by setting up an indirect international financial intermediary. If all of these countries were to get together, pool their funds into an international bank, and then hire a professional staff to evaluate and make loans, buy stocks, and make other investments all over the world, many of the problems of direct finance could be avoided. Because the funds are pooled, the exact identity of the country providing the funds would be unknown to the borrower thus reducing substantially worries about using these funds for strategic or political advantage. Furthermore, since market processes are at work as agents decide to take out a loan (or not), the return on these investments would likely be higher than what individual countries might earn trying to target and make these investments themselves (and when mistakes are made, losses are pooled across countries rather than falling wholly on individual countries).

Politics won't be avoided entirely with such an intermediary - for example some countries could be denied access for political or other reasons - but it seems to me that some institution that serves to pool funds before they are lent solves a lot of the problems that come with more direct lending arrangements. And with such an institution in place and ready to make loans to all who qualify, I would be much less worried about rules limiting the degree to which sovereign wealth funds can exert direct control over assets within a foreign country.

Here's Philipp Hildebrand:

The challenge of sovereign wealth funds, by Philipp M. Hildebrand, Vox EU: Sovereign wealth funds (SWFs) are not a new phenomenon. With its Caisse des Dépots et Consignations, France essentially set up a SWF in 1816![1] But such funds have recently grown both in number and size and now exceed the combined assets of hedge funds and private equity. Their rapid growth is closely linked to the prevailing global macroeconomic imbalances, and that means that SWFs will be around for some time to come. Even under the assumption that global imbalances unwind over the next ten years and commodity and oil prices revert to long-term averages, these funds will continue to deploy substantial financial assets in the global market place.

The rise in SWFs has undoubtedly brought a number of benefits. One of these has become particularly evident recently. Against the backdrop of the current market turmoil, SWFs have been a welcome source of capital, strengthening the vulnerable balance sheets of some of the world’s largest financial institutions. But they have also given rise to considerable political controversy, as their rapid ascent challenges some long-held assumptions about how the global economy works.

Challenges to conventional views

First, since the early 1980s, we have witnessed broad-based and sustained political momentum to deregulate and liberalise economic structures, enhance the role of market forces and attempt to reduce the role of governments in the global economy. In this context, sovereign wealth funds’ increasing number of sizeable state-sponsored foreign investments in mature economies can be perceived as a challenge to free market forces.[2] Moreover, such investments run the risk of triggering protectionist reactions in the recipient countries.

Second, one of the basic premises of open global capital markets is the idea that capital flows freely worldwide in search of investment opportunities that yield optimal risk-adjusted rates of return. The fact that large and government-controlled investment companies make substantial foreign investments in privately owned companies raises concerns about the validity of this hypothesis. Specifically, could a government be tempted to use its SWF as a financial instrument in pursuit of a particular political objective? The mere fact that such questions arise could trigger protectionist policies in recipient countries, thus again undermining the proper functioning of free markets.

Third, as a general rule, capital has historically tended to flow from the core of an economic system to its periphery.[3] But global capital flows from the periphery to the core are clearly on the rise, and sovereign wealth funds play a potentially important role in this apparent reversal. The sense that capital is increasingly flowing from the periphery to the core is raising a variety of political sensitivities in the core countries. I fear that many of these sensitivities will likely be protectionist in nature.

In my view, the single most important challenge associated with the rise of sovereign wealth funds is therefore to ensure that the policy reactions in the recipient countries of potential and actual SWF investments do not degenerate into what ultimately amounts to financial protectionism.

Potential policy responses

How should policy respond to the challenge of SWFs? Proposals and actual policy initiatives have varied widely, from calls for increased transparency of funds’ investment positions to calls for reciprocity in market access. But there is now considerable political momentum behind the idea of a voluntary code of conduct or a set of guidelines for SWFs. The effort by the authorities of the largest industrialised countries and the leading sovereign wealth funds to jointly develop such guidelines is timely and clearly sensible. There is a risk, however, that the efforts will prove counterproductive if the demands from the industrialised countries are too ambitious or driven by protectionist motives.

In my view, a future code of conduct or a set of guidelines must cover two central issues if they are to be effective. First, to quell the concerns of recipient countries with respect to politically motivated investments, a code of conduct must contain governance prescriptions that ensure that SWFs are not driven by political objectives. The institutional design of modern central banking may offer some clues as to the appropriate form of such prescriptions. Central banks and sovereign wealth funds obviously pursue fundamentally different objectives but share the risk of being hijacked by governments for political aims. In the case of central banks, this problem has been successfully addressed by the adoption of an institutional design based on two powerful features: a clear mandate and statutory independence to pursue it.

Second, to preclude a resurgence of state ownership in our economies, and to alleviate fears about excessive meddling of governments in private companies, SWF guidelines need to spell out upper limits to individual investment stakes in foreign private companies. Such limits should be set significantly below the typical threshold of a controlling minority, let alone an absolute majority.

As long as a recipient country can be confident that a particular SWF operates in accordance with these two guidelines, there is no reason to demand intricate levels of portfolio transparency from SWFs. Transparency is unlikely to solve the problems outlined here. Indeed, I fear that, in some cases, extensive transparency requirements for SWF portfolios could actually end up triggering protectionist reactions in mature markets. There is, of course, a host of other reasons why more transparency makes sense for sovereign wealth funds. Accountability is clearly one of them. Incidentally, the history of central banking suggests that the more independent a central bank becomes in pursuing its stated mandate, the clearer becomes its institutional obligation to be accountable and thus transparent. The same may turn out to be true for sovereign wealth funds.

Future prospects

There are a number of difficult questions that need to be addressed before a set of SWF guidelines can become operational. What do we mean by a non-political investment mandate? How do we gauge to what extent there might or might not be political interference in the pursuit of such a mandate? Will there be a need for a referee to determine whether a SWF complies with a particular set of guidelines? What happens if a SWF initially signs up to a code of conduct but subsequently fails to comply with its guidelines? Much work remains to be done and the timeframe is tight. Ideally, a first set of guidelines will be agreed upon jointly between the G7 countries and the most prominent SWFs by the 2008 spring meetings of the IMF and the World Bank. If well designed and agreed upon, such a set of guidelines could serve as a basis for determining which sovereign wealth funds will continue to enjoy full market access in mature economies.

References

Bernanke, Benjamin S. 2006, "Global Economic Integration: What's New and What's Not?", Speech held at the Federal Reserve Bank of Kansas City's Thirtieth Annual Economic Symposium, Jackson Hole, Wyoming, August.
Coeuré, Benoit, 2007, "Faut-il Avoir Peur Des Fonds Souverains?", forthcoming, Les Cahiers, Le Cercle des économistes.
Cox, Christopher, 2007, "The Role of Governments in Markets". Speech at Harvard on 24th October 2007.
Jones, Matthew T. and Maurice Obstfeld, 2000, "Saving, Investment, and Gold: A Reassessment of Historical Current Account Data", in Calvo, Guillermo A., Rudiger Dornbusch, and Maurice Obstfeld, eds., Money, Capital Mobility, and Trade: Essays in Honor of Robert A. Mundell, Cambridge: MIT Press, 2000.
Obstfeld, Maurice and Alan M. Taylor, 2003, "Globalization and Capital Markets". In Michael Bordo, Alan M. Taylor and Jeffrey G. Williamson, Globalization in Historical Perspective, Chicago, The University of Chicago Press.

Editors' note: This article first appeared in French on our consortium partner's site www.telos-eu.com.

Footnotes

1 I am grateful to Benoit Coeuré of the French Treasury for this comment (see Coeuré, 2007).
2 SEC Chairman Christopher Cox, for example, points out possible conflicts of interest arising from foreign government ownership of businesses (Cox 2007).
3 Bernanke (2006) also makes this point. See Jones and Obstfeld (2000) and Obstfeld and Taylor (2003) for historical evidence.

Comments

[brad setser]

mark -- I like your proposal for a new intermediary. as you note, it would dramatically reduce concerns about the rise of SWFs (though some would remain, notably the concern that SWFs are building up assets in a systematic effort to thwart necessary adjustments in the global balance of payments). it isn't all that different from the proposal larry summers made in his speech at the reserve bank of india in 2005. summers suggested that the IMF or World Bank could play such a role, and the fee income from their asset management divisions could support the provision of global public goods. that proposal hasn't exactly gone anywhere, in part because emerging economies aren't exactly fond of the bank and the fund's existing governance. presumably any institution would need a governance structure weighted toward the world's current creditors, not toward the titans of the world economy in the 50s and 60s.

alternatively, sov. funds could gain equity market exposure through index funds and the like.

One byproduct though of relying so heavily on SWFs to recap the US financial system is that I suspect the political space needed to encourage any meaningful effort toward such an international solution has been lost. You cannot push SWFs, especially established funds that are jealous of their sovereignty and long used to managing their funds as they see fit, to change if you are also indirectly counting on them to bailout your banks.

in other words, I doubt SWFs will choose an international intermediary entirely on their own accord; they would do so if they thought that such an intermediary was the only way to overcome us and european objections to their market impact. but right now, those objections have been muted by the need of some big us and european institutions for capital -- combined with (I suspect) that the alternative to a SWF recapitalization is a higher risk of a taxpayer financed recapitalization.

or, to put it differently, I wonder the US would object if the CIC decided to take a big bet that the SP 500 would open higher tomorrow ...

nice post!

[anne]

Norway, surely the problem is Norway. All that Norwegian oil money sloshing around looking to slosh over (once Australian) Rupert Murdoch's Wall Street Journal looking to turn turn the Journal to nefarious Norwegian uses. (I am even now feeling an urge to buy a tin of sardines.)

If you knew any Norwegians, you would be as worried as I am.

[anne]

Generations of colonialism passed happily for Europeans, with never a thought of being gobbled up, only the contented sense that Europeans were doing all sorts of gobbling. Pass though a period however in which commodity gains are being made and actually retained by countries that were so long European colonies and suddenly there is fierce worry about free enterprise and competition and all that jazz.

Heck, families in New England are weathering the winter because of Venezuelan oil and we should worry because freely enterprising Exxon or Shell are elsewhere. Even if there is the slightest reason to worry, I find the worry comical. We are in the end being colonized.

[Eddy]

Isn't this intermediary fund idea an academic dream. Remember, this question is topical because our biggest U.S. financial institutions have become practically, if not technically, insolvent. Their capital positions have been rescued by foreign governments.

What scenario can anyone imagine over the next 12 months, as more of the extent of this problem becomes evident. That is, as loans that are not sub-prime default, and as insurance schemes evaporate triggering still further capital erosion, I'd like to see a practical explanation as to how Citibank will apply to an intermediary fund. Use, say, next August as the assumption. Please.

This is not, as one may wish that it was, an academic discussion. The U.S. banking system no longer represents economic decision making alone. Perhaps it never did (biography of J.P. Morgan, Lend-lease, and so on). In any case, there is a world of difference between a U.S. aristrocracy ownership class and a middle/far eastern ownership class.

Just as economists missed the scope and depth of the solvency crisis, they are also missing the significant political dimension of the sovereign fund solution. Someone better snap out of it and start analyzing this issue in more practical terms, asap.

[Oupoot]

Lets phrase the fear of SWF as "foreignization" - similar in vein as nationalization or privatization, but different in character - the buyout of a private company by a foreign country.

[hari]

Mark -

I think your idea is not feasible. Atleast not under present SWFs whose sovereignty is likable to maintaining a well guarded herem! And that, by the way, includes my good friends from Singapore.

No! The concept is of course academic and a non-flyer at best.

Bary Setzer had a piece which is recorded on your site as resource, and deals with this and NYT article on same subject by two journalists. Of course, they all seem to look at the world of SWF from a US-Centric prespective! You can't fault them for being conservative...

The tectonic shift in global SWF and its availability has made PM/Brown (UK) to invite the China fund to establish a base in Lond financial district (during his official visit in Peking this week!).

More of the same, I suspect, will follow now from here, on the continent, in spite of German reservations about SWFs.

SWF will NOT abdicate their sovereign rights to any intermediary - let alone one from IBRD/IMF.

[anne]

What ironic nonsense, we are vastly powerful in economic and military terms, as is Europe, as are Australia and Canada. * There is not the slightest danger of being collectively or individually threatened by the well-being of developing countries. If there danger of a non-Australian occupation of the offices of the Wall Street Journal is a problem, then the danger can as easily be avoided as we avoided the danger of Rupert Murdoch occupying the offices of Fox (oh well) when Australians were not supposed to be able to own an American broadcast network.

International, meaning mostly or all Anglo, supervision of the investments of developing countries bothers me a whole lot.

* What of Japan? Korea? Singapore? Taiwan?

[hari]

Anne -

There goes your Irish anguish about the Anglo...again!
Nor should you worry about the Norwegian Fund. They're
solid and fundamentally good for the world economy.

The problem is US and its inability to look beyond its nose, sort of, to understand the shift which globalization has brought forth.

Xenophobic nationalism is a sign of not only un-American timidity but outright lack of confidence!

[ddt]

"we are vastly powerful in economic and military terms, as is Europe, as are Australia and Canada"

Nonsense. Canadians get whipped around like a dingy in a hurricane - economically speaking, and our military is tiny.

[robertdfeinman]

The IMF and World Bank are generally regarded as arm of US or, at least, western foreign policy. Why would a new international organization escape such perceptions? This time it would be the oil states that were under suspicion.

Notice that large investors in US companies (principally mutual funds and retirement accounts) take large stakes in firms, but don't actually have much leverage. The courts have ensured that the "owners" of firms don't actually get to say how they are run. This could easily be extended to foreign owners if they get too pushy. The law is infinitely malleable when money is at stake.

On the other hand maybe SWF's are the new socialism. States will finally own the means of production, just not, necessarily, within their own borders.

Like the others I don't think any code of conduct or the like is realistic. We still live in a world where might makes right, whether it's arms or money. Agreements only exist when the powerful think their interests are being served.

[Robert Edele]

"For example, if a foreign country decides to invest in and take majority control of the Wall Street Journal, CBS, or key strategic industries in the economy, are we completely comfortable with that?"Does it really matter which members of the ruling class control those industries or corporations? I've got more in common with a nomadic shepherd in Central Asia than I have with the billionaires that work not even 30km from where I live.CBS and The Wall Street Journal push forward the interests of the ruling class and I expect little change in that should some rich people from outside the US buy those companies.If you want some solid evidence, look at Rupert Murdoch and News Corp. His media outlets, such as the New York Post, represent the interests of the ruling class, not Australia. If fact, I believe he's done a better job of representing his class interests then most of his US-raised classmates.

[anne]

Poor sweet whipped around Canadians, all threatened by the mighty Iranians and Singaporeans, and impoverished each and every Canadian. There was a reason to include Canada, because Canada is absolutely secure in military and economic terms even if not invading and occupying Iraq or sending Canadian children begging in Seattle (call Homeland Security).

What the Candaians need to be really, really safe though is an American anti-anti-missile-missile shield as the happy Polish are bound to get. Iran will be after Canadian women, as soon as Poland has been ravished. And, all that jazz.

[Mark Thoma]

DeLong:
Buying up the US, Chinese-style, by J. Bradford DeLong, Project Syndicate: When China National Offshore Oil Company tried to buy ... UNOCAL two years ago,
it set off a political firestorm in the US. When Dubai Ports World bought Britain's P&O Steam Navigation Company, the fact that P&O operated ports inside the US led to more controversy. One would think that a country like the US, with a current account deficit of
roughly $800 billion a year, would realize that such a yawning external gap is inevitably financed only by selling off assets, which means that foreigners with money acquire ownership and control of US-based businesses. But the US -- or at least Congress and the media -- doesn't get it. Americans evidently hope for a world in which they have feckless deficit-generating fiscal policies, a very low private savings rate and a moderate rate of investment, all
financed by foreign capital whose owners are happy to bear the risks yet have no control over their assets.
One might think that foreign investors would quake in terror at these terms... But this has not been the case. ...Someday, of course, this will come to an end. Perhaps Asian real currency values will rise sharply as a result of a burst of inflation in Asia. Perhaps
the dollar will collapse and there will be a burst of inflation in the US as the Federal Reserve Board decides that temporarily abandoning its price-level peg is
a lesser evil than the unemployment fallout that will result from a dollar collapse and interest rate spike.
A government that buys political risk insurance by placing an ever-growing stock of reserve assets in dollar securities guards against some dangers. But ... US Treasury and high-grade corporate bonds ... that US politicians are
comfortable having foreigners own ... are not well hedged against inflation.... Prudent foreign government and private investors would find some way to diversify. But how? Buying other countries' bonds would mean abandoning the goal of keeping real currency values low against the dollar. Buying up whole enterprises
triggers angry speeches in the US Congress. What are needed are intermediary organizations that will grant a measure of control to foreigners, allow diversification across a wider range of US-located assets, and yet still appear 100 percent American to US politicians. Enter the Blackstone Group. China's $3 billion investment in Blackstone, while insignificant relative to China's $1.3 trillion in reserve assets -- a sum ... likely to hit $2 trillion sometime in 2009 -- is but a toe dipped in the water, a test run. At the start..., China will have small and indirect ownership stakes in a great many US enterprises, and the odds are that the usual objections will be absent. China will gain a measure of risk diversification ... and avoid running into political
trouble. ...Some observers think that the US political backlash against foreigners "buying up America" is what will bring the current configuration of global imbalances to an end. Deals like China's investment in Blackstone postpone that backlash, but not for long: $3 billion is equivalent to what China accumulates in reserve in less than three working days.
The question following China's Blackstone investment is this: How far can this process go? And how much control will US investors ultimately realize they have given up?

[Mark Thoma]

Summers:

Funds that shake capitalist logic, by Lawrence Summers, Commentary, Financial
Times [free
- I think]: For some time now, the large flow of capital from the developing
to the industrialised world has been the principal irony of the international
financial system. ... Indeed, Morgan Stanley has estimated ... that there is now
close to $2,500bn in [sovereign wealth funds] SWFs and that this figure will
increase to $5,000bn by 2010 and $12,000bn by 2015.
Inevitably, and appropriately, countries possessed of publicly held foreign
assets far in excess of anything needed to respond to financial contingencies
feel pressure to deploy them strategically or at least to earn higher returns
than those available in US Treasury bills or their foreign equivalents. ...
[A] crucial question for the global financial system ... is how these funds
will be invested. The question is profound and goes to the nature of global
capitalism. A signal event of the past quarter-century has been the sharp
decline in ... government-owned companies. Yet governments are now accumulating
various kinds of stakes in what were once purely private companies through their
cross-border investment activities. ...
To date most of the official commentary on the issue of SWFs has been framed
in terms of traditional arguments about cross-border capital flows. US and UK
officials have raised concerns that focus only on ... reciprocity and
transparency and on ... national security questions. Others, particularly in
continental Europe, have been less positive and have emphasised nationalist
considerations about the benefits of local ownership and control.
What has received less attention are the particular risks associated with
ownership by government-controlled entities, particularly ... direct
investments. The logic of the capitalist system depends on shareholders causing
companies to ... maximise the value of their shares. It is far from obvious that
this will ... be the only motivation of governments as shareholders. They may
want to see their national companies compete effectively, or to extract
technology or to achieve influence.
We have seen the degree of concern over News Corp’s attempt to buy The Wall
Street Journal. How differently should one feel about a direct investment stake
of a foreign government in a media or publishing company?
Apart from ... what foreign stakes would mean for companies, there is the
additional question of what they might mean for host governments. What about the
day when a country joins some “coalition of the willing” and asks the US
president to support a tax break for a company in which it has invested? Or when
a decision has to be made about whether to bail out a company, much of whose
debt is held by an ally...?
All of these risks would be greatly mitigated if SWFs invested through
intermediary asset managers, as is the case with most institutional pools of
capital such as endowments and pension funds. ...
To the extent that SWFs pursue different approaches from other large pools of
capital, the reasons have to be examined. The most plausible reasons – the
pursuit of objectives other than maximising risk-adjusted returns and the
ability to use government status to increase returns – are also most suspect
from the viewpoint of the global system.
None of this is to propose policy. That can come only after the investment
policies of SWFs have been much more extensively debated and many details have
been clarified. But it is to register a cautionary note... Governments are very
different from other economic actors. Their investments should be governed by
rules designed with that reality very clearly in mind.

[anne]

Life for the Irish, much of life, amounts to always finding other ways to sneer at the English. Such comes from having been bred to be overly self-conscious. The Norwegian problem, to be perfectly blunt, has always been terminal blondness, and trolls (not Internet trolls, but real ones). I know this from having played (sort of watched) a round of golf near Oslo at midnight one summer.

[Mark Thoma]

Harold Myerson:

Globalization's Stir-Fry, by Harold Meyerson, washingtonpost.com: ...Now
let's consider the suddenly hot issue of government ownership of private
American companies. Nobody on the left has seriously proposed nationalizing
private concerns for the past 60 or so years. During the 1980s, we did debate
what was called "industrial policy" -- whether the government should invest in
certain strategic industries -- but the idea was defeated by free-marketeers who
argued that our government should not be in the position of "picking winners" in
the U.S. economy, and that it probably couldn't pick winners anyway.
But, improbably, industrial policy is back. Only, it's not our government
that is buying up our companies and picking the winners. It's China's, and will
surely soon be those of Russia and other oil-rich states. ...[F]oreign
governments control a cool $5.4 trillion in foreign currency reserves and have
begun to invest a chunk of that in American companies. ...
To be sure, the Committee on Foreign Investment in the United States has the
power to nix such purchases if they compromise national security. But what is
the proper response of laissez-faire advocates to this sudden wave of foreign
government investment in non-security-related companies? It's okay if the
Chinese government owns a slice of our economy but not okay if our own
government does? We trust every other government more than we trust our own?
I posed this question to William Niskanen, chairman of the libertarian Cato
Institute... Foreign government ownership, he argued, shouldn't pose a problem
unless that government obtains a controlling interest. When I then asked whether
it would be a problem for the U.S. government to buy into such a company, he
answered immediately, "I don't think I would want to be a shareholder in a
company in which the U.S. government owned a good bit of the shares," and then,
pausing, continued, "I haven't thought about this" -- "this" being the
distinction between U.S. ownership and, say, Chinese.
Niskanen is hardly alone. None of us have thought sufficiently about how the
belief in untrammeled capitalism could lead to foreign governments, whatever
their agendas, controlling more and more of the American economy.
Upset that Rupert Murdoch, who kowtows to China, will buy the Wall Street
Journal? What if China itself buys the Journal? Would the Journal's
hypercapitalist editorial board oppose that free-market transaction?
Globalization, as I said, scrambles everything.

[Mark Thoma]

I found the articles above as I was searching and trying to find what I said about this in the past. Not much more than:There's been

quite a bit
on foreign government ownership of companies located in the U.S.
recently so I'm starting to wonder, should I be more concerned about this?Mostly, I haven't been too concerned, but I do think the political implications and the potential protectionist backlash are worth thinking about and avoiding if we can. Thus, having ideas ready to put in place, ideas that maintain the ability to use global finance but assuage worries should the politics turn against this type of direct investment, seems like a good step to take.

[hari]

I've a feeling Summers is shouting in light of his former role with IRBRD -> it's non-flyer for now! No SWF will allow Summers or anyone else to tell them how to run their sovereign fund. I wouldn't! I know a bit about Singapore Fund....

Brad is making sense, and my be upto step-by-step type of structuring of the SWF and their influence/control. However, the US won't be able to control that policy or its ralization without subscribing to the national interest of the SWFs.

The intial Chinese SWF is approx. $600 Billion!

[ddt]

"Poor sweet whipped around Canadians, all threatened by the mighty Iranians and Singaporeans, and impoverished each and every Canadian. There was a reason to include Canada, because Canada is absolutely secure in military and economic terms even if not invading and occupying Iraq or sending Canadian children begging in Seattle (call Homeland Security).

What the Candaians need to be really, really safe though is an American anti-anti-missile-missile shield as the happy Polish are bound to get. Iran will be after Canadian women, as soon as Poland has been ravished. And, all that jazz."

O....K....
Well, now I fathom the well of stupidity from which the statement that Canada is "vastly powerful in economic and military terms" flows.

[ddt]

or "is drawn" if you will

[anne]

The problem in 1990, was hysteria over the Japanese buying California. The problem in 2000, was hysteria over our surplus ridden government buying California. Now, not even a decade beyond, the dire problem is the Chinese buying California.

"Upset that Rupert Murdoch, who kowtows to China, will buy the Wall Street Journal? What if China itself buys the Journal?"

Carefully notice the language, and understand why we had for generations a Chinese exclusion act along with a prevention of marriage between supposed racial lines in California with Asians well in mind.

We have American soldiers soldiering about most of the known world, with American companies covering the world known and unknown, but the problem is (shudder) China.

I really thought it was Norway.

[Lafayette]

Article: Specifically, could a government be tempted to use its SWF as a financial instrument in pursuit of a particular political objective?

Would this happen, I suspect any nation could, easily enough, invoke its sovereignty. Only recently, the Bush Administration blocked the take-over of the New York Port Authority from a candidate it did not deem suitable because the funds came from the Middle-east.

So, SWFs are not as sovereign as some may think they are.

[TigerPaw]

What we need in Canada is probably an anti-missile shield to protect us from the US when they eventually decide to come up and just take the oil that's here. :)

When things get rough, they're not going to say pretty please.

[Lafayette]

MT: Thus, having ideas ready to put in place, ideas that maintain the ability to use global finance but assuage worries should the politics turn against this type of direct investment, seems like a good step to take.

Let's remember that Foreign Direct Investment is a two-way street, and that America is a world leader in FDI.

So, should we restrict incoming FDI, we could very well find ourselves being restricted in our outgoing FDI. This could reduces substantially America's ability to export, because FDI is a vehicle employed to open up foreign markets in order to penetrate them.

(It is also, alas, the principle vehicle for dislocating our own manufacturing capacity -- but that is another argument altogether.)

FDI is somewhat like trade; if it is restrained, it tends to do more harm than good.

[hari]

I remember discussions in EU when continental industry wanted to buy into US domestic airlines in order to regulate Atlantic traffic.

The US Gov reaction was "no deal"!

The tectonic shift started sometime ago; Singapore Fund has been in operation almost three decades! A lot of SWFs are more or less copycats of Singapore.

[Winslow R.]

The article only has merit with regards to democratic governments. Let the people of each country vote to have banks manage their government funds. Laughable idea for public debate in China, Saudi Arabia etc.

Is it too hard to see that this study is funded by those that represent banks?

Interesting to see academic economists jump aboard.

Why doesn't self interest lead economists to suggest a fund managed by academic economists? Are they just lackeys (enablers) and unable to promote their own interests let alone those of the common people?

Is this the 'mainstream economist' view on how to fix the monetary mechanism? Using fear of foreigners to promote the oligopolies? Shame.

"Philipp Hildebrand, a member of the governing board of the Swiss National Bank - and now it's vice-chairman "

http://www.snb.ch/en/ifor/media/cvs

[anne]

We are the country with weapons enough to arm Jupiter, when we get there, nuclear bombs for all, shock and awe for every Jupitarian, we could save hundreds of billions of dollars by simply being sane and deciding not to continue breaking things and killing people for no reason, but the problem is whether scary Chinese typists may try to buy the Wall Street Journal from Australia and type us to oblivion.

[Farrar]

Meyerson:

"It's okay if the Chinese government owns a slice of our economy but not okay if our own government does? We trust every other government more than we trust our own?"

(Maybe we do, with the Bush team running things.)

It seems to me much more than ironic - rather, absolutely ridiculous the way the US is trying to save its banking system. Here is Wall Street desperately seeking band aid capital injections from SWF's about which we know little or nothing, and even have every reason to believe that their national interests are or may become contrary to our own.

If these banks risk becoming insolvent, why isn't the FDIC sending out armies of accountants to determine their true condition? (perhaps they have already) If certain banks prove to be insolvent, the FDIC apparently already has the authority, without further legislation, to take them over.
For example, if the FDIC took over Citibank, would not this provide reassurance to the financial community, and tend to unfreeze credit markets? Or would it scare everyone to death, and have the opposite effect.

After all, the head of the FDIC seems to be a pretty sensible gal, contrary to the rest of those stumble bums.

No, we insist that our own government not own any more banks, but find it perfectly fine if dictatorial governments and foreign princes take ever bigger shares.

[gordon]

Thanks, Winslow R. and Anne for a bit of sanity. We didn’t see any such angst during the 1960s and 1970s when petrodollars were being “recycled” by big US and UK banks into risky loans to the Third World. Why? Because, as Winslow R. points out, the Right People were in charge – the existing banks.

[brad setser]

mark -- here is a link to the summers RBI speech I mentioned earlier.

http://www.president.harvard.edu/speeches/2006/0324_rbi.html

I am probably the lone holdout to framing the issue as avoiding investment protectionism. To me, the key issues are rather:

1) the flow of funds (not necessarily the stock of existing assets) is inherently going to be asymmetric so long as the US runs large deficits. chinese claims on the us will grow faster than us claims on china. too date that has been mostly through a buildup of chinese holdings of us bonds, but china now wants to diversify a bit. fair enough, but in this case i do think the debtor gets a vote, given the size of CHina's potential stake in the US means it will impact US markets.

2) the buildup of SWF assets reflects a series of policy choices that have slowed global adjustment - unprecedented fx intervention by emerging market governments (SWFs like the CIC effectively are a way of intervening in the fx market without all the fx risk showing up at the central bank, the finmin gets some fx risk too in the case of the CIC) and unprecedented government savings from the commodity boom. some fiscal stabilization is desirable, but right now, too much financial firepower has been concentrated in too few (government) hands. a broader distribution of the oil windfall among the population is needed (tho that also poses problems, not the least for maintaining low inflation and the saudis $ peg). consequently, the rise of SWFs isn't a positive; it instead reflects an ongoing distortion in the global economy.

3) the growing concentration of financial firepower in non-democratic governments is a bit worrisome -- it isn't at all clear that China's citizens are onboard with large financial losses likely associated with the currency risk china is now taking on. they might well prefer to invest more at home, without the currency risk. even if 40% is wasted on overhead, that at least stays in China -- rather than disappearing when the rmb eventually rises towards its equilibrium level. Several SWFs provide large subsidies from the poor to rich that haven't been democratically ratified by the citizens of the poor countries. In addition to needing the saudi royal family to keep pumping, the us also increasingly needs the Saudis to keep a massive dollar overweight that the Saudi population probably wouldn't approve of if they knew of it. that in effect gives the saudi royals a bit of leverage.

4) even if these funds are invested in a fairly commercial way (a la singapore), their deployment in a broader range of markets on the scale now being contemplated will end up changing the nature of the market in unknown ways. $400b in central bank demand for treasuries and agencies back in late 03/04 ended up contributing to the conundrum. some high end forecasts imply a $800b annual shift toward risk assets from the creation of new SWFs over the next few years. that is huge.

Hari -- I wish a few more SWFs had looked to Norway or even to Hildebrand's Swiss national bank (which has a disclosed equity position as part of its reserves, via index funds) as models, not just singapore. the GIC isn't exactly the most transparent of institutions, and its governance structure doesn't apparently create much separation between it and Singapore's top political leadership.

I would be curious re: your source for China's $600b SWF. tis totally possible, but as of now, only $200b has been announced and most of that has been handed over to the domestic banks (who then have to invest abroad) or used to buy Huijin's stakes in the banks. if you add the banks fx position to the CIC's foreign assets (taking care to avoid double counting the fx the cic and huijin before injected into the banks), i think you currently get a number of around $400b.

Of course, it is reasonable to think the CIC will get another $200b this year, and possibly more.

I have a new paper on China's foreign assets that should be publicly available soon; am just waiting for it to be put up on the CFR's web page.

[Barry]

"For example, if a foreign country decides to invest in and take majority control of the Wall Street Journal, ..."

The f*cking Wall Street Journal has been run by evil whackjobs for over 30 years now. Evul Furrinerz would be an upgrade.

[apj]

Evil Norwegians indeed. I find the hand wringing over SWFs rather amusing, and certainly circuitous. If non-capitalist economies are rich enough to prop up the failing capitalist lifeblood (the financial system), what does it say about capitalism? Or the current strand of it.

As a digression, I've always thought it wasn't a strict Left-Right idealogical divide anyway (and some will disagree), but more a system that folds over on itself such that pure communism and capitalism are hardly distinguishable. It's just that in one form, the government owns the country, and in the other, (a small group of) corporations own the country. And that's why regulation is so important. Nothing can beat the price signals a competitive market gives, and the resource allocation it engenders. But human nature is what it is, and will run rampant in various ways that ultimately lead to price-rigging, market fixing, corruption, you name it, just to make a buck. Heck, it happens now under a system that actually has "some" regulatory shackles, albeit "regulation-lite".

So threading back....it amuses me greatly that the opacity of SWFs is such an issue when US Congress couldn't be bothered, and has proven it, about the opacity in its own financial system. It hasn't even filled the spare seats at the Fed for the best part of two years. It's not like it's important (and increasingly in recent years) to the fabric of the economy or anything.......it's like the Muppet Show.

There's nothing to suggest SWFs won't be out to capture a good ROI, and any concerns about their "strategic" motives (whether those concerns originate from xenophobia or even more thoughtful places) can be put to rest via legislation to control their voting rights and maximum investment. ie. they can own up to a certain proportion of a company and reap its dividends and capital gain (that would be nice), but not influence the company's direction via voting rights. Or something similar. It's not that difficult. Nor is combating the idea they will use "political pursuasion" to feather their nest. The US Govt has no role here....SWF's are investing in a market, after all, and subject to its whims and fancies, not to government protection. They know this anyway.

There will always be National Interest/sovereignty issues in some areas, and that comes as no suprise, but the US market is a plenty big place, and there are plenty of investment alternatives that don't fall under this umbrella. Get used to these guys. Unless, of course, the US Govt decides to put its money where its mouth is, reject foreign money (ie. foreign nationalisation), and nationalise troubled companies itself......directly or through a special purpose agency......not likely.

[billyblog]

Call me old-fashioned, but when I hear Philipp Hildebrand – and others in this thread -- actually seeming to suggest that accountability in democratic societies – and those are the ones which rivet my attention most, especially the (admittedly) imperfect one in which I live – will take care of itself in a trans-national environment as a function of the presumably enlightened economic self interest of otherwise less than transparent institutions, e.g., newly opaquely enabled SWFs, I reach for my Constitution and start chanting the mantra: "Politically enforceable checks and balances, Si, so-called market driven obligations, Non -- pu-u-lease!"

I'll have to work on a catchier mantra bien sûr, but surely Mr. Hildebrand jests when he pens such transparently naïve nonsense as is found in the following paragraph?

"As long as a recipient country can be confident that a particular SWF operates in accordance with these two guidelines, there is no reason to demand intricate levels of portfolio transparency from SWFs. Transparency is unlikely to solve the problems outlined here. Indeed, I fear that, in some cases, extensive transparency requirements for SWF portfolios could actually end up triggering protectionist reactions in mature markets. There is, of course, a host of other reasons why more transparency makes sense for sovereign wealth funds. Accountability is clearly one of them. Incidentally, the history of central banking suggests that the more independent a central bank becomes in pursuing its stated mandate, the clearer becomes its institutional obligation to be accountable and thus transparent. The same may turn out to be true for sovereign wealth funds."

Oh, I see. That explains why Alan Greenspan, who was the epitome of the independent central banker, was so transparent – and so accountable.

[Mark Thoma]

Thanks Brad.

[gordon]

Commenter apj suggests legislative restrictions on the behaviour of SWFs. You don't even need legislation, as shown by the Australian SWF, called the "Future Fund". Here's a quote from the Fund's investment mandate, which has the status of a purely executive direction - Parliament not involved:

"...
The Government has taken the approach that the Board should be subject to minimal restrictions and has only imposed limitations where there are public policy or national interest reasons to do so.

The investment mandate directs that the Board:

* Adopt a long-term benchmark of an average return of at least 4.5 to 5.5 per cent real per annum but recognises that the Fund may have returns lower than this while the Board develops and implements its investment strategy;
* Determine an acceptable but not excessive level of risk for the Fund;
* Establish an internal limit on holdings of any listed company in order to ensure that it does not trigger the takeover provisions under the Corporations Act 2001 or hold a stake of more than 20 per cent in any foreign publicly listed company;
* Only acquire a direct equity holding in Telstra if shares are transferred to the Fund by the Government or gifted to the Fund with the approval of the Government;
* Act in a manner that minimises the potential to cause any abnormal change in the volatility or efficient operation of Australian financial markets or adversely affect the Government’s reputation in these markets; and
* Have regard to international best practice for institutional investment in determining its approach to corporate governance principles".

[apj]

point taken, but the Aussie Future Fund is

a) domestically focussed
b) subject to the constraints of a democratically elected Parliament....which can change the law if they behave like muppets.
c) because of b) are unlikely to act in a beggar thy neighbour manner

Other SWFs have obtained their funds in a dramatically different way to the Future Fund, and the fact is that most are not democratically accountable. That's what has the protectionists screaming into their pillows at every knock on the door.

The US has some options, and they include, but are not limited to, allowing the SWF investment based on certain terms, which keeps capital flowing, and seems like quite a reasonable option. Or....not allowing it. If this is the avenue taken, they might like to question what it is about capitalism and free markets they believe in. And they might like think of a way of funding troubled institutions that don't involve domestically sourced money.

[apj]

addition to point a) talking about the mandates restrictions here, not investments, which clearly have a large o/s component. Aust mkt too small to absorb the flows, hence the blurb about 'mimimising" its effects on domestic mkt...

[Lafayette]

ajp: If non-capitalist economies are rich enough to prop up the failing capitalist lifeblood (the financial system), what does it say about capitalism?

Wakey-wakey

Until the above is explained better, it remains pure conjecture.

I say the issue of SWFs indicates that capitalism IS working properly. We may not like the way it works, but whose problem is that?

As Summers indicates, who created the problem in the first place, if not American appetites for cheap products from China?

It's time for America to pay the piper for its import propensity that is out of proportion with its export capacity. Uncle Sam's Chronic Deficit is nothing new under the sun, having been around for longer than anyone can remember.

America has been a country living beyond its means for a donkey's age. The pity is that the current electioneering shows no indication whatsoever as to how to tackle the problem by means of more Productivity, better Export Depth, etc.)

Who's interested in those issues? People can't even see beyond their noses, never mind grasping the devil in the details.

PS: But, tell them bin Laden is planning another attack on America and watch that bring their attention around.

[Lafayette]

Farrar: Here is Wall Street desperately seeking band aid capital injections from SWF's about which we know little or nothing, and even have every reason to believe that their national interests are or may become contrary to our own.

Has anyone thought that their interests and ours are mutually coincident? They are investing in American Banks because it is a damn good investment. And, they are getting their investment cheaply. It is opportune for them to move on the chance, because it may not come around again. (If the roles were reversed, would not American banks be doing exactly the same thing.)

For the moment, I don't think any Arab fund has required, as part of any deal, that American women start wearing the chador.

Once again we are like schoolchildren looking to finger some OTHER kid with the blame. If Wall Street and the Fed made a colossal mess with the sub-prime fraud, then who should be doing the Perp Walks? Arab shieks? Dour Chinese leaders?

C'mon, let's get real ... this problem has been ours since the beginning and it will remain ours till the end. Banks are taking a hit by declaring their losses and wiping them off their books. No bonus for the Masters of the Universe this year? (Except of course Goldman Sachs, who's bonus pool in 2005 was estimated at $19B and 2006 wont be that bad either.)

[Farrar]

Lafayette -

"They (SWF's) are investing in American Banks because it is a damn good investment."

You'll get a lot of contrary opinions on that one. Here is a well argued one:
http://www.nytimes.com/2008/01/22/business/22sorkin.html?ref=business
entitled
What Money Can Buy: Influence
and from which I quote

"Mr. [Felix] Rohatyn poses a very good question. If all these government-controlled funds in Asia and the Middle East that have been falling over one another to buy up stakes in Citigroup, Merrill Lynch and Morgan Stanley are so smart, where are all the big-name value investors like Mr. Buffett? Or are these foreigners just “dumb money”?"

[hari]

Mark -

You've to do a lot more on this difficult globalization of SWFs question before we can start understanding what in the world is going on out there...

Brad Setzer -

Many thanks for your comments. May I first note with pleasure how you've maintained your own Blog in spite of what might be called "provocation". Please remember a lot of us depend on your focus on China and rbm...and how it's all going to be re-structured into the global financial system.

On China's SWF, only last month People'S Daily published some figs indicating that decisions were made during the NPC to restructure their foreign holdings and create an alternative to current dependency on US fixed assests.

[I'll try to locate the page and make a copy for you later, if I may.]

I suggest the follow-up to NPC is scheduled in a few weeks or so, and some of these currency problems will be discussed by the management. China, as you know, wants to be more transparent but they've retool the party system to make such decisions.

[Winslow R.]

Mark wrote: "In financial markets, savings are made available in two ways, through direct and indirect finance. When the relationship is direct, the borrower and lender are known, e.g. if I buy a stock in a company, I know which company received my money and the company knows who bought the stock, it knows who lent them the money. In essence, though brokers, etc. may be involved, these transactions are "face to face". Think of a loan from friend as an example - and also all the problems, hard feelings and so on that come with a loan from a a friend as compared to, say, a small loan of the same amount from a bank..... If all of these countries were to get together, pool their funds into an international bank, and then hire a professional staff to evaluate and make loans, buy stocks, and make other investments all over the world, many of the problems of direct finance could be avoided. "

Gosh, I still am trying to wrap my head around this post.

What are you trying to say..... indirect economic interactions are superior to direct economic interactions for a market based economy?

[Lafayette]

Farrar: You'll get a lot of contrary opinions on that one.

I had not see Berry's article ("Every Major U.S. Bank Was Profitable Last Year") posted by Mark Thoma subsequent to my post, to which you refer.

But, I suggest that Berry's post substantiates my opinion.

People may be hurting, but the banks are not.

[gordon]

On reflection, we are all off the mark. Why isn't the money tied up in SWFs being spent on really important social investments like education, health, public transport, national parks, water supply and waste disposal? The real cost of SWFs is this opportunity cost.

[gordon]

Oh, yes, and let's not forget the need to invest in renewable and carbon-efficient power sources, and in power conservation measures.

[Lafayette]

gordon: Why isn't the money tied up in SWFs being spent on really important social investments

Off the deep end

Because the American people cannot see beyond their collective noses.

They were hoodwinked into a panic mindset by lead-head who, after 9/11, went merrily on to start a war in the sandbox (out of pure vengeance for Saddam's attempt on Bush the Father's life in Kuwait -- read all about it here ) that has sucked up all available fiscal resources for the past four years.

Meanwhile, lead-head had lowered tax rates. More inept fiscal administration is very, very difficult to imagine.

And, with Rambo McCain seemingly in good position to win the White House, we can expect more of the same.

Believe me, it is not only some people on this forum, perhaps reflecting similar sentiment in parts of the American population, that are aghast at the waste of opportunity. Many, many people on this globe, watching with interest what is happening in America, cannot believe their eyes. The rise of plutocratic government and the emphasis on accumulated wealth at the Top -- abetted by the huge waste in a Middle East quagmire -- is beyond their belief.

It's as if America had gone off the deep end. How could any one leader be so stupid?

[gordon]

Is it really just "stupid", Lafayette? See my second comment on this post.

[apj]

Soooo....were you going to address Gordon's quote on SWFs that you copy/pasted?......or just rant about Bush the Younger? We may agree with your sentiments on that topic, but you're off the point you started, which was Gordon's quote, then a put-down. Maybe you have more in common with your mate Bush than you thought.

[Lafayette]

g: See my second comment on this post.

It is useless to try to refer to a post on another thread in Typepad. It is just too difficult to find ... blog software is the pits.

Sorry. But, if you give me its direct link, I'd be pleased to have a look.

[gordon]

Lafayette, the "find in this page" function in Mozilla (Edit menu) is useful for finding commenters - you just search for their names.

Under the post "Paul Krugman: The Great Divide" (31/12/07) J.Killus had a rant about "Movement Conservatives". I responded as follows (after issuing an unsuccessful challenge for anybody to use the "F-word"):

"OK, maybe as a non-American I have less to lose anyhow:

1. There is a powerful Fascist movement in the US.

2. For PR reasons, American Fascists don't call themselves Fascists.

3. The Republican party has been largely taken over by Fascists (though some pockets of resistance remain, they appear to be impotent). Impressed by the success of a Fascist-dominated Republican party, and knowing that many of its own traditional supporters are sympathetic to Fascist rhetoric, the Democratic party is unwilling to challenge Republican Fascists too openly.

4. Like the European Fascists of the last Century, US Fascists are authoritarian, repressive, undemocratic in outlook, antidemocratic in practice, elitist in private and populist in rhetoric.

5. Fascist success is both mirrored by and has benefited from manipulation of the mass media by Fascist sympathisers.

6. In foreign relations, US Fascism is militaristic and aggressive. It uses the slogans of hyper-patriotism and national superiority pioneered by European Fascists of the last century almost without alteration except for adding in some slogans about democracy (thereby altering the meaning of democracy).

7. US Fascism is supported by substantial sections of US business and finance, but not universally.

8. Of particular interest to economists, US Fascism (like the earlier German variety) is fiscally and financially irresponsible and indifferent to the usual economic concepts of welfare. It does, however (also like Nazism) display talents for financial manipulation and trickery, and business supporters are rewarded without consideration of the economic distortions arising from such payoffs. Again like Nazism, US Fascism uses plunder (both of US citizens and foreigners) to fill the inevitable financial gaps.

There, that should get the ball rolling if it's going to roll at all".

[Lafayette]

Thanks.

I think the point is missed that the Nazis (at least) needed to hang the blame (for the inter-war hyper-inflation and German recession) on someone that could be victimized. The Jews served that purpose. The undercurrent of hatred was simply exposed and even authorized, which fed the fervor for Hitler.

I don't see that sort of fascism at work in the US version. Frankly, I'd be a bit more careful with the use of that word. It belongs to a very particular period of history.

Also, we must believe that the Republicans will not resort to convicted criminals and thugs as enforcers, which the Nazis did without the slightest concern.

NB: I presume that the fascist hatred of the Jews has been spent, since none of my conversations with the younger German generations indicates that it still exists. Still, even with the French and often others one can hear it crop up from time to time. This can be disturbing, but I don't sense it is any real menace to that people. The skinheads are real dorks and wouldn't have a snowballs change in hell of gaining any real power.

[gordon]

Lafayette, if it quacks like a duck and walks like a duck...

The German Nazis anti-semitism was very useful in rewarding supporters with Jewish property - one of the examples of plunder that I referred to in my comment. Poles and other conquered nationalities were also plundered in similar ways. I might recommend Laurence Rees' book "The Nazis" and Richard J. Evans books "The Coming of the Third Reich" and "The Third Reich in Power" (he is soon to publish a third book, I think) as showing that there was a good deal more to Nazism than anti-semitism; a fact that is often forgotten.

[Lafayette]

g: Lafayette, if it quacks like a duck and walks like a duck...

No, sorry, that -- for me -- is never good enough proof. All bipeds are not ducks.

Just a personal opinion, mind you.

showing that there was a good deal more to Nazism than anti-semitism; a fact that is often forgotten.

There were two components, but both stem from the same two facts. The onerous reparations (1) that the Allies exacted for the first World War set the scene for German hyper-inflation of the twenties, which help cause a recession (2) from which Germany had great difficulty in recovering. The direct consequence of this was Hitler's grabbing of power.

Of course, Nazi anti-semitism was not the only aspect of that period. But, given the fervor of the Nazis to pillage and annihilate the Jewish people, there is little in history that resembles it. (Except perhaps the Spanish Inquisition, sanctioned by the Catholic Church in an earlier time, seemed to condone Nazi perversity.)

Furthermore, there is a telling story that only recently came to the fore. It is about a Jewish family from which several Klee paintings were taken by the Nazis, that ended up in hands of the Austrian state, who systematically refused to return them to the family until the 1990s. The Austrians were finally forced to either relinquish them or pay their value by the US Supreme Court, upholding a lower court decision in favor of American descendants of the Austrian Jewish family.

Why the Austrians, in this day and age, could believe that Nazi-confiscated Jewish property was rightly the property of the Austrian state is, of itself, beyond belief.

Which shows, I think, that vigilance in the matter is still necessary. In France, at least, the public commemoration of the holocaust is annual. In Germany, the Bundestag held a ceremony recently as well.

As I am fond of saying: Those who forget history are condemned to repeat it. Just differently.

Finally, Fascism is an authoritarian, right-wing system of government. One party in power does not make America a fascist state. Though, admittedly, it does give reason for concern when that party so obviously abuses the privilege of political incumbency as this one has.

Which means what? That fascism CAN happen in America, if we allow it.

[The Deal Sleuth]

European state-owned banks are not exactly a model for transparency, either. Maybe it would be more expedient for the EU to fix problems closer to home rather than seeking a code of conduct from SWFs. See http://thedealsleuth.wordpress.com/2008/02/29/beware-of-litigious-state-owned-banks/