There's been a lot of talk about investments by sovereign wealth funds in the U.S. Some of the headline-grabbing deals have not worked out very well for the foreign buyers, at least in the short run. Abu Dhabi's investment in Citigroup (NYSE: C) a few weeks ago has been a loser so far, and it doesn't look any better for investment by various sovereign wealth funds in Merrill Lynch (NYSE: MER).
Many analysts are worried that the sale of chunks of U.S. corporations will hurt the country. Peter Cohan of BloggingStocks recently wrote that he is worried that "that the U.S. economy is at risk if these foreign investors use the power of their capital to sway U.S. policy in a way that weakens us politically or economically." This echoes widespread anxiety about American being 'for sale.'
In an interview with the The New York Times, famed banker Felix Rohatyn argues that the real driving force behind investments by sovereign wealth funds in the U.S. is indeed political. Short term economic results are secondary to questions of power and policy. While many of these investments will likely make sense economically in the long run, the real benefit for foreign investors is the growing power of their governments in determining the course of the global economy.
This increase in power of foreign governments frightens many Americans. And it's true that many of the foreign funds are owned by countries that could come into conflict with the U.S., including China and Russia, though probably not Norway and Singapore (click here for a list of the largest funds). But it's not clear that this will be a loss for the global economy, or even for the U.S. Much of the current market turmoil is driven by poor decisions by American bankers, and it's possible that outside influence could improve the performance of American banks. And since most of the large sovereign funds hold petrodollars -- the largest, in Abu Dhabi, holds $1.3 trillion -- it stands to reason that these investors want the same thing as American investors: solvent banks and a healthy economy that can keep those petrodollars moving.
Many analysts are worried that the sale of chunks of U.S. corporations will hurt the country. Peter Cohan of BloggingStocks recently wrote that he is worried that "that the U.S. economy is at risk if these foreign investors use the power of their capital to sway U.S. policy in a way that weakens us politically or economically." This echoes widespread anxiety about American being 'for sale.'
In an interview with the The New York Times, famed banker Felix Rohatyn argues that the real driving force behind investments by sovereign wealth funds in the U.S. is indeed political. Short term economic results are secondary to questions of power and policy. While many of these investments will likely make sense economically in the long run, the real benefit for foreign investors is the growing power of their governments in determining the course of the global economy.
This increase in power of foreign governments frightens many Americans. And it's true that many of the foreign funds are owned by countries that could come into conflict with the U.S., including China and Russia, though probably not Norway and Singapore (click here for a list of the largest funds). But it's not clear that this will be a loss for the global economy, or even for the U.S. Much of the current market turmoil is driven by poor decisions by American bankers, and it's possible that outside influence could improve the performance of American banks. And since most of the large sovereign funds hold petrodollars -- the largest, in Abu Dhabi, holds $1.3 trillion -- it stands to reason that these investors want the same thing as American investors: solvent banks and a healthy economy that can keep those petrodollars moving.
