Mortgaging America
America’s for sale. Just ask Treasury Secretary Henry Paulson.
With the U.S. economy in shambles, Paulson just spent four days touring the Middle East, hat in hand, looking for investors to bail us out. Specifically, on Monday, Paulson met with heads of the Abu Dhabi Investment Authority, the world’s largest “sovereign wealth fund” with roughly $875 billion in assets, and encouraged them to buy American businesses.
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Sovereign wealth funds, or SWFs, basically are mutual funds that invest the excess capital generated by a region or country. The first one was established by Kuwait when it still was a British territory. After World War II, as Kuwait was negotiating independence, its leader, Sheik Abdullah al Salem al Sabah, asked the British to help him create a fund that would invest the nation’s oil profits. The Kuwait Investment Board, which eventually became the Kuwait Investment Authority, today has about $250 billion in assets and is one of the largest sovereign wealth funds in the world.
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These kinds of investments raise “profound questions” of geopolitical power, as former Treasury Secretary Lawrence Summers pointed out a few months ago at the World Economic Forum in Davos, Switzerland. Summers’ essential complaint is that there is no way of knowing if there is a political agenda behind a country’s investment in these essential industries.
To that end, the International Monetary Fund is trying to draft a code of “best practices” that SWFs can adopt voluntarily. The funds generally have been resistant to the idea, although Abu Dhabi and Singapore have signed an agreement with the Treasury Department that lays out principles for the countries’ funds to be more transparent and not politicize their investments.
But on a practical level, the growing influence of SWFs really brings up much more basic concerns. What does it mean for Americans to have decisions about our jobs, our home loans, our school loans and so on to ultimately rest with foreign governments? What does it mean to surrender this level of control over our own economy?
The trouble is, we don’t know. And that raises perhaps the most important question of all: What if the cure to our mortgage crisis is more deadly than the disease itself?