Sovereign Wealth Funds Revisited
Last month, I wrote about Sovereign Wealth funds, the financial vehicle that countries use to invest in other countries. At that time, China had invested heavily in both Morgan Stanley and the Blackstone Group, easing considerably the negative effect of the mortgage crisis. I quoted Lawrence Sommers, the former US Treasury secretary who warned
It was far from obvious to me that this {maximizing value of shares} will be over time the only motivation of governments as shareholders.He was essentially questioning what impact these investments would have on future government policy. His concern was theoretical. No country had ever used such leverage to mandate policy in another country.
The future is here sooner than we thought. In this weeks Sunday New York Times, David Rieff, author of
At the Point of a Gun:Democratic Dreams and Armed Interventionwas writing about the Myanmar governments refusal to allow aid after the recent cyclone, and other areas of global need. Although the article was not about sovereign wealth funds, one seemingly innocuous sentence caught my eye. In explaining the lack of meaningful response to the situation in Darfur, Rieff explains that one of the reasons for inaction was, and I quote,
Part of the reason is that China opposes such a move, and it is a lot harder for the US in 2008 to go against a country that holds so much of its government paper….Is anybody else paying attention here? I see movie possibilities. Im seeing a 21st century Frankenstein, one who was created in a haunted house on Wall Street by massive debt and who is ultimately able to rule the world. The villagers (debted countries) will be powerless! What horror! What terror! What a mess!
By Myron Gushlak