Many students of economics are questioning with great concern the impact that a relatively new investment vehicle is beginning to have on the United States' economy, and what its future holds. I am a member of that camp.
Called "sovereign wealth funds" they, in essence, are huge capital funds that are owned directly by governments like China, Japan and the countries of major oil producers in the Persian Gulf. They represent an unquantifiable amount, but an amount that for sure totals in the trillions of dollars.
They are not comprised of the wealth of the countries' citizens, but the governments themselves.
Within the last year or so, these funds have been courted by American banks, equity funds, and private businesses and to broker the sales of major real estate investments. And that's because it became obvious to greedy equity investors that these countries were losing interest in just keeping their trillions of dollars as interest bearing deposits in banks and in U.S. Treasury debt instruments.
So now, it's been announced that sovereign wealth funds are where the money will come from to bail out Merrill Lynch from the sting of their $15 billion in losses that are directly related to bad real estate mortgage investments. A lot of which is secured by sub-prime mortgages.
And it's where a good deal of the capital will come from that will assist Bank of America in the capital it will need to keep afloat its acquisition of Countrywide Financial Corporation with its huge laundry list of defaulted mortgages.
Why do sovereign wealth funds have such an interest in making the huge, often times billion dollar investments in United States financial institutions - institutions that need money because of terribly poor performance and bad decisions?
Why are sovereign wealth funds willing, ready and anxious to take risks in United States companies when the equity funds domiciled in the U.S. aren't?
Think of it as "cross-border nationalization;" that is, it's a way for foreign countries to have the ability to eventually exert great power over the capitalization and health of United States banks, brokerage companies, financial institutions and the United States itself.
The federal government has seen no need to restrict these cross-border sovereign wealth fund investments on American soil.
Copyright 2008 - William S. Cherry
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