ABOUT THIS BLOG

I shall post videos, graphs, news stories, and other material. We shall use some of this material in class, and you may review the rest at your convenience. You will all receive invitations to post to the blog. I encourage you to use the blog in these ways:

· To post questions or comments;

· To follow up on class discussions;

· To post relevant news items or videos.

There are only two major limitations: no coarse language, and no derogatory comments about people at the Claremont Colleges.

The syllabus is at http://www1.cmc.edu/pages/faculty/JPitney/gov106-fall15.html

Search

Wednesday, March 5, 2008

Businesses plot strategy to protect wealth funds

From The Politico:

Sovereign wealth funds are teaming up with the private equity industry, business trade associations and major financial institutions to strategize a defense against the growing political scrutiny of the $3 trillion funds.

Last week, about 30 lawyers and lobbyists — organized, according to one attendee, by a representative from private equity firm The Carlyle Group — conferred at JPMorgan’s New York offices to discuss their role in the growing political issue.

Congress, the Treasury Department, the International Monetary Fund and the European Union are questioning the government-backed investment funds that have made several high-profile investments in Western financial institutions in recent months.

Two subcommittees of the House Financial Services Committee plan to hold a joint hearing Wednesday to discuss the role of foreign governments’ investments in the United States [...]

Over the past weeks, lawmakers have launched a series of inquiries into the funds. The IMF estimates that more than 20 of the funds, financed mostly by petrodollars and excess foreign exchange reserves, manage as much as $2.9 trillion — more money than either hedge funds or the private equity industry. [...]

Executives from two of the largest sovereign-wealth funds — the Abu Dhabi Investment Authority and the Government of Singapore Investment Corp. — met two weeks ago with Clay Lowery, the assistant treasury secretary for international affairs. The administration is supporting IMF efforts to create a voluntary code of conduct.

For policymakers, regulating the funds is a delicate balancing act. On one hand, fund investments have propped up financial institutions, bringing in much-needed capital and creating jobs during a period of economic anxiety. Over the past 11 months, the funds infused about $69 billion into financial institutions sapped by the subprime mortgage crisis, according to some estimates.

Hmm. So what does the public think about a way to pump money in a capital-deprived economy without having to cut rates and further devalue the dollar?
A survey conducted last week by Public Strategies Inc. found that 55 percent of registered voters thought sovereign-wealth fund investments would hurt national security, and 49 percent believed that investments would negatively affect the U.S. economy.
Not that there's no good reason to be suspicious:
“If you think of an investment made by a state fund, there could be multiple motives. Perhaps we want the airline to fly to our country. Perhaps we want the bank to do extensive business in the country. Suppose we want suppliers in our country to be sourced. Perhaps we want some disablement of a competitor for our country’s national champion," he [Senator Christopher Dodd] says.
And these sovereign wealth funds play it by the book:
Many of the funds have hired their own lobbyists and public relations specialists, who informally discuss the issue. They also work through existing diplomatic channels, including embassies and congressional trips abroad.

1 comment:

Dan said...

The story mentions that the meeting was set up by the Carlyle group. Here is some more info on them:
http://en.wikipedia.org/wiki/Carlyle_Group

"Connections between the Carlyle and the Bush family have inspired controversy, particularly in relation to the War on Terror and the Iraq War. George H. W. Bush and his Secretary of State James A. Baker III have at times been advisors to the group. One writer claimed that Saudi Arabian interests have given $1.4 billion to firms connected to the Bush family. Of this figure, $1.18 billion comes from contracts awarded to defense contractor Braddock, Dunn & McDonald, which Carlyle sold before George H. W. Bush became an advisor. A Carlyle spokesman noted in 2003 that its 7 percent interest in defense industries was far less than several other venture capital groups."