While Sovereign Wealth Funds have existed for several decades, it has only been in the last few years that their investment schemes have been investigated and scrutinized. While their portfolios and long-term goals vary, one common trait every state-controlled investment fund shares is that the initial seed money came from the pockets of coerced taxpayers or nationalized resources.
Armed with billions of dollars in dishonest money, these institutions are lauded as messiahs, brokering 11th-hour bailouts and refinancing troubled megacompanies. According to The Economist, in the past year alone SWFs have “gambled almost $69 billion on recapitalising the rich world’s biggest investment banks.” FULL ARTICLE
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This is a good article.
Whilst the Cato Institute and others defend the S.W. funds as examples of free enterprise – you understand that they are government owned and, thus, that their buying of companies (in all or part) is increasing the size and scope of governments.
In simple terms, it is a “bad thing” not a “good thing” as the Cato Institute people and others think.
I think that SWFs owning any part of the means of production in the US (or in any country, of course) should be illegal.
If the Department of Energy decided to buy up Exxon Mobil, wouldn’t we be up in arms?
Yes, and incidentally, this is a serious problem with Social Security privatization schemes. The government will be in the business of selecting institutions into which these “private” forced-savings accounts are invested. That will give government a major new role in the financial markets.
Another point here is that these SWFs would have much less dollars with which to invest if the dollar was not so cheap. Their activities would be much less controversial if the Fed was not monetizing so much government spending, resulting in foreign governments having much higher dollar-based assets (and only a limited demand for t-bills). From this perspective, the SWF controversy reflects another unintended consequence of maintaining a fiat currency.
Good article, Tim.
We should be allowed to sell to whoever is buying. If SWF invested companies don’t preform due to inefficiencies caused by SWFs then that is disincentive enough against such schemes.
in the us’ constrained financial situation, i think the swf’s are a godsend. their money is as good as anyone’s. the umbrage is for the taxpayers of the foreign nations.
in a garage sale, i don’t refuse to sell to the chap who is mean to his family, unfortunate as that may be.
So, government ownership of the means of production is OK?
I believe there is a word for that, http://www.answers.com/socialism?nafid=3
Risking a nation’s forex reserves is, in principle, the same as lending out gold bars held in trust on behalf of a client who engages your gold depository service – this is commiting Fraud. The central banks of China, Singapore, Kuwait etc are, in essence, practicing fractional reserve banking big time, and without consent of the domestic currency holders (but who dares object?).
Put another way, every Reminbi, SingDollar, Dinar etc printed is supposedly backed by equivalent US Dollar as asset as if the latter were “good as gold”. But of course, the Dollar has not been “good as anything” since Trcky Dick took the US off the tyranny of the gold std and turned every Dollar into fiat.
Fiat paper as forex reserve is sinister enough, but commiting fraud on top of that and calling it “investments”? That’s just adding insult to injury – to the clueless, economics-ignorant and helpless peoples of these SWF countries. They don’t even know they are getting ripped off, not once, but twice.
No, not even twice, but thrice! When these non-Calculating “investments” fail (China/Blackstone?) , guess who will be footing the bill? Again.
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