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A Growing Foreign Stake in U.S. Banks
Barney Frank (D-Mass.), who chairs the House Financial Services Committee, said that while there is potential for political "games to be played" by sovereign wealth funds, the greater concern is the economic weakness that has eroded the power of the U.S. banking system.
"The shift in power does not come from Singapore or Abu Dhabi investing in Wall Street, the shift comes from our economy screwing up," Frank said. "And the way we deal with this is not to say we aren't going to accept foreign investments but to fix what's wrong with our economy."
Richard C. Shelby (Ala.), ranking Republican on the Senate Banking Committee, has asked the Government Accountability Office to study the emergence of sovereign funds. "Senator Shelby recognizes the important role that foreign direct investment plays in the U.S. economy, and he welcomes such investment provided that it does not compromise our national security," said a Shelby aide, Jonathan Graffeo.
About two dozen countries have established sovereign wealth funds, including Libya, Iran, the United Arab Emirates and Australia. While precise data about these funds are difficult to obtain, most Wall Street analysts agree that their value worldwide has reached about $2 trillion and is likely to grow at least fivefold by 2012.
Notable funds include Norway's, which is viewed as a model of transparency and governance. Its managers have been actively advising several nations, including East Timor, Bolivia, Nigeria and Russia, which are starting funds. The Kuwait Investment Authority, a longtime investor in Chrysler, and the Abu Dhabi Investment Authority are also respected for their acumen and size.
China's source of money is its trade surplus with the United States and other countries. In the past, China poured much of its surplus, estimated at $1.3 trillion, into U.S. Treasurys. Now it is seeking higher returns and a more diversified investment strategy. On Sept. 29, it took $200 billion from its surplus and launched a sovereign wealth fund. One of the fund's first moves was to invest $3 billion into one of Wall Street's biggest names, private-equity giant Blackstone.
Sovereign funds' activity has demonstrated that they are primarily focused on maximizing profit, Frank said. They are not investing in the United States as "a goodwill gesture, but they are not doing it as foreign policy either -- they are doing it to make money," he said.