Foreign investments are just bailouts
As the U.S. banking system continues to get into more trouble, the government has responded by buying up stake in the failing companies. But Robert Reich reports the governments doing the owning are overseas.
Robert Reich (APM)
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Lisa Napoli: A delegation from the U.S. Treasury Department met recently with a couple of the world's largest sovereign wealth funds. They want to avoid a political firestorm as more and more foreign investment makes its way into the U.S. economy. Marketplace commentator Robert Reich says these investments from abroad are nothing more than bailouts.
Robert Reich: Over the past 30 years, the U.S. government has dismantled the system of regulation intended to prevent the sort of wild speculation that preceded the financial meltdown of the Great Depression.
Now, we're witnessing another financial meltdown, also fueled by speculation -- hopefully not as serious. Yet instead of regulating banks and other financial institutions, response this time is for government to own them.
Just last week, the British government decided to take over the troubled mortgage lender Northern Rock. This was after the Bank of England was forced to give the firm emergency funding to avoid a run on the bank.
Well, you might say, that's Europe. They've been nationalizing companies for years. But the same trend is happening in the United States. The difference is here, it's governments from Asia and the Middle East that are doing the owning.
Singapore recently paid $4.4 billion for an ownership stake in Merrill Lynch. The Chinese bought a $5 billion piece of Morgan Stanley. As their balance sheets continue to weaken, America's big financial houses are getting bailed out by selling out.
It's only logical. American banks need the cash and oil-producing and East-Asian governments have it. Yet there's no end in sight for the credit crisis, and Middle Eastern and East-Asian "sovereign wealth funds" are in the process of owning a larger and larger portion of the global banking system.
These funds are growing by more than a trillion dollars a year. And at this rate, they'll be the global banking system.
The problem is, governments are lousy at deciding where profits can be found. They're liable to make decisions based on politics rather than profits.
So it's the biggest irony in financial history. Decades of U.S. government deregulation of Wall Street has reaped a whirlwind of irresponsible speculation -- ending in a financial meltdown that's being remedied by government ownership, with all the strings that come with it. And it's not even our government that's holding the strings.
Napoli: Former Labor Secretary Robert Reich teaches public policy at the University of California Berkeley. His latest book is "Supercapitalism." In Los Angeles, I'm Lisa Napoli. Enjoy your day.
