- The Washington Times - Sunday, May 17, 2009

TAKE THE MONEY AND RUN: SOVEREIGN WEALTH FUNDS AND THE DEMISE OF AMERICAN PROSPERITY
By Eric C. Anderson
Prager, $49.95, 251 pages
REVIEWED BY JAMES SRODES

I wish I was the publisher of this book. I would print subscription editions in a loose-leaf ring binder format so that the informative tables of statistics could be updated monthly. Also, I would put the entire book on the Internet (for a hefty fee) so the fast-changing events described so lucidly could be reflected on an almost daily basis. That’s how fast the global financial market revolution reported herein is changing.

This is not to say that “Take the Money and Run” (that was probably sent to the presses last autumn) has been made out of date by the events of the last six months. Rather it is an essential primer that the concerned citizen needs to read to start making sense of the bewildering chaos of an economic recession that is being declared over before it is fully under way and of a global marketplace where major financial centers seem to have moved overnight to the capitals of once inconsequential nations.

The author, Eric C. Anderson, a veteran international security analyst, is not the first to cast a wary eye at the growth of the so-called sovereign wealth funds used by cash-flush nations to enhance their investment yields from the capital-straightened economies of the industrial West. But he is the first to make the link between those funds and the emergence of a form of state capitalism that has swept into power through emerging Asian economies through Europe’s giants and, not least, through the United States. When the American chief executive can fire the CEO of shareholder-owned General Motors and make it stick, that is state capitalism, make no mistake.

Sovereign wealth funds are not new; the first were started 50 years ago as trust accounts to manage the windfalls of small emerging post-colonial economies. But particularly in the last 30 years (since the first OPEC oil shocks) a whole range of nations found they were accumulating hard currency surpluses from Western consumer economies well in excess of even the most conservative requirements for official foreign exchange reserves. Coincidentally, a new generation of these countries’ best and brightest emerged from the world’s leading business schools eager to boost the yields on their national wealth by more aggressive investment strategies. Their rulers eagerly agreed.



Mr. Anderson reports that in 1990 the existing sovereign wealth funds had about $500 billion in management; as of last autumn that amount had swollen to $3 trillion and there were projections of a $12 trillion pool of capital by 2015, at least before the current downdraft. To be sure much has changed since then. As much as $1 trillion of that $3 trillion sovereign wealth fund pile may have been lost in the global shakeout of values for real estate and share portfolios. The Gulf Cooperation Council (GCC), the embryonic central bank mechanism of the Arab Gulf oil baronies, has admitted to a projected overall current trade account deficit this coming year, the first since 1998.

That does not mean this book has gone the way of those countless volumes of over drawn, slightly xenophobic warnings of 20 years ago that Japan and other suspect nations were about to buy up all of America and pack it off to Tokyo or some other unmentionable place.

To the contrary, Mr. Anderson makes a case that the current whip-saw of economic conditions embodied in the sovereign wealth funds is part of a broader, more perilous trend which sees now-vulnerable economies — emerging and industrial alike — rushing toward the supposed safety of intrusive government controls of a kind that would have been unmentionable during last year’s election campaign.

None of this mattered much a generation ago when the state economies of the Soviet Union, China and lesser players like Taiwan and Singapore had little impact on our markets. But now governments control huge reserves of energy and raw materials, and their decisions on how to protect their home markets while expanding their reach abroad directly affect American jobs, consumer habits, and even our abilities to shelter and feed ourselves.

Says Mr. Anderson, “The rise of sovereign wealth funds is a milepost on the road to change. In this case, we are witnessing the emergence of a new international monetary system — a system in which carefully marshaled foreign exchange reserves could become a legacy of the past.… It now appears 50 years of U.S. dependence on the largesse of strangers is about to come to an end. U.S. consumers and politicians are no longer going to be able to depend on access to cheap money as a means of affording a lifestyle significantly beyond our means.

“Sovereign wealth funds are, however, more than a sign of change to come, they also represent a potential arrival of the bill collector. As central banks turn increasingly larger slices of a nation’s foreign exchange reserve over to aggressive investors, there is apt to be an associated decline in the propensity to sit on nonperforming loans. In this case, I am explicitly referring to low interest U.S. Treasury notes,” he adds.

Treasury Secretary Timothy F. Geithner needs a copy of this authoritatively researched and accessibly written wake-up call.

James Srodes is a veteran Washington financial journalist and former bureau chief for Forbes and Financial World magazines.

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