Monday, October 15, 2007

From SIVs to SWFs

Rich Nations dread Sovereign Wealth Funds

Washington: With the annual general meetings of the International Monetary Fund and the World Bank just a week away, treasuries and finance ministries of the rich nations (G7) have accelerated their call for international controls on sovereign wealth funds (SWFs).

In the context of the ever increasing financial clout of these state backed funds, the concerns of the rich states go beyond the normal definitions of economic protectionism and xenophobia. Many in the developed world see these financial leviathans as potential threat to global financial system and ultimately capitalism itself.

If all this alphabet soup is getting you a bit confused, just repeat after me:

SIVs are good- because the biggest financial institutions in the west will use them to hide their poor investments off their balance sheets.

SWFs are bad- because the state managed funds in the Middle East and Orient (which by the way are, in the main, the repository of a good portion of US trade deficit IOUs) will be used to buy up the West and thus endanger our sovereignty.

Both are artifacts of a global monetary system run amok.

In a sense, the fear is that these SWFs are like CNOOC buying Unocal or Dubai Ports buying port operations in the US on steroids, unless, as the French are planning:

To stand up to the ever growing financial power of these funds, France is drawing up a report to protect certain state owned strategic interests from the potential financial clout of these funds.