Friday, December 14, 2007

The Risks of Sovereign Funds

David Wessel, The Wall Street Journal (US: NY)

The chairman of the Securities and Exchange Commission, Christopher Cox, warned in a speech earlier this month, "For America to address one problem -- the special concerns that arise from government ownership of business -- with another one -- betraying our commitment to open markets -- would only result in more government interference in our own markets." No wonder U.S. officials are pleading with SWFs to subscribe to some sort of code of conduct. The second worry is that the SWFs is that they might not be in it just for the money. "The fundamental question presented by state-owned public companies and sovereign-wealth funds," Mr. Cox said, "does not so much concern the advisability of foreign ownership, but rather of government ownership." (Mr. Cox's concerns extend beyond SWFs. Eight of the 20 largest publicly traded companies in the world are state-controlled, he observed.) ... "The logic of the capitalist system," former U.S. Treasury Secretary Lawrence Summers has said, "depends on shareholders causing companies to act so as to maximize the value of their asserts. It is far from obvious that this will over time be the only motivation of governments as shareholders." ... The third worry is klutziness. When really big investors make really big mistakes, the consequences rarely fall only on the investors. The world economy is shuddering from the mistake that very large, sophisticated investors and lenders made in buying securities linked to mortgages.

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