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Still Fear Those Sovereign-Wealth Funds?


In January 2008, I remember people in the U.S. freaking out about Merrill Lynch and Citigroup being buoyed by sovereign wealth funds from Asia and the Middle East. Obviously, people had predictably turned paranoid and protectionist at a time when it was assumed that there were options that would not jeopardize American national interests. Of course, these events give the already anxious and fearful population more of a reason to think America is declining. I personally found it ironic that these sovereign wealth funds are allowed to finance the U.S. federal deficit, but people get outraged when these same funds invest in iconic American institutions like Merrrill Lynch. Anyway, the public is fairly ignorant about these issues, so the reaction is not all that surprising.

What I wanted to raise in this post is how the American public would react if sovereign wealth funds jumped in to rescue the American financial system instead of the U.S. government reluctantly passing a $700+ billion rescue bill. Would people still be outraged or would they be relieved someone else has come to the rescue?

The reality of it is that sovereign wealth funds are worth trillions of dollars and they would have invested in the sick financial institutions of Wall Street if they deemed the risk was worth taking. Unfortunately, the wall street giants were too sick and it would have been bad investment for sovereign wealth funds to pump money into these companies. That's exactly why they didn't come to the rescue. Only the U.S. [and European] governments felt obligated to rescue the Wall Street giants at enormous cost to tax payers.

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