Tuesday, November 27, 2007
The blogger Eyeon08 notes that the Abu Dhabi Investment Authority has agreed to pump more than $7 billion into Citigroup, and wonders whether the protectionists of the left and right will demagogue the transaction as they did the aborted Dubai Ports deal last year. Conservative blogger Bill Quick did not, actually, "demagogue" the deal, but did attack Eyeon08 for suggesting that critics of the deal would be demagogues:
Yeah, right. Any opposition to the ever-growing influence of Middle Eastern Arab oil money in American markets, society, or other affairs is nothing but demagoguery.
That’s the sort of demagoguing that pretty much cancels itself.
Without wanting to get between these two bloggers and their parsing of demagoguery, may I respectfully suggest that "any opposition to the ever-growing influence of Middle Eastern Arab oil money in American markets" needs to start with opposition to sending American dollars to Middle Eastern Arabs. As long as we choose to ship Abu Dhabi and other oil exporters dollars by the hundreds of billions to pay for oil, they are going to need a place to spend or invest those dollars. They can either spend them on American products or invest them directly in American assets, or they can spend and invest them in Europe and Asia and then Europeans and Asians can spend and invest them here. Frankly, I'd rather that those dollars be spent and invested in the United States directly than wait around for them to be laundered through the economies of Japan, France, Germany, and the United Kingdom who knows how many times before they make it home again.
CWCID: Glenn Reynolds.
By a relatively modest injection of cash into Citi (and 7 billion is small compared to what's at stake), the Emir of Abu Dhabi gets a nice return from the largest commercial bank in the US, props up the stock market a little (where there are probably many more billions invested), and slows the depreciation of the US dollar (of which all the OPEC states have a lot of in the mattresses).
So pretty shrewd on their part, and exposing a weakness of our society in wanting bend over backwards to recruit people into the middle class by creating all the sub-prime lending practices to sell houses.
I guess it all makes sense some where.
It isn't recruitment into the middle class that's going on in the housing market, it's just pure speculation.
Borrowers borrow more than they can afford, assuming their new homes will be worth much more in the short term and will prop up a refi.
Banks lend to people who shouldn't get loans, on the same premise, that the house itself carries everybody.
Mortgage brokers ditto, more mortgages, more fees...
Everybody's in it for the money, and nobody cares about 'the american dream' of ownership. It's a futures market with homes playing the role of porkbellies.
It's just a bubble popping, a correction happening. Has to be allowed to happen.
It didn't help that the government pressured lenders to lend to people who couldn't afford it.
US dollars are a ticket in line to say what the US economy does next. The Fed creates and destroys them so that the number of tickets matches what the US economy can do at once.
If US dollars go overseas, they leave the active US money supply, and the Fed replaces them until such time as they reappear. Then the Fed soaks them up again.
It hardly matters what they do while away, but it amounts to a loan to the US government for that duration.
What's happened here is that people became enormously less nervous about Citibank owing them money, which gets rid of the financial jitters. They now have the implicit backing of Dubai petrodollars.
"Middle Eastern dollars"?
Money has no nationality, and last I checked Citi still counted on the US for nearly half of it's global business. It's still a listed company here, with substantial American management. Not much has changed since yesterday except that the governors of the NY Fed are resting easier and the Treasury Department is enormously relieved, thanks to Citi finding new capital.
We argue all the time that Arab governments need to understand that our country's economic well-being should be hugely important to them. Freedom of investment in US governed businesses helps bring a point of economic self-interest reinforcement to that argument.
If what people are worried about is the decline in US influence in world financial markets, I'd respectfully suggest Citi's stock ownership is not where they should focus their concerns. Nor should the decline in the value of the dollar be the big issue.
Punitively high American tax rates relative to the rest of the developed world is where the greater problem lies. A national tax policy that is anti-savings is a problem. Legislation like SOX and it's ilk is another big issue.
Economic "nativists", or whatever you want to call them, should be howling about those big issues rather than complaining about a small investment in a struggling bank.
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