Friday, February 29, 2008


The New York times recently asked “Does the America for Sale sign require a warning label?” The implication being, should the U.S. warn the global financial community that there are certain conditions to buying American companies? In this writer’s opinion, the New York Times has it wrong. These days it is not America that should have a warning label… the financial opportunists should get their Brioni designed lapels branded “HOSTILE”. Here’s why...

With weakness in the dollar, the world is coming to purchase everything, attached or not. It appears there are almost no limits… everything is for sale, our companies, our financial institutions and our real estate. Who’s buying? Well now, there’s the rub.

First let’s put the size of this new wealth in perspective. The average person going about the daily business of earning a living and attempting to build a life is familiar with the meaning of “wealth” as it might pertain to certain names who regularly appear in the media as being amongst the wealthy or wealthiest. Most of us can probably quote Warren Buffet’s stated fortune. By any measure the aggregate of his assets are substantial. They pale, however, when compared to the size of the foreign funds that have been accumulating through this past decade of oil price runaway inflation and global economic boom. Whether from trade, as China has done, or from the sale of a critical resource like oil, foreign governments have accumulated colossal amounts of cash. Some of this bullion has been parked in so called sovereign wealth funds. To this potent wealth, add the existing large pools of capital in off-shore trusts and funds also controlled by foreign governments, desert princes, dictators, and inheritors, and you have potential for irrepressible influence and leverage. Little is revealed of these enormous stores of wealth. They are not internationally accountable and there are no visible audit trails. They provide no structural evidence or transparency and their influence in the North American economy and markets is substantial.

Historically, corporate America has viewed these large baskets of cash as usually non-interfering deep pockets. Until now, it has been considered discourteous, indelicate, irritable and absolutely ungentlemanly to ask probing questions. The “depth and breadth” of this new-found power will engender audacious influence on whatever elements might fit the policy interests of its “owners” in the moment. Trade secrets will only be a line item in their “influence and pressure” list of priorities. They will have bigger fish to fry. The disturbing challenge to both the U.S. and Canada is that in the majority, these funds represent foreign entities antipathetic to North America’s way of life, its social structures and mores, its political structures, its culture and most importantly, its freedoms. This new financial clout is in fact new-found political authority for foreign geopolitical forces. This should energize all North Americans to sit up and take sober notice.

Heads of North American corporations, regardless of the wealth they have been able to privately accumulate, are pawns in the larger scheme of the global movement of capital and influence. It is unfortunate that senior executives managing these companies too often demonstrate a dearth of common sense, and default to “self-service” instead of considering the greater national perspective. Only very occasionally an acquisition emits blinding optics that politicians cannot ignore. Out of Congressional or Parliamentary pockets come the admonishing waving fingers incarnating “national security” or “national interests” and investigations are launched. Rarely is an acquisition, even one jeopardizing national security, ever stopped in its tracks. For such occurrence, a glaringly abusive corporate capture would have to have received an overdose of public attention.

Let us not ever assume foreign powers can be implored to act in our best interest. We can barely influence our neighbors to act conscientiously. Ask the Ukraine if getting oil cut off in winter by Russia was for financial reasons, or was for offensive political coercion. To date any attempts to bring reason to the table, clarify motives, or establish parameters for investments (acquisitions), have been all but dismissed out of hand and rebuffs have come with subtle warnings from individuals representing foreign interests. The IMF and the World Bank cannot be expected to provide surveillance or even negotiate on our behalf.

Is the current methodology satisfactory? 3Com’s recent presence in the headlines is a perfect reminder of the too present proclivity for careless and self-indulgent influence affecting decisions by both sides of the equation - the executives as well as the acquisitors. Only slightly further back in memory reside the shadows of Oriental Steam Navigation Co. (P&O) and its six major U.S. ports. There were at least two sources of bewilderment for Americans. One was that the company’s sale to the UAE (a foreign government) was being touted by the U.S. President, and the second was learning that the biggest “port” authority in the world was Dubai Ports World. “What? Who? How was this possible?” When it was finally slapped down following very loud public objection, did the threats from the UAE about damaging relations etc. ever come to pass? Not a chance. We should file that for future reference.

Now let’s go to the other side of the globe and consider the enlightening attitude of the Chairman of the China Investment Corporation, Lou Jiwei, speaking of the U.S., “if any country receiving investments has misgivings, China may choose to leave or look elsewhere.” We must heed this feigned indifference, while emulating the dispassionate “who cares.” Let’s not be so quick to further lubricate the already slippery out-of-balance free trade system. Prudence and sound judgment absolutely have to prevail, and balanced rules applied and followed.

Only a vigorous and impervious stance can be effective. It is a rare negotiation that is effectively concluded from a position of weakness. Since all acquisitions cannot be reviewed, foreign governments aren’t about to restrain themselves and executives will push boundaries whenever possible, what policy will protect the home front interests?

Answer: RULES. Congressional rules, not negotiated rules. The rules should include transparency of structure and control. The U.S.’s Committee on Foreign Investments should be dragged out of its closet and a more public vehicle installed for oversight.

This is at odds with the current approach of placating out of fear or out of misguided spirit of gentlemanly co-operation or perhaps ulterior motives or even backdoor inducements. Endless objections would surface, “we fear retribution” and “don’t we want their money?” and “our economy is in a downturn” and even “we can’t afford to right now, we need foreign investment” and “we can’t annoy these foreign governments” etc. Where else would they place their vast pools of capital? Will Saudi Arabia, Kuwait, Norway and Singapore switch a few trillion dollars to China's corporate sector? Or will Qatar, Bahrain and the UAE pull out of U.S. treasuries and markets, and perhaps invest in Russia’s unrecognizable version of democracy? Is there even another continent that the world’s largest pools of cash will move to? For the crumbs (risk capital) maybe. Not for the large cash. Owners of this new-found wealth and power may resent America, but they are not fools.

The U.S. remains the most stable and safe place for the world’s capital. PERIOD. No need to be arrogant – just confident.


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