Sunday, March 2, 2008
don't blame sovereign wealth fund - "This is our doing, not some nefarious plot by foreign governments"
--Mr Buffett’s intervention in the debate over sovereign wealth funds comes as several members of Congress and presidential candidates have expressed concerns at the lack of transparency of government-controlled investors. --But the “Sage of Omaha” said investments by sovereign funds, which have bought into several Wall Street banks and private equity groups, were a result of the US trade deficit, national debt and weak currency. --"This is our doing, not some nefarious plot by foreign governments,” the letter said. --He said sovereign funds were recycling dollar-denominated debt issued by the US. --“Our trade equation guarantees massive foreign investments in the US,” he wrote. “When we force-feed $2bn daily to the rest of the world they must invest in something here. Why should we complain when they choose stocks over bonds?” --Mr Buffett criticised financial institutions for their role in the current credit crunch, saying the fall in house prices exposed “a huge amount of financial folly”. --“You only learn who has been swimming naked when the tide goes out – and what we are witnessing at some of our largest financial institutions is an ugly sight.” --Mr Buffett also took aim at corporate America, scolding companies for overestimating the returns their pensions will produce to offset the expected expenses sure to mount as employees retire. There’s been much talk recently of sovereign wealth funds and how they are buying large piecesof American businesses. This is our doing, not some nefarious plot by foreign governments. Our trade equation guarantees massive foreign investment in the U.S. When we force-feed $2 billion daily to the restof the world, they must invest in something here. Why should we complain when they choose stocks over bonds? Our country’s weakening currency is not the fault of OPEC, China, etc. Other developed countries rely on imported oil and compete against Chinese imports just as we do. In developing a sensible trade policy, the U.S. should not single out countries to punish or industries to protect. Nor should we take actions likely to evoke retaliatory behavior that will reduce America’s exports, true trade that benefits both our country and the rest of the world. Our legislators should recognize, however, that the current imbalances are unsustainable and should therefore adopt policies that will materially reduce them sooner rather than later. Otherwise our $2billion daily of force-fed dollars to the rest of the world may produce global indigestion of an unpleasantsort. (For other comments about the unsustainability of our trade deficits, see Alan Greenspan’s commentson November 19, 2004, the Federal Open Market Committee’s minutes of June 29, 2004, and BenBernanke’s statement on September 11, 2007.)