Matt Zeitlin

The Wall Street Journal editorial page is an interesting beast.  To simplify things, on foreign policy it has the rubric of “what policy is most aligned with hating/killing Arabs” and on fiscal policy it primarily answers the question of “what policy will benefit big businesses/rich people the most.”  With the government of Abu Dhabi’s 7.5 billion dollar bail out of Citigroup, these instincts came into stark conflict. Do we support bailing out banks so they can continue risky investing?  Or do we want to complain about how evil Arabs are? Turns out the latter won out:

Most important, no one should be under any illusions that Abu Dhabi’s investment is a normal commercial transaction. It comes from a sovereign wealth fund controlled by a foreign government, which has political as much as business interests; from an Arab government that has a troubling history with American banking laws; and it offers a Middle Eastern entree into the U.S. financial system that since 9/11 plays a pivotal role in the war on terror.

But WSJ, isn’t free exchange and open markets supposed to be a good thing?  Or does that change when it’s Arabs doing the investing.  I’m used to misplaced concerns over so-called “sovereign wealth funds” from populist-right wingers and trade-sceptic liberals, but from the WSJ?  I must say that I was a little surprised.  But there’s no reason to be concerned, Abu Dhabi is absolutely flush with dollars and euros due to increased oil prices, and because there isn’t much of an Arab financial sector, it only makes sense that they would invest in Western companies.  There is little difference between this and CALPERs investing in foreign companies, or a Sweedish pension fund investing in an American company. They have all the political leverage they need from oil, what they want is to simply get a good return on their investments.  Until there is solid evidence that they’re up to no good, this instinctive retreat into market-nationalism is pointless.

The Journal moves on to something approximating conspiracy mongering and/or  arabophobia when discusses the dastardliness of “arab interests”:

Perhaps the Abu Dhabi of today has moved beyond such threats. The United Arab Emirates have helped us in the war on terror, and the U.S. is the ultimate defense for the oil-rich emirates on the edge of the Arabian peninsula. One can argue that investments like Abu Dhabi’s draw both sides more closely to each other, and so are mutually beneficial.

Yet everyone should also admit that this investment means that Arab interests will now have inordinate sway over America’s largest bank. Abu Dhabi’s 4.9% stake combined with the 3.9% stake of Saudi Prince Alwaleed bin Talal makes them the bank’s dominant shareholders, and who knows how many other smaller holdings are in Middle Eastern hands. The small Gulf states may be governed separately from Saudi Arabia, but they are closely linked by geography, family ties, and national interests. For purposes of political influence, they often behave as part of the same tribe.

In that regard, the 4.9% gambit looks all the more troubling as a way to avoid Fed scrutiny. If the investors’ motives are merely commercial, why go to such lengths? The wire-transfer system is crucial in the war on terror, and at a minimum the Fed and U.S. Treasury need to know that Citigroup will continue to cooperate in sanctions against terror states and tracking terror financing. Citigroup’s enforcement unit should be given a thorough scrubbing.

Ok, so the WSJ has identified that 8.8% of citibank is controlled by “arab interests.”  Do they have any evidence of Arab sovereign investment funds  using their investments in Western companies to support terror, or advance their geopolitical interests.  The Journal doesn’t say this flat out, but asks us to assume that Arabs making money can only be bad for US interests. More importantly, just because these so-called “Arab interests” control 8.8% of Citibank doesn’t mean they’re running the company.  Last time I checked, former Treasury Secretary Robert Rubin is in charge over there.  Does the WSJ really think that an uber well-connected former Treasury head is going to lighten up Citibank’s cooperation on anti-terrorism issues?  Really?  This is bogus fear-mongering that they can get away with only because of most peoples’ ignorance of financial markets and inclination to suspect Arab leaders as generally being up to no good.

PS – Read Dani Rodrik on sovereign wealth funds.  This line sums up my view rather well, “The creation of sovereign wealth funds is an attempt to diversify from these low-return investments, not a strategy to increase ownership of U.S. and other assets further…the global financial system depends on investors and traders acting so as to maximize their economic return.”