Concern about 'sovereign wealth funds' spreads to Washington.

From International Harold Tribune:



WASHINGTON: For years, the Bush administration has shrugged off concerns about the trillions of dollars that the United States owes to China, Japan and oil-producing countries in the Middle East, arguing that these debts give no undue leverage to foreign governments.


But at a time of global financial instability, the administration has started to worry.


American concerns - like those of many European policy makers - focus on a growing but little understood trend of foreign governments converting their debt holdings into "sovereign investment funds" that are acquiring assets in the United States and elsewhere - and could influence the markets when they buy and sell.


In response, the Bush administration is pressing the International Monetary Fund and the World Bank to e

examine the behavior of these funds, which control as much as $2.5 trillion in investments, and to develop possible codes of conduct for them. Among the proposed rules would be an obligation to disclose their investment methods and to avoid interfering in a host country's politics.

Commentary: A good friend of mine was on the Federal Reserve conference call on August 16, 2007. Investors on that call were pretty shaken by the turmoil in the market due to the subprime lending plummet. Bernanke is under a lot of pressure to deliver. And I don't think that he can ever imagine dealing with this currency crises. Greenspan dealt with currency crises at least 3 times. Under predecessor Alan Greenspan, the Fed in 1998 cut interest rates three times as currency crises in emerging markets roiled Wall Street. But, we are dealing with a person that is not another Greenspan. It was mentioned in the call that new French President Nicolas Sarkozy and German Chancellor Angela Merkel are very displeased of the currency crisis as both of their countries are widely affected by the U.S. market. Both Sarkozy and Merkel told Bush in so many words: "You messed this up. Now you have to fix it." Now both Bush and Bernanke basically put a bandage on this crisis. Sure, Bernanke lowered the interest rate to please the investors but he borrowed money (uncollateral money) from the Federal Reserve. This mess will be here for a while as the financial wave will continue. If enough pressure from the investors and foreign leaders to Bernanke to fix this crisis, I look for Bernanke to bail out of his job real soon.