US asks Arab nations for $300 billion to fund auto bailout

I kid you not.

The report comes from Saudi Arabia’s Arab News:

“According to reports published in Al-Seyassah, a Kuwaiti newspaper, and some other Gulf newspapers, the United States has asked four Gulf states for financial aid close to $300 billion to face the fallout of the financial crisis and help prevent its economy from sliding into a painful recession.

Washington is seeking $120 billion from Saudi Arabia, $70 billion from the United Arab Emirates, $60 billion from Qatar and $40 billion from Kuwait.

The Kingdom has dismissed these reports. There is enough evidence that the Federal Reserve is out of ammunition. The Fed can only control the supply of money, it cannot control the velocity of money or the rate of its turnover. The outcome of this crisis will be that the currency will be “devalued” as policy makers seek to weaken it, undermining its role as an international reserve currency.

The dollar is going to lose its status as the world’s reserve currency. The catalyst will be foreign creditors who are replacing dollar with gold. That will in turn lead to global recognition of the need for a vastly more disciplined financial system.

The Gulf’s vast investment funds are run by professionals who know that stocks go down as well as up. But they have lost heavily because of their forays into Western markets, particularly with their investments in banks, which are hit by the credit crisis.

Citigroup, Merrill Lynch, UBS and Barclays have all raised billions of dollars from the Middle East. The funds are now nursing heavy losses, such as those purchased by the Kuwait Investment Authority which invested in Citigroup whose shares have fallen by three quarters this year.

The impact on Gulf state funds is particularly acute given that largely declining oil revenues fund them. They are also likely under political pressure to invest more locally than in the past because companies in the Gulf are themselves fighting for liquidity now that the credit crunch has reached the Middle East. Investment funds from Kuwait, Dubai, Qatar and possibly Abu Dhabi are all shifting their focus.

Rick Wagoner, CEO of General Motors, the automaker in most imminent danger of failure, gave lawmakers three reasons why Chapter 11 was not an option. First, the special financing that usually tides companies over through reorganization is so scarce that GM might not be able to get enough to keep functioning. Second, the stigma of bankruptcy would deter consumers from buying GM cars.

Third, GM is already in the midst of a dramatic reorganization that will pave the way to a profitable future. President George W. Bush preferred choice is Chapter 11 for the US auto industry. Saudi Arabia should create a sovereign wealth fund run separately and independently from other government agencies. They should report directly to the king to get the best and most secure business opportunities.

We should not discredit or underestimate the threat raised by Henry A. Kissinger and Martin Feldstein in an article they published in the Herald Tribune in September.

It is time for Gulf leaders to look at the interest of their own country first. Helping the US automobile industry is not a good option for now. Wages in the auto industry are very high compared to other industries, together with pension and health-care obligations and the lavish entitlement that the management receives.

Gulf states have been helping and protecting the US economy for many decades i.e. having their currencies pegged to the dollar, quoting oil prices in US dollars, putting their entire surplus in passive investment in the US economy (they have lost over 40 percent of their assets because of the declining value of the dollar) and purchasing expensive weapons.

Many voices would like to drag the Gulf states into a confrontation with Iran as they did in the early 1980s when they convinced Saddam Hussein to invade Iran. Everybody knows the disastrous results. What happened to Iraq and to the entire region? Iran is not nuclear, Israel is nuclear.

Saudi Arabia and the Gulf states do not need the protection of other nations. They should depend on themselves and should not trust anybody but themselves for their protection. How could Saudi Arabia help the US auto industry and not help its own stock market that dropped over 80 percent from its value in the last 2 years? Saudi Arabia should help its citizens. Over 50 percent of Saudi families do not own homes. They rent homes.

The monthly income of most Saudi families is below $1,500. To sum up, if there is good business opportunities in the US, let us invest in them but the decision must be based on business calculations rather than other considerations.”