How U.S. Spending Feeds Foreign Buyers
Friday, Dec. 21, 2007 11:56 a.m. EST

A Singapore-government investment fund sank $5 billion into Merrill Lynch. Bear Stearns got $1 billion from China. Morgan Stanley, $5 billion from China, and Citigroup $7.5 billion from Abu Dhabi.
Now Singapore is reported to be getting into Merrill, another $5 billion, according to press reports.

Sounds big, but these are tiny slices of huge companies. The bigger, and stranger, piece of the news is the horrendous, double-digit rates the banks are promising in return for much needed cash.

Ironically, too, is that much of the money was only recently in American pockets, traded away for cheap clothes and toys and expensive gasoline. Cash doesn't evaporate, and it doesn't have much elsewhere to go but back to the $14 trillion U.S. economy.

Foreign government funds stuffed with dollars "are making use of the crisis to buy some of these banks on the cheap," said Nicholas Yeo, manager of more than $40 billion in Asian equities at Aberdeen Asset Management in Hong Kong.
"Whether they're buying cheaply enough is hard to say," Yeo said.

The trend extends beyond subprime-damaged Wall Street firms.

Ford is looking to sell its Jaguar and Land Rover brands (which, of course, were once British), to one of two Indian companies. Tata Motors is the likely winning bidder.

It is reported that Tata will pay nearly $2 billion for the two luxury brands, less than half the prices Ford paid to buy the companies.

Not everyone is happy. Jaguar dealers, for instance.

"I don't believe the U.S. public is ready for ownership out of India of a luxury car make," Ken Gorin, chairman of the Jaguar Business Operations Council, a trade group representing Jaguar dealers, told The Wall Street Journal.

"And I believe it would severely throw a tremendous cast of doubt over the viability of the brand."

Most Americans think of economic globalization as the expansion of U.S. business interests in other countries. But it can easily go both ways, as it should.

Foreign companies often look at America for what it is, a rich pool of consumers. And while foreign investment in the U.S. is grabbing headlines lately, it is nothing new.

The Congressional Research Service says foreign investors owned about 10 percent of U.S. publicly traded stocks and bonds at the end of 2006. Foreign investors also directly buy U.S. businesses, equipment, and real estate, a total investment of nearly $1.8 trillion in the US economy.

The Federal Reserve reports, too, that foreign investors own more than half of all publicly traded U.S. Treasury securities.

Foreign governments control nearly 20 percent of all foreign investment, a figure which is growing.

The source of these investments has long worried some, however. Only last year, political pressure killed a purchase of U.S. port operations by DP World, a Dubai firm that is U.S. friendly and in a remarkably secular Middle Eastern country.

While these conditions have existed for some time, fear about their consequences has been around just as long.

In the 1980s, U.S. consumers feared Japan, whose imports were cheaper and better than many U.S. products.

These fears may have peaked, along with the Japanese stock market, near the end of 1989, when Japanese investors purchased Rockefeller Center in New York City. At the time, tourists were quoted complaining about "selling the country away."

It’s likely that large foreign investments will continue to be in the news, and in an election year politicians may feel a need to react to concerns such as those expressed by the Jaguar dealers.

We’ve seen this before, in 1930, when politicians passed the Smoot-Hawley tariffs in an attempt to calm a disgruntled electorate.

The decade that followed is notable for many things, but the act did one thing absolutely: It protected American farmers and workers from foreign investment.

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