The Mad Hatter’s Guide to SWFs

February 12, 2009

In the category of exaggerated threats in globalised finance, sovereign wealth funds (SWFs) take the cake.    The discourse around these state-run investment funds and the risk that they pose to US / European economies has conspiratorial overtones with a money-as-domination flair that would make the best Latin American dependencistas proud.  The underlying question the SWF scare-mongers are really introducing is: would the governments who run SWFs (mostly Middle Eastern and Asian countries) use them for overt or tactical political purposes?

In all the hooplah about the risk that SWFs posed to Western states, what perhaps was not anticipated was the financial and political risks that these funds posed to their home country.   I’ve already commented on the impact that the current financial crisis is having on Venezuelan investments in western financial groups (an embarrassing outcome for Bolivarian Socialism), but I read today that Singapore’s Sovereign Wealth Fund lost $24 billion dollars because of investments in Citigroup and Merrill Lynch which tanked when the financial crisis started.  And this loss is helping to build opposition against the government, which has enjoyed a stable period of one party rule for 50 years.

What a topsy-turvy set of circumstances this is.  Not only is the risk running backwards vis-a-vis the initial SWF discourse, the losses are running in the opposite direction than those of almost all recent financial history.  Whereas in previous financial crises in the 1980s and 90s big Western financial institutions lost money by investing in the governments of Latin America and Asia, here governments in Latin America and Asia are loosing  money from investments in big Western financial institutions.  The implications on this for considerations of money and power and international political economy, and the mix of authority between private and public, are extremely interesting.  The Mad Hatter would be proud, and enjoy the riddle it all poses.

Thanks to A Picture a Day Keeps the Doctor Away for the picture.

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One Response to “The Mad Hatter’s Guide to SWFs”

  1. […] had a surprising amount of money invested in the failed investment bank Lehman brothers, and sovereign wealth funds in countries like Singapore, who were initially singled out as posing risks to the countries they […]

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