The US is Losing at Its Own Game: Free Markets

Below I am attaching another story that feeds to broader shift in global capital that I have been following for the past two years now. The US is setting itself up to be taken over, piece by piece. Without xenaphobia, protectionism, and racist policies, the US will find itself a nation of Sharecroppers as the author below states, with 'the others guys being the owners'.

Capitalism requires the system to house the 'haves' and the 'have nots' (or as George Bush said at a dinner, we are the 'have more's). Through the WTO, we have forced an agenda of open borders for trade down the world's collective throat. But watch the cycle: real estate has collapsed leaving those assets dangling like ripe cherries in the summer. US publicly-traded-corporations' stock values are trading at historical LOWS given profits. Finally, our insatiable appetite for oil, combined with the pathetic dollar, have sent oil through the roof! What this means is that dollars from our payrolls literally migrate to the Middle East. Those countries are now dollar rich and are on buying sprees. Isn't that what the US meant by free markets? Free flow of capital, goods, and services?

Two major deals in the past three years were scuttled because of 'national security': the Chinese effort to buy Unical (oil company) and Dubai Port's efforts to by harbor space in the US. If the world is a free and fair economy, why shouldn't those companies be allowed to buy them if they have enough cash and debt?

Instead, the US will doubtlessly head to 'protect itself' and close itself off to free trade. This would be disastorous for the economy: the price rise of goods and services would vastly outpace the growth of wages if we start taxing goods from China...

The US has a problem with these sales because they are tied to investment companies connected to foreign governments, arguing that these government investments are for their national security and may not have any economic sense, as if foreign governments shouldn't invest in their own security.

The joke is that many argue that the US GOV has done precisely the same thing for the past two hundred years: protecting and expanding the rights and roles of US corporations around the globe. The difference is that the US GOV doesn't directly own these corporations: no, instead, the US GOV goes out of its way to help these corporations and no chance of profiting on them, and then actually subsidizes these corporations with no ownership in return. The effect is the same however, as repeatedly in history, the US GOV has done everything in its power militarily and diplomatically to expand the nation's security interests through corporate tyranny abroad. The Banana Republics are an early example and Iraq is a modern one.

The sad part is that the game of cheating and pilaging is finally coming home. Foreign cash hordes are gobbling up US assets from slices of companies like Blackstone to chunks of real estate in NYC and elsewhere...

I see no easy solution.

AA

The Deal Story of 2008:
Will the U.S. Get LBOed?
November 20, 2007; Page C1

China and the Gulf states are hungry, and they've just sat down for an American buffet. In the last few months alone, state-affiliated funds and companies have taken bites of American icons, picking up small stakes in Advanced Micro Devices, MGM Mirage, Nasdaq Stock Market, Blackstone Group and Bear Stearns.

The deals were designed to be small enough to avoid scrutiny from the U.S. government. This conveniently played into the hands of sellers, who were able to offload pricey positions while giving virtually nothing in return, such as board seats or veto rights.

But the mergers-and-acquisitions story of 2008 will be how these foreign sovereign funds -- sitting on an estimated $2 trillion to $3 trillion of reserves -- direct their appetites. Fattened by the U.S.'s own trade imbalances and encouraged by favorable currency rates, they aren't likely to stay so compliant for long. Further down the buffet line sit entire U.S. companies.

Seven sovereign funds, including those of Abu Dhabi, Kuwait, China, Singapore and Russia, now sit on piles greater than $100 billion. Outside the U.S., these funds have proven more adventuresome, with a Dubai company recently moving to take ownership of the airport in Auckland, New Zealand.

This foreshadows some uncomfortable economic and cultural reckonings for the U.S. The modern gamesmanship of corporate interests is beginning to look more like "The Great Game" of national interests, where capital, as much as armies, can be deployed for strategic effect. And on this field of play, the U.S. looks caught off guard -- not unlike the cocksure Olympic basketball squad, run out of the gym by ostensibly weaker teams.

"When governments act in this field, the motives are different," says Deszo J. Horvath, Dean of the Schulich School of Business at Canada's York University. "The motives are longer-term security issues, which can have nothing to do with current economics."

Sen. Evan Bayh captured the new concerns at a congressional hearing last Wednesday. "The definition of national security interest is broader than it used to be," he said. "[Y]ou'll see the Chinese going around the world acquiring what they view as strategic energy interests, and it is not impossible that financial positions might be used in a similar vein."

That's why this incoming wave of foreign money will reveal more about the U.S. than about countries initiating the deals. Laws overseeing foreign investments were just given a much-needed overhaul. But at its core, the issue is as much about emotion and pride as it is about process, says Ivan Schlager, a partner in the Washington, D.C., office of Skadden Arps, who handles cross-border transactions.

Foreign investments touch a nerve, especially when so much American economic power appears at the mercy of China, which holds U.S. Treasury bills, or the Gulf states, which have such a big say over U.S. energy costs. For 2007, foreign buyers have accounted for 20% of M&A in the U.S., according to Dealogic, the second-highest level since 1995.

"We have not fully grasped what is happening here, and we have no counterstrategy," said Patrick Mulloy, Washington representative of the Alfred P. Sloan Foundation, a group studying technology, business, and economics.

Can the U.S. accept the foreign investments as an essential element for lubricating a dynamic economy? Tighter economic ties create less incentive for war and terrorism. And below the radar, a recent series of foreign investments have closed without incident. "No one raised serious objections when Sabic [a state-owned Saudi Arabian company] bought GE Plastics in a competitive auction. Are we culturally ready? We're a very welcoming and open society," adds Mr. Schlager.

Until it's not. Already the country has proven touchy, famously fretting when a Japanese businessman overpaid for the Pebble Beach golf resort back in 1990, or when a Dubai-backed company looked to take over a series of U.S. ports in 2006, setting off a talk-radio furor that squelched the deal.

It's easy to find conspiracies in these governmental funds, in part because they have such little transparency. The Group of Seven leading nations recently called upon the International Monetary Fund and World Bank to study ways to improve disclosure and accountability.

With a weak dollar and the ever-enriched positions of petro-based economies, it's inevitable that the worries will continue to stew. And it's inevitable that they will one day interfere with a big sovereign-fund investment plan.

The irony is the U.S. is, in essence, funding its own potential takeover. In Wall Street parlance, they call it getting LBOed. "We're moving to a sharecropper economy," said Mr. Mulloy in an interview. "The other guys are going to be owning, and we're going to be working for them."

Email dennis.berman@wsj.com. For a daily comprehensive look at the world of deals visit wsj.com/deals.