Chinese money isn't even the tip of the iceberg. The following is an excerpt from a book by Rolling Stone writer Matt Taibbi called, Griftopia: Bubble Machines, Vampire Squids, and the Long Con That is Breaking America . It will out next week beginning Nov 2:
Since 2005, at least 17 sovereign wealth funds have been created. As other countries grow their currency reserves, they will seek greater returns. Their growth has also been skyrocketed by rising commodity prices, especially oil and gas, especially between the years 2003–2008.
Sovereign wealth funds, or SWFs, are huge in the Middle East. Most of the bigger oil-producing states have massive SWFs that act as cash repositories (with holdings often kept in dollars) for the revenues generated by, for instance, state-owned oil companies. Unlike the central banks of most Western countries, whose main function is to accumulate reserves in an attempt to stabilize the domestic currency, most SWFs have a mission to invest aggressively and generate huge long-term returns. Imagine the biggest and most aggressive hedge fund on Wall Street, then imagine that that same fund is fifty or sixty times bigger and outside the reach of the SEC or any other major regulatory authority, and you've got a pretty good idea of what an SWF is.
Dr. Gal Luft, director of a think tank called the Institute for the Analysis of Global Security, would later testify before the House Foreign Affairs Committee about the rise of the SWFs. This is what he told the committee on May 21, 2008:
The rise of sovereign wealth funds (SWF) as new power brokers in the world economy should not be looked at as a singular phenomenon but rather as part of what can be defined a new economic world order. This new order has been enabled by several megatrends which operate in a self-reinforcing manner, among them the meteoric rise of developing Asia, accelerated globalization, the rapid flow of information and the sharp increase in the price of oil by a delta of over $100 per barrel in just six years which has enabled Russia and OPEC members to accumulate unprecedented wealth and elevate themselves to the position of supreme economic powers. Oil-rich countries of OPEC and Russia have more than quadrupled their revenues, raking some $1.2 trillion in revenues last year alone. At $125 a barrel oil they are expected to earn close to $2 trillion in 2008.
In fact, oil would go up to $149 that summer. Luft went on:
SWF are pouring billions into hedge funds, private equity funds, real estate, natural resources and other nodes of the West's economy. No one knows precisely how much money is held by SWFs but it is estimated that they currently own $3.5 trillion in assets, and within one decade they could balloon to $10–15 trillion, equivalent to America's gross domestic product.
Luft's analysis would square with a paper written by the San Francisco branch of the Federal Reserve Bank in 2007, which concluded that "analysts put current sovereign wealth fund assets in the range of $1.5 to 2.5 trillion. This amount is projected to grow sevenfold to $15 trillion in the next ten years, an amount larger than the current global stock of foreign reserves of about $5 trillion."
The San Francisco paper noted that most SWFs avoid anything like full disclosure, and there is little information available about what they may have invested in. One source I know who works at a Middle Eastern SWF explains that this is very much part of their investment strategy.
"They don't want publicity," he says. "They just want to make the money. That's one reason why you almost always see them buying minority stakes, as majority stakes would cause some countries to make issue of foreign ownership of investments. Sometimes it's multiple SWFs buying minority stakes in the same investment. But it's always thirty percent, twenty-five percent, and so on."
America, adds Taibbi, is quite literally for sale, at rock-bottom prices, and the buyers increasingly are the very people who scored big in the oil bubble. Thanks to Goldman Sachs and Morgan Stanley and the other investment banks that artificially jacked up the price of gasoline over the course of the last decade, Americans delivered a lot of their excess cash into the coffers of sovereign wealth funds like the Qatar Investment Authority, the Libyan Investment Authority, Saudi Arabia's SAMA Foreign Holdings, and the UAE's Abu Dhabi Investment Authority.
"Here's yet another diabolic cycle for ordinary Americans, engineered by the grifter class. A Pennsylvanian like Robert Lukens sees his business decline thanks to soaring oil prices that have been jacked up by a handful of banks that paid off a few politicians to hand them the right to manipulate the market. Lukens has no say in this; he pays what he has to pay.
Some of that money of his goes into the pockets of the banks that disenfranchise him politically, and the rest of it goes increasingly into the pockets of Middle Eastern oil companies. And since he's making less money now, Lukens is paying less in taxes to the state of Pennsylvania, leaving the state in a budget shortfall. Next thing you know, Governor Ed Rendell is traveling to the Middle East, trying to sell the Pennsylvania Turnpike to the same oil states who've been pocketing Bob Lukens's gas dollars.
It's an almost frictionless machine for stripping wealth out of the heart of the country, one that perfectly encapsulates where we are as a nation.