This political economist and investor likes ideologies, but does not like to favor only one. Theoretical economics is not ideological as long as you do not let it become too influential in policy making (of course there is abuse of economic theory by politicians, as there is of religion or fear of epidemics). I see it as an interesting and not too difficult branch of applied mathematics, and a source of inspiration for politicians. But this blog is about economics and it does not do any harm to adopt mainstream economics reasoning occasionally for comical effect, despite being aware that the good people of Michigan etc do not like to default to subsistence wages because their output is no longer overwhelmingly attractive. Rather than hanging their managers (past and present), union bosses, and themselves they would like someone to give them a break and that could only be a very great fool like Uncle Sam, but, let’s face it that is precisely what politics is all about, you take from the commons what you gan get away with. Physicists do not know these things, of course.

the net effect tho will be that the US does own financial assets abroad through say its ownership of AIG. but i would still disintguish among SWFs that have a BoP/ XR management function and those that do not.

2fish — i have a lot of sympathy for your point that SWFs are more different than alike , as they tend to be reflections of the politics of their home country.

The fact that Obama is President-elect in part because he won Michigan and Ohio. A lot of real world economics cares very little about ideological consistency.

As usual excellent comments but:

Why should the US automakers not go the way of US shipbuilders? Why van Toyota, Honda, BMW and Daimler Benz produce conomically in the US whilst GM and Ford cannot? Why then should the US gvt bail the shareholders and creditors out? Pension liabilities?

The current trend may be to give even state banks some real capital, but that my be for four reasons: (1) as a mechanism to harden budget constraints and reinforce managerial incentives (2) rating agencies do not like to give high ratings to nationalized industries unless they are explicitly guaranteed (or use some mechanism to guarantee claim holders automatic recourse to the state itself (3) international activities may require Basle I or II compliance and (4) posibly to provide an earnings cushion, which would of course amount to a subsidy, unless there was a dividend obligation attached.

The key thing remains that nationalized banks have to function like well-managed private banks, i.e. like banks that can maintain sufficient capital to absorb reasonable unexpected losses whilst offering competitive returns to providers of risk capital. The current, near-manic environment in mainstream capitalist systems makes that difficult for anyone, private or state, so capital has basically lost its managerial incentives function, hopefully temporarily. Capital within the Chinese environment (clearly not a mainstream capitalist system) is different. The market has a pretty unique “logic” and raising capital from the state is, like everywhere else, a political activity and hence follows rules specific to the political culture (connections, accountability, transparency, contestation etc) the stated rationale may even be similar to that used in the “west” but the real balance betwen the 4 reasons may be very different

It’s unlikely to happen in the near or possibly at all because CIC was billed as bringing Wall Street fund management expertise and ideas to China, and right now things are on hold because people aren’t sure if this is a good idea or not.

The original idea was that CIC would have had fund managers announced in Q1 2008 and there were RFP’s send out. This has obviously stopped dead because of the financial crisis.

The other thing that is a very pressing issue right now is what the United States government wants to do with General Motors, Ford, and AIG. Rather than talking about last years SWF issues, I think it’s better to come up with the pressing issues right now. I haven’t even seen any list of what are the possible options that the US government has with respect to General Motors.

This all is relevant to the topic of SWF’s, since I would not be surprised if in five years, the US ends up with a huge SWF that owns large parts of General Motors, Chrysler, AIG, and several banks. The reason I see this happening is that I while the US government might try everything is can to avoid nationalizing General Motors, it may come up with the reality that GM either gets nationalized or liquidated.

So maybe there are steps other than nationalizing General Motors, but I haven’t heard of any public discussion listing them.

I think the notion that SWF’s really have *anything* in common with each other is a flawed assumption. There’s no particular reason why a Norwegian SWF should look anything like a Qatari or Singaporean one, any more than the politics and economy of Norway look anything like the politics and economy of Qatar or Singapore.

I also don’t think that it makes any sense to talk about “international best practice” at all, since that presumes that we know a lot more about economics than we do. A lot of the assumptions that I’ve seen in “best practices” documents are things that have become discredited or obsolete in the last two months.

Stempel: . The IMF did valuable work with its Santiago Principles, the Principles for Responsible Investments would provide a further opportunity for SWFs to gain credibility and trust among western policy makers.

Why is “credibility and trust among Western policy makers” a particularly important consideration?

Also the Santiago Principles seems to be your standard “useless and silly bureaucratic document intended to convince people that we’ve really done something when we haven’t.” The problem is that if you get SWF managers to agree to something, they go home, and now what? Just because you have SWF managers agree to something doesn’t mean that the people that they report to will care about any of this.

What does “most of its initial allocation” mean specifically? What percentage has been invested? Maybe you have already talked about this in a previous post?