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Foreign Investors' Exit Causes Lehman Woes

ROBERT SIEGEL, host:

Perhaps the strangest part of the Lehman Brothers saga is what did not happen. Where are the other foreign governments sweeping in to pick up a U.S. bank on the cheap?

Not that long ago, the governments of Abu Dhabi and Kuwait bought large shares of Citibank. Singapore's government bought a large part of Merrill Lynch. In fact, some politicians have warned of foreign governments buying up the entire U.S. infrastructure piece by piece.

NPR's global business correspondent, Adam Davidson, keeps an eye and an ear on these things, and he joins us now from New York. Hello, Adam.

ADAM DAVIDSON: Hi, Robert.

SIEGEL: So are there foreign countries knocking on the door, waiting to buy up Lehman Brothers?

DAVIDSON: Not that we've seen. It's really stunning. I mean, who knows what's happening in secret. But you know, Abu Dhabi, Kuwait, Singapore, China - a year ago, eight months ago, they were gobbling up all of these troubled U.S. banks or as much of them as they could, and I was just looking at some statistics.

In the last three months of 2007, these foreign, we call them sovereign wealth funds, these investment funds of foreign governments, spent something like $50 billion just in three months.

In all of this year, they spent far less than that - I mean, less than $10 billion, which for these guys is pocket change.

SIEGEL: Well, what's changed? What's the big - are they just tapped out, or what's the problem here?

DAVIDSON: Oh, they are not tapped out. Abu Dhabi has something like $800 billion to play around with. Singapore has many hundreds of billions. China, you know, has over $1 trillion of U.S. debt that they own and a very large and growing sovereign wealth fund. They have plenty of money.

Here's the thing. They realize that the U.S. government won't let them get a controlling share. In fact, the U.S. government won't let them get more than five or 10 percent ownership of these banks, and that comes with very strict rules.

It's very hard for them to get anyone on the board to really play a decisive role in running these banks. And a year ago, it seems, they were okay with that. They were willing to take a very limited role, even though they were spending a fortune. But now they're saying, wait a second. These banks are pretty badly run. If we're going to put our money there, we are not going to do it unless we have real power, unless we can run the show.

SIEGEL: Well, should the U.S. government then make it easier for foreign governments to control U.S. banks? Obviously, we can understand there'd be some political opposition to that idea.

DAVIDSON: Yeah, there's an awful lot of political opposition. And we're getting into some of the most hotly contested issues in the global economy right now.

There's no question, there is a desperate financial need for capital. We know that. U.S. banks don't have enough money to run themselves. That should be clear. I mean, I'm talking cumulatively. I'm not saying every single bank. I don't want to start a bank run.

But cumulatively, there are many banks with serious, serious trouble. And where are they going to get that money if they're not going to - these sovereign wealth funds are the single - these are the single largest investors in the world. If you're going to cut them off, then you have to find capital somewhere else, and lately, that's more and more been the U.S. government.

So financially, there's a clear answer - yes, we should let them invest. Politically, it's a much trickier point.

SIEGEL: Well, if it amounts to an issue of national security - that is, do we want the financial structure of the country to be owned by foreign governments - then how do you go about addressing this problem? Do you address the financial crisis and say, well, let's make it easier for foreign governments to control banks? Or do you say, well, let's just tough it out here and see what happens to our economy because we just can't do that?

DAVIDSON: You know, Robert, I lived in the Middle East for many years, and I covered the banking sector and economics there, and you know, there is a strong argument that it is good for our national security.

The more global banks, the more Gulf State banks and Chinese banks are interconnected into the U.S. banking system, well, the closer we're going to be and the better our relations are.

Of course, there are people who just don't buy that argument. And this is going to be - I predict this will be a growing issue in the next year.

SIEGEL: Yesterday on the program you told us that many foreign governments see the U.S. as a bit weaker because of the subprime crisis. Is the absence of eager foreign buyers, at least so far as we know for Lehman Brothers, is that more evidence of that phenomenon?

DAVIDSON: I think, definitely. I think the U.S. had a luxury for most of the 20th century and right on into the 21st century. We were able to really define the terms of our role in the global economy, and right now, at this moment, we can't anymore.

SIEGEL: Okay, thank you, Adam.

DAVIDSON: Thank you.

SIEGEL: That's NPR's global business correspondent, Adam Davidson. And news, we also have a new blog. You can find more analysis of Lehman Brothers and the United States' changing place in the global economy at our Web site. Go to npr.org/planetmoney. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Adam Davidson is a contributor to Planet Money, a co-production of NPR and This American Life. He also writes the weekly "It's the Economy" column for the New York Times Magazine.
Robert Siegel
Prior to his retirement, Robert Siegel was the senior host of NPR's award-winning evening newsmagazine All Things Considered. With 40 years of experience working in radio news, Siegel hosted the country's most-listened-to, afternoon-drive-time news radio program and reported on stories and happenings all over the globe, and reported from a variety of locations across Europe, the Middle East, North Africa, and Asia. He signed off in his final broadcast of All Things Considered on January 5, 2018.
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