The Wall Street Journal-20080216-What-s Wrong With Sovereign Investments-

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What's Wrong With Sovereign Investments?

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Sen. Evan Bayh ("Time for Sovereign Wealth Rules," op-ed, Feb. 13) thinks foreign SWFs investing in U.S. corporations is dangerous and that Congress should write rules. Any rules Congress writes will do harm.

Consider why nationalized corporations are bad. If a government controls a corporation, it will abuse its unlimited powers to destroy competition, leading to a nationalized industry. For that reason, everyone should oppose government stakes in domestic corporations.

When a foreign SWF invests in a U.S. corporation, it lacks those unique powers of government. Still, Sen. Bayh wants us to worry. He mentioned no specific mischief a SWF might cause, but he muttered about "agendas different from our own" and "interests other than maximizing profits." The reason he can't be more specific is that a SWF has no more power than you would with the same number of shares.

Suppose a SWF could choose a majority of directors and those directors made management do something economically foolish. Competitors would cheer and take the corporation's revenue. Consequently, the SWF-controlled corporation would suffer losses and lose its power to do its hypothetical mischief. So a SWF has no special power outside its home nation, and there is no reason to fear SWFs.

Craig Landefeld

Washington, Mich.

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In times of uncertainty, fear or dislocation, we should be extra vigilant about authorizing new government interventions in our economy. At best these interventions become a nuisance and at worst a direct cost on our financial system's competitiveness. Think of the impact of Sarbanes-Oxley in the context of a global capital market. Sen. Bayh's only specific proposal to the perceived sovereign wealth problem, a seemingly innocuous decrease in the threshold for a Committee on Foreign Investment in the U.S. review from the current 10% level, sets a dangerous free market precedent nonetheless.

Shareholders/citizens should have the right to maximize their opportunity for capital raising, without a poison pill forced upon them by the government without their consent or compensation. In a global economy, capital will and should flow freely.

Constraints on new capital will only serve to increase the cost of existing capital.

Dimitri Triantafyllides, CFA

Charlotte, N.C.