No Stock in Patriotism
By: William R. Hawkins
Washington Times | Wednesday, January 16, 2008
In their history of British
imperialism, P.J. Cain and A.G. Hopkins found "captains of industry did
not command as much prestige as bankers in the City" and asked if "the
City's separation from manufacturing retarded Britain's industrial
High finance allowed gentlemen to overcome "the problem of
living in the world while also rising above its sordid realities." Mr.
Cain and Mr. Hopkins concluded the financiers were "closer to the
centers of power and [were] the dominant influence upon the expression
of that power overseas." This had tragic consequences for maintaining
Britain's superpower status, which went into long-term decline. As Lord
Penzance warned in 1886, "Where we used to find customers, we now find
Today, U.S. international economic policy is dominated by Wall
Street through the Treasury Department. Henry Paulson, the Treasury
secretary, was CEO of Goldman Sachs, which describes itself as a
"global investment banking and securities firm."
On Dec. 18, Goldman Sachs announced record income for the
year, with more than half of its pretax earnings coming from outside
"the Americas," an area that includes Mexico, Canada, Brazil and
Argentina, as well as the United States.
There is no priority given to maximizing the wealth and
capabilities of the homeland. If profits can be made helping some other
country expand, even a geopolitical rival like China, so be it.
Consider Mr. Paulson's behavior at the recent Strategic
Economic Dialogue (SED) in Beijing. He assured his hosts nothing would
be done to slow China's expansion. His only apparent concern was that
his pals on Wall Street get a piece of the action.
He said in his opening statement, "The United States welcomes
the rise of a stable and prosperous China, " but left out the third
adjective "peaceful" found in most U.S. documents. This omission was
very telling, as the reference to "peaceful" is meant to convey
Washington's concern that Beijing will translate its economic gains
into military power aimed at U.S. security interests. China, of course,
is already doing this. Mr. Paulson also denounced "economic
nationalism" in both the United States and China.
Mr. Paulson has used the SED to smooth over disputes with
China, not to settle them — and to block action by Congress. For
example, despite the complete failure of the SED on the currency issue,
Treasury still refused to cite Beijing for setting the value of its
money by fiat to promote its trade surplus in its semiannual report
As U.S. banks struggle to survive their subprime mortgage
blunders, China is seizing the opportunity to buy into them. Morgan
Stanley sold a $5 billion piece of itself to China Investment Corp., an
arm of China's government, after taking a $9.4 billion hit on
mortgage-related investments. Bear Stearns agreed to a $1 billion
cross-investment from China's government-controlled Citic Securities
China has started to use its $1.3 trillion foreign currency
reserve (earned from is trade surplus) to buy equity stakes in foreign
industries to access resources, production networks and technology to
expand national capabilities. It will want to use American financial
intermediaries to disguise its strategic objectives and to lobby
against U.S. countermeasures.
China's Huawei Technologies is buying into the American firm
3Comm, in a deal brokered by Bain Capital Investments. 3Comm has
defense contracts, including for computer network security, a known
Chinese target. Bain claims that the firm will remain in U.S. hands,
but is this really an American project or a Chinese one?
According to the Dec. 13 USA Today, "Bain Capital has engaged
the politically potent firm of Akin Gump Strauss Hauer & Feld to
help smooth the way for the deal." Akin Gump has long represented the
Chinese regime in Washington, and worked with China National Overseas
Oil Co. on its attempted takeover of Unocal.
It would appear Huawei — a firm with ties to the Chinese
military, is directing Bain and Akin Gump, not the opposite. That any
American would take foreign money for such purposes is extremely
An assessment by the director of national intelligence labeled
the 3Comm deal a threat to national security, according to a story by
Bill Gertz in The Washington Times on Nov. 30. The DNI was brought into
the Committee on Foreign Investment in the United States (CFIUS)
process under legislation passed by a nearly unanimous Congress last
year. CFIUS is investigating the 3Comm deal, and Mr. Paulson has
withdrawn from the case because Goldman Sachs is involved. Treasury,
however, still chairs CFIUS and its banking culture has drawn criticism
in the past for favoring "open" investments over national security.
In the new year, Congress will have to exercise close
oversight of the CFIUS process, and move forward on trade legislation
to counter Beijing's mercantilist practices. Congress has the duty to
represent the nation, something Wall Street no longer feels it has any
interest in doing.
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