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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 progress."

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 rivals."

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 Dec. 19.

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 Co.

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 disturbing.

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.

William Hawkins is a consultant on international economics and national security issues.


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