Bloated OPEC States Pick Through Scraps of American Economy

Every day a new thrill and every day a new spill in the not-so-little world of real estate, subprime mortgages, hedge funds and supposedly unshakable financial institutions. Who got gored today? Who will be bleeding tomorrow? Who will get saved? How? When? And who got hurt when who got saved? It's a good story, but you might want to run for cover while reading it.

Since having announced that it has lost billions in the subprime mortgage business, Citigroup has sold a chunk of its stock to the Arabs. In this case Abu Dhabi came running with $7.5 billion to invest in an institution that seems to be reeling from losses of around $11 billion. But in fact we do not know what the situation is inside Citigroup, and there is reason to fear that the people running Citigroup don't either.

There has been discussion about whether the Abu Dhabi input was a good deal or a desperate lunge for safety by Citigroup, which has fired CEO Charles Prince for doing an outstandingly lousy job. The Investment Authority will receive equity units that pay an 11 percent annual yield--a high price for Citigroup, whose customary dividend yield is 7.3 percent. Citigroup must have had great and hurtful needs for this money, to pay so much.

Some are less worried about what Citigroup is having to put out to save itself than about creeping foreign ownership of American companies in general. The Abu Dhabi purchase was made by that country's sovereign wealth fund, not by an individual sheik or princeling. A sovereign wealth fund is a bunch of money set aside by a government that is so far in the black that it has extra money to invest. The United States--does one need to say?--has not such moneys.

In the past nations with excess cash often used it to buy US government bonds because they were safe and steady and the interest rate on them was pretty good. Today the rate on them is deemed highly sucky, and the value of the dollar is getting smaller almost by the hour. So governments are going out and investing in private US companies--which, like Citigroup, may pay handsome dividends and appreciate in value.

The Abu Dhabi sovereign-wealth-fund investment in Citigroup has some people worried about a foreign takeover of this quintessential Wall Street institution. The Abu Dhabians are welcome to it. Citigroup is so big, so floppy, so just everything profoundly fouled up, that it appears nobody knows how to run it. Good for you, Abu Dhabi, if you can make it work.

Sovereign wealth funds are nothing to sneeze at. About twenty countries have them, and it is guessed that they are worth somewhere between $2 trillion and $3 trillion, which is big money any way you count it. A lot of that money comes from debts piled up by American consumers. This does not stop other Americans from throwing a fit when a wealth fund tries--and fails--to buy into an American corporation like Unocal, as the Chinese did last year. The company was deemed too strategic, too important to let the Chinese capitalist-communists become significant stockholders of it.

There is a limit to how well we can protect ourselves from sovereign-wealth-fund investment--unless we want to go back to making our own toys and clothes and furniture (to say nothing of producing our own oil supply). Beggars cannot be choosers, and thanks to Mr. Clinton and Mr. Bush, we have done our best to beggar ourselves over these past twenty years.

There are also those who fear that foreigners will use their American investments to cause an economic panic, which would melt down our entire financial system, taking all our 401(k)s with it. They might be able to do something like that by dumping vast amounts of American stocks and bonds on the market at the same time. Of course, they would be destroying the value of their own investments, too. That would be the economic equivalent of a suicide bomber, but rich people do not generally kill themselves, least of all when there is no money in it for them.