Currency Wars: The Making of the Next Global Crisis Read Free Page A

this has mainly to do with trips to the coffee machine, but the implicit understanding is that those with the No Escort badges hold current high-security clearances from their home directorates or government contractors. BlackBerrys, iPhones and other digital devices have to be deposited at the security desk to be retrieved upon departure. X-ray scanners, metal detectors, multiple security perimeters and armed guards are routine. Once inside, you are truly in the bubble of the military-intelligence complex.
    At the September meeting, there were about forty attendees in total, including a number of distinguished academics, think tank experts, intelligence officials and uniformed military. I was one of five asked to give a formal presentation that day, and my topic was sovereign wealth funds, or SWFs. Sovereign wealth funds are huge investment pools established by governments to invest their excess reserves, many with assets in the hundred-billion-dollar range or higher. The reserves are basically hard currency surpluses, mostly dollars, which governments have earned by exporting natural resources or manufactured goods. The largest reserves are held by oil-producing countries such as Norway or Arab states and by manufacturing export powerhouses such as China or Taiwan. Traditionally these reserves were managed by the central banks of those countries in a highly conservative manner; investments were limited to low-risk, liquid instruments such as U.S. Treasury bills. This strategy offered liquidity but did not provide much income, and it tended to concentrate a large amount of the portfolio in just one type of investment. In effect, the surplus countries were placing all their eggs in one basket and not getting very much in return. Because of the drastic increase in the size of reserves beginning in the 1990s, partly as the result of globalization, surplus countries began to seek out ways of getting higher returns on their investments. Central banks were not well equipped to do this because they lacked the investment staff and portfolio managers needed to select stocks, commodities, private equity, real estate and hedge funds, which were the key to higher returns. So the sovereign wealth funds began to emerge to better manage these investments; the earliest SWFs were created some decades ago, but most have come into being in the past ten years, with their government sponsors giving them enormous allocations from their central bank reserves with a mandate to build diversified portfolios of investments from around the world.
    In their basic form, sovereign wealth funds do make economic sense. Most assets are invested professionally and contain no hidden political agenda, but this is not always the case. Some purchases are vanity projects, such as Middle Eastern investments in the McLaren, Aston Martin and Ferrari Formula 1 racing teams, while other investments are far more politically and economically consequential. During the first part of the depression that began in 2007, sovereign wealth funds were the primary source of bailout money. In late 2007 and early 2008, SWFs invested over $58 billion to prop up Citigroup, Merrill Lynch, UBS and Morgan Stanley. China was considering an additional $1 billion investment in Bear Stearns in early 2008 that was abandoned only when Bear Stearns neared collapse in March of that year. When these investments were decimated in the Panic of 2008 the U.S. government had to step in with taxpayer money to continue the bailouts. The sovereign wealth funds lost vast fortunes on these early investments, yet the stock positions and the influence that came with them remained.
    My presentation focused on the dark side of SWF investments, how they could operate through what intelligence analysts call cutouts, or front companies, such as trusts, managed accounts, private Swiss banks and hedge funds. With these fronts in place, sovereign wealth funds could then be used to exercise malign influence over