George Soros made an interesting point about Sovereign Wealth Funds yesterday and one that the US Treasury may be counting on to counteract any Congressional pressure to block SWFs from investing more money in the US.

"The role that sovereign wealth funds have played so far [in helping to re-capitalise US banks] might buy them a certain amount of protection," he said at a lunch I went to in Davos. That was about the most optimistic thing he said since he largely expanded on his comment piece in the FT on Wednesday suggesting that this financial crisis is the worst for 60 years.

The inflow of capital to the US from funds in Asia and the Middle East risks provoking a populist backlash during the presidential campaign and the US government wants to avoid Congress taking up the issue in a way similar to the fuss over DP World’s acquisition of P&O.

David McCormick, undersecretary to the Treasury for international affairs, is in Davos this week talking to SWFs and trying to persuade them to back an IMF move to draw up a code of conduct for SWFs that invest overseas.

Mr Soros’s point is probably right. Although some people may get worried about overseas governments in effect taking stakes in US companies, their capital is obviously sorely needed at the moment. It would be odd indeed if the US tried to bite the hand that is keeping its banks capitalised.

January 24, 2008 5:48am in Business | Comment