Insecure: Dubai World, the investment arm of the government of Dubai, was about to own many U.S. ports through its Dubai Ports World subsidiary when Congress objected to an Arab concern taking over port security.
Some of you may remember the racism-tinctured brawl three years ago: a Dubai concern was looking to buy the management operations of several major American ports (in New York, New Jersey, Miami, Baltimore and New Orleans, among others).
The ports were owned by a foreign concern already: Peninsular and Oriental Steam Navigation Company. But P&O, as it's known was a British firm. The concern looking to acquire ports management from P&O was Arab--Dubai Port World. Nothing like Arabophobia to irrigate bipartisanship in the U.S. Congress. Democrats and Republicans howled, claiming that a Dubai-based firm could not be trusted with the nation's port security. After all, weren't two of the 9/11 hijackers from the United Arab Emirates? (They were. Just as Timthey McVeigh was from the United States. Maybe the Department of Homeland Security should be disqualified from providing homeland security.) Even The New York Times opposed the deal. So did Hillary Clinton (though that's not surprising, given her many intentional blind spots regarding Arabs and the Middle East).
In March 2006, the House of Representatives voted overwhelmingly to block the deal. Rather than press its case, Dubai Ports World sold its stake in P&O to AIG.
Why rehash the old story? To put in context what may be the next unraveling of the world's economy, now that Dubai is going bankrupt. Dubai Ports World, you see, is a subsidiary of Dubai World, the "sovereign wealth fund" owned by the government of Dubai and indebted to the tune of $50 billion. Dubai World is the fund that, earlier this week, announced it could no longer make payments on its debts, sending world markets reeling and investors fearing that another global crisis is about to sabotage the shaky economic recovery.
All because of a sovereign wealth fund.
So what are those beasts?
A sovereign wealth fund is a fancier way of referring to a government-owned and government-controlled investment mechanism.
In financial terms, a sovereign wealth fund takes cash accumulated from domestic and trade surpluses (especially those generated from oil sales), foreign currency trading and other cash-generating ventures (such as the privatization of state-owned enterprises) and invests it in stocks, bonds, real estate, commodities and other investment venues.
In simpler terms, government wealth funds are the play money of mostly nouveau-riche nations such as Middle Eastern oil exporters and the Asian Tigers of the Pacific Rim. The funds are rarely transparent.
Read the full FAQ, with examples and fresh facts: "What Are Sovereign Wealth Funds?"
See Also:
- Is Bubble-Bursting Dubai Bankrupt?
- What Is Dubai?
- The Gulf's Cash Guzzlers
- What is the Gulf Cooperation Council?
- Millionaire Explosion in the UAE
- Dubai's $7.6 billion Metro Subway System
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