Happy Interdependence Day

March 7, 2008

It’s March. Let’s start a revolution.

In case you haven’t noticed, revolution is in the air this month. At last count, no fewer than 15 sovereign nations, and one state: Texas, are celebrating their independence days this month.

Perhaps it’s in the spirit of Mars, that great Roman war-god, and the month’s namesake, that the troops are rallying. Or perhaps, it’s just the slow thaw of a long and arduous winter that gets so many of us hot and bothered. Whatever the reason, as Thomas Jefferson said, “Every generation needs a new revolution.”

So I propose a new kind of revolution: Interdependance Day. It’s a revolution against revolutions. Instead of rallying the masses and marching in the streets to declare our respective national independence movements, we will recognize that there’s no such thing as “independence,” at least in terms of the global financial markets.

We are all, in fact, very closely dependent on one another.

Someone please tell this to Alberto Torrico, the California assembly member who last month introduced legislation that would prohibit California state employee pension funds from investing in private equity firms that are owned or partly owned by sovereign wealth funds. The bill would effectively knock out the California employee union’s involvement in The Carlyle Group and Apollo Management. If Torrico gets his way, public companies with SWF infusions would also be affected. Yes, this means you Citigroup, Merrill Lynch, Bear Stearns, Morgan Stanley, and UBS. One might wonder, just who else is left to invest with?

It’s an election year, and SWFs make for easy targets. Torrico isn’t alone; both Democratic candidates have attacked SWFs, and Kevin Hassett, McCain’s economic adviser has done his best to scare us.

Good thing I’m not running for president.

Because, as unpopular as this may be, there’s no doubt that we are going to need foreign capital to help bail out financial institutions from their present mire. And that’s not a bad thing. In fact, I’d much rather foreign investors bail out our financial institutions (and deal with the potentially messy consequences), than have it land on the taxpayers’ shoulders. (Some might argue that taxpayers are indirectly paying for it at the gas pump, but that’s a whole other discussion.)

Interestingly, the precise nature of SWF investments are understood by few and hated by many. The most plausible threat that I’ve heard discussed is that SWF investments open up the possibility that they can bail at any moment, roiling the stocks, and the financial systems as a whole, in the process. But that’s exactly where we come back to this theme of interdependence. The fact is we haven’t seen a decoupling in the world economies, and if foreign investors want to pour money into the U.S., my guess is that they’re less inclined to see us fail.

Buffalo Springfield famously sang of us “singing songs and carrying signs, mostly say, 'Hooray for our side.'” Well, I’m looking for signs that say, “Hooray for their side, too.”

So, in honor of Texas Independence Day last week, “Viva la revolution, y’all.”