Liz Peek offers that advice to those concerned about the effects of sovereign-wealth funds in the American economy. She castigates Treasury Secretary Henry Paulson and other federal agencies for passing new rules on the use of SWFs, arguing that our economic performance hardly qualifies us to dictate terms to those nations looking to diversify state funds in the US. Peek offers a multicultural future in Arab states as a potential goal, but neglects to mention the lack of profit motive and the potential for mischief by SWF managers:

Treasury Secretary Paulson, the International Monetary Fund, and the Organization of Economic Cooperation and Development are all busily establishing “rules of conduct” for sovereign wealth funds. They want to be sure that their owners, who have poured more than $60 billion into American and European financial services companies over the past 14 months, do not attempt to use their investments for political purposes.

Honestly, can’t you just imagine the managers of the Abu Dhabi Investment Authority or the Singapore Investment Corporation sitting around having a pretty good chuckle over this? The sovereign wealth funds have bailed out any number of leading financial institutions — banks and investment banks including Citigroup, Merrill Lynch, and UBS — to the great relief of American shareholders, and we are dictating the rules to them? Good grief.

The sovereign wealth funds will accede to the guidelines being promulgated here and abroad because they want to continue to diversify their economies away from oil, the source of most of these entities’ riches. These organizations clearly regard their oil reserves as a gift to be enjoyed not only by the current generation but also by generations to come. Their ambition is to diversify into other currencies, other industries, and other regions, in order to safeguard that future. The key word here is future.

The problem is exactly what Peek classifies as features. Bailouts of American trading and lending institutions by foreign investors would cause worries in any case, but these aren’t just foreign investors. The SWFs that bailed out Citigroup and UBS are essentially foreign governments, which now have a great deal of control over American economics. That’s what makes this different from the Japanophobia of the 1980s, when the nation got far more concerned over private investment than this state-run intervention from abroad we see today.

Americans could rely on rational, profit-motive behavior from private investors. Peek says we can rely on SWF managers to behave in the same way, but not necessarily so. Governments may seek profit in the marketplace, or they may seek other outcomes based on their own foreign policy. They can absorb losses in the market simply by increasing taxes, or in the case of petroleum-based economies, pumping more oil. If they decide that crashing the American market, or even just depressing it, is in their national interest, they have the means to make it happen.

Why would they do that? Perhaps they would see that as an advantage to keep the US from certain initiatives, especially costly ones, in the war on terror. Maybe they would want to see us at an economic disadvantage on trade. Certain nations may see an advantage in building a controlling interest in a vertical market such as health care or telecommunications — or credit and lending. Some would have the financial means for such ambitions. What’s key is that profit is not a primary or even secondary motivation, potentially leaving the markets open for irrational and destructive behavior.

Paulson and the federal regulators are correct to take a close look at SWFs and to restrict their access to the markets. Perhaps the caution will prove unnecessary, but it seems odd that nations who do not recognize private property rights should become major players in open markets without anyone questioning their motives.