Evan Bayh is Worried by Sovereign Wealth Funds

Senator Evan Bayh takes to the op-ed pages of the WSJ today to warn darkly of the threats posed by sovereign wealth funds. Such funds should be allowed to invest in the US he says (so big of him!), but only within pre-set constraints:

Sovereign nations have interests other than maximizing profits and can be expected to pursue them with every tool at their disposal, including financial power. For this reason, Congress must establish standards for transparency and behavior now to prevent unwarranted interference in our economy by foreign governments...
Incentives for compliance and meaningful consequences for sovereign wealth funds that refuse to comply must be adopted...
At a minimum, the U.S. ought to require passive investment by sovereign wealth funds...
The recent change in leadership at America's largest bank, Citigroup, was brought about in part by a Saudi prince whose ownership interest constitutes just 5%...
Occasionally, foreign governments will have agendas different from our own. They will pursue them using all resources at their disposal, including financial levers. No great nation can permit such interference with its sovereignty.

Bayh is quite right that sovereign wealth funds can and do invest for political reasons. And he's more realistic than Larry Summers, who would like those funds to unilaterally disarm. In that sense Bayh is right: disarmament won't happen unless and until the US government forces the issue with legislation.

But I'm a bit irritated by Bayh's vagueness about exactly what "meaningful consequences" he has in mind for non-compliant SWFs. These funds are not under the jurisdiction of the US, so it's not obvious what Bayh is talking about. Let's say that he's right and a foreign sovereign did indeed help to engineer the ouster of Chuck Prince - and let's say that he thinks that shouldn't have happened. How would the US government prevent such a thing, if he doesn't want to bar the Saudi prince from buying a stake in Citigroup in the first place?

Incidentally, I was tickled by the way that Bayh opened his piece:

Imagine what would happen were a candidate for president to propose that the federal government begin buying up shares of major U.S. banks. Denunciation would be swift.

It reminded me so much of a certain NYT columnist:

The Fed must act decisively to calm these fears by reassuring lenders.
This might even take the form of legislation allowing the Fed to buy stock in large banks on a temporary basis. The banks are already largely socialized through federal deposit insurance. To add the prop of government capital infusions is not such a big step.

Come on, Evan! Join the pile-on!