Russia’s Wealth: Weapon of Economic Destruction?
Bloomberg has an astounding article out today that, if true, suggests that Russia was plotting “economic disruptions” against the US in 2008. According to the article, which I have to admit is a bit confusing, former Treasury Secretary Henry Paulson discovered a plot by the Russian government to convince the Chinese to sell US agency debt en masse to force a major US government bailout. The plot was discovered by Paulson during his trip to the 2008 Olympics:
“Russia urged China to dump its Fannie Mae and Freddie Mac bonds in 2008 in a bid to force a bailout of the largest U.S. mortgage-finance companies…The Russians made a ‘top-level approach’ to the Chinese ‘that together they might sell big chunks of their GSE [government sponsored entities] holdings to force the U.S. to use its emergency authorities to prop up these companies’…”
The Chinese rejected the idea, and the Russians are, obviously, denying that any of this occurred. Still, Paulson’s report is pretty amazing. If true, it would appear that Russia was plotting economic warfare against the US during the summer of 2008; I don’t really know what else to call it. Their intention was to use their sovereign wealth to purposely weaken and damage the US economy. The fact that all this apparently occurred around the same time that Russia was engaged in a traditional war with Georgia, a US ally, lends some credibility to the idea.
This revelation–while unconfirmed–will not comfort those in the West that fear SWFs; it doesn’t help anybody if these funds are seen to be potential weapons of economic destruction… -- ###
Hank Paulson's memoir, On the Brink, will be available February 1.