Foreign Regulation of American Markets?

Wow! Talk of foreigners actually regulating American markets because our massive indebtedness, silly house prices, bogus government statistics are so out of control? Descriptions of America as "the world’s largest debtor nation"? Questioning of America's status as the world's "financial safe haven"? Talk of foreigners greatly reducing their financing of our debt and the resultant massive increase in interest rates? America the has-been -- "Indebtedness is eroding more than America’s economic independence — it’s eroding its status as a superpower"? How could it be? What about all that "wealth-creation" technology? What about that financial "dark matter"? Were we all just sold a bill of goods? You mean we can't lie, cheat, and steal from other countries without consequences? But we're special! All you loser countries should be kissing our arses!

But it's all worth it, right? You got yours, right?

International bankers and investors from China to France and Germany have lost billions of dollars because U.S. investments, sold as safe, turned out to be far riskier and worth much less than what American investment-rating agencies and banks led them to believe. They don’t want to be deceived again.

The international worry is that American regulators are not properly monitoring the products or alerting investors to the risks.

Now international investors are asking not only why American banks were allowed to originate hundreds of thousands of mortgages to home buyers whom they knew would likely be unable to repay them, but also why these risky investments were pawned off with top ratings to unsuspecting investors.

If and how long Washington will be able to resist international pressure is unclear, but America will probably fight hard to limit foreign regulation, especially since financial products and services are one of America’s most dynamic and most important export industries.

However, while regulators in the U.S. have been unreceptive to international monitoring, Europe and Asia, unlike in years past, now have growing financial leverage up their sleeves. “America depends on the rest of the world to finance its debt,” reminded Bofinger. “If our institutions stopped buying their financial products, it would hurt.”

Foreign willingness to purchase U.S. debt has kept interest rates low in America—thereby creating millions of jobs in real estate, home construction, remodeling and other associated industries. If foreigners stop lending to America because of difficulty assessing borrower credit-worthiness, the cost of borrowing could go way up.

But a potentially bigger concern is the effect the subprime disaster could have on America’s reputation as a financial safe haven. As the world’s largest debtor nation, America borrows hundreds of billions of dollars per year from the rest of the world. America needs foreign money, and its ability to attract it depends on its perception as a stable and trustworthy borrower.

The exposed corruption associated with America’s housing bubble, which includes mortgage originators, banks and rating agencies, may be irrevocably damaging the nation’s economic reputation and its ability to finance its debt.

America’s economic recklessness seems to be coming home to roost. Politicians, regulators and financial specialists outside the United States are seeking a role in oversight of American financial institutions and rating agencies in the wake of recent mortgage and banking problems. Indebtedness is eroding more than America’s economic independence—it’s eroding its status as a superpower.