Passing The Devalued Buck.(Global Investor)(more foreign companies are investing in US)

Bush's mortgage-freeze plan sets a disturbing precedent. What's next, a moratorium on car payments?

As 2008 gets underway, the United Statesa dependence on foreign-supplied capital is becoming ever more apparent. The question for the New Year: how long can the taps remain open? With few big American investors able or willing to open their wallets, Morgan Stanley and Citigroup recently sold large chunks of their businesses to sovereign-wealth funds in Asia and the Middle East. The buyers were enticed with very favorable terms in the form of preferred shares with high dividend streams, plus seniority over existing shareholders, which offers greater claims on assets and profits in the event of disaster. The courting will continue; Merrill Lynch recently announced that it is still looking abroad for capital despite a recent $5 billion sale of stock to the government of Singapore.

While these deals are necessary, they are nothing to celebrate. After all, Americans are simply selling off assets to satisfy our debts and to fuel consumption. This is known as selling the cow to buy milk.

Meanwhile, foreigners investing and selling into the U.S. markets over the past year have themselves pulled a short straw. The U.S. stock market lagged behind foreign markets in 2007, as it has for much of the decade. Debt investors suffered from the implosion of securitized U.S. home mortgages, and exporters to the U.S. saw their profit margins erode with the falling dollar. Even conservative holders of U.S. cash or government bonds took it on the chin as the dollar plummeted.

Despite this financial train wreck, 2007 was another record year for Wall Street bonuses. Although the large investment banks lost tens of billions of dollars, and sold the world on bogus financial structures that now threaten disaster, the executives at the top U.S. firms are once again being showered with embarrassing riches. In this aheads we win, tails you losea aspect of American finance, these firms have made it clear that their executives will not be forced to share in the misery of their shareholders.

Of course, none of this has stopped the foreign run on U.S. companies. The recent infusions have totaled a staggering $27 billion, and could go much higher. No doubt many see the falling dollar as an opportunity to snap up seemingly sound U.S. assets at bargain-basement prices. However, as the weakness of the American economy and the global costs of our mismanagement are becoming increasingly harder to ignore, it can only be a matter of time before the buyers become more wary.

In recent months, financial institutions around the world have ceased lending to one another. The freeze results from a global financial minefield seeded with ...