Rekindling the flame: how the coming fundamental changes in U.S. financial markets due to the global financial crisis could improve foreign direct investment in the United States

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Author: Cyril V. Jones
Date: Fall 2009
From: Houston Journal of International Law(Vol. 32, Issue 1)
Publisher: Houston Journal of International Law
Document Type: Article
Length: 12,578 words
Lexile Measure: 2450L

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I. THE CURRENT STATUS OF FOREIGN DIRECT INVESTMENT LAW IN THE UNITED STATES II. SOVEREIGN WEALTH FUNDS AND OTHER SOURCES OF FDI IMPACTED BY FINSA III. POTENTIAL PLANS FOR REFORM IN THE U.S. FINANCIAL INDUSTRY AS A RESULT OF THE FINANCIAL CRISIS A. President Obama's Principles for Financial Regulation Reform B. Regulatory Structure Changes Proposed by Former Federal Reserve Board Chair Paul Volcker C. Regulatory Changes Proposed by the Financial Services Roundtable ("Roundtable Report") IV. THE NEW REGULATORY REGIME IN THE UNITED STATES AND WHY SWFs SHOULD SEEK TO BENEFIT FROM IT A. Historically Low Asset Costs as Encouragement for SWF Investment . B. Companies Still in Need of Capital Infusions as Enticement for SWF Investment . C. A New Regulatory Environment that Could Increase the Value of Money from SWFs V. SUGGESTIONS FOR SWFs TO MAXIMIZE THEIR INVESTMENT POTENTIAL DURING THE COMING REGULATORY SHIFT WHILE STILL ABIDING BY THE REQUIREMENTS OF FINSA A. Push for Increased Clarity of FINSA's Requirements B. Avoid Potential Political Landmines

"If you owe the bank $100, that's your problem. If you owe the bank $100 million, that's the bank's problem." (1)

The global financial markets have plunged into a period of tremendous volatility and uncertainty over the past years (2) due to, among other things, the failure of numerous storied financial institutions and the resulting freezing of credit markets. (3) The result of this dramatic financial crisis in the United States will likely be a heavy-handed response from the federal government in the form of regulations that could potentially reshape the financial industry into something entirely different and never before seen in the United States. (4) Particularly interested parties in this restructuring will be the numerous foreign entities controlling large pools of foreign capital. (5) Many of these entities take the form of sovereign wealth funds ("SWFs") as well as other forms of government controlled entities. (6) Government controlled capital, especially SWFs, have been viewed with a wary eye in the United States, (7) and as a result, these entities have alleged unfair treatment at the hands of the U.S. government because they believe their money is being treated as less valuable than money coming from domestic sources. (8) This Comment attempts to show that the upheaval in the U.S. financial system, and the regulations that are likely to result, could have the counter-intuitive impact of actually increasing SWFs' interest in investing in the United States. The most relevant legislation concerning the limitations on Foreign Direct Investment ("FDI") in the United States is House Resolution 556: Foreign Investment and National Security Act of 2007 ("FINSA"). (9) Part I of this Comment provides an overview of FINSA and the Exon-Florio provision of 1975, which FINSA amends. (10) Following a discussion of the current status of FDI regulation in the United States as governed by FINSA, Part II briefly describes the variety of actors regulated by FINSA, including several SWFs, as well as a handful of multinational corporations and other foreign state actors. Part III discusses...

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Gale Document Number: GALE|A229219392