Russia’s Economic Warfare against the United States

paulson020210.jpgWhile the blogosphere is running rampant with speculation about former Treasury Secretary Hank Paulson’s assertion that the Russian government attempted to economically attack the United States by pressuring China to sell Fannie Mae and Freddie Mac bonds in 2008, the real story, as noted by Blake Hounshell in Foreign Policy, is the indication of Russia’s willingness to use its sovereign wealth funds at the service of an aggressive foreign policy … something we’ve been writing about here for quite a long time.

At the height of the clan wars of in the spring of 2008, which was capped off with the jailing of Deputy Finance Minister Sergei Storchak and punctuated by Oleg Shvartsman dropping the “velvet reprivatization” bomb, we saw the siloviki under Igor Sechin do daily battle with the financial liberals such as Alexei Kudrin for control over Russia’s once-enormous stabilization fund, as they attempted to pry away funds to dedicate to a SWF and their own pockets.  The financial crisis later solved this dispute itself, but it’s important to remember how many sectors of the Russian government are eagerly attempting to build a fund to do what Paulson says they were doing.  As may be expected, Russia has denied all these allegations.

Let’s also recall that Paulson might bear a little grudge following aless than glamorous visit to Russia in July of 2008, when he invitedVladimir Putin to pour billions of sovereign wealth into the strugglingU.S. economy.  Putin saw Paulson as a panhandler looking for a handout, and started to have fun with him, stating “Since we do not have a sovereign wealth fund yet, you are confusingus with someone else. (…) But we are ready to do it (create a SWF),especially if you want us to.” 

In short, Russia’s economic warfare against the U.S. is underscored by irony (in that Paulson was begging for Russian money) and personal grudges.

It was a moment of public embarrassment, but we should probably all beglad that the Russians did not take the bait to own as much debt as theChinese (who are now invested in making sure the value of all those Tbills stays solid).  But would such an experience make Paulson angryenough to invent this Fannie-Freddy story out of thin air?  I don’t have any information that you don’t have, but I think there is probably some substance to Paulson’s conspiracy claim.