Economics Lessons

1) Taxes take money out of the economy. (Per the Charlie Gibson school of economic theory; nobody in the debate raised an eyebrow at this assertion, so it must be true!)

2) Government spending is bad. (Everybody knows this!)

3) Unless it's a foreign government, spending money to prop up major US financial institutions:

In corporate news, Citigroup Inc. and Merrill Lynch & Co. are said to be in talks to raise more capital from foreign governments to offset losses stemming from the credit crisis, according to The Wall Street Journal.

Indeed, government bailouts are evil and wicked and bad for business:

Merrill Lynch is in advanced talks to sell a $5 billion (£2.5 billion) stake to Singapore as the Wall Street firm seeks to boost its cash reserves in the face of expected losses of $16 billion on high-risk sub-prime mortgage investments this year.

The deal with the Singapore Government’s Temasek vehicle, which could yet fall apart, would be the first decisive move by John Thain since he took the helm of Merrill Lynch last month.

It comes after multibillion-dollar bailouts of rival banks, such as Citigroup, Morgan Stanley, Bear Stearns and UBS, by governments in Asia and the Middle East, as Wall Street banks reel from America’s mortgage meltdown.

It also highlights the rising influence of state-backed investment funds, or sovereign wealth funds, from export-rich countries that are taking advantage of the credit crisis to buy stakes in the West’s largest banks. There were reports last night that Saudi Arabia is planning to launch a $900 billion fund, the largest ever.

And yes, this means that foreign governments will have ownership shares in US financial corporations. But it's all good:

Last year, the proposed sale of some American ports to a Dubai firm set off a firestorm of questions in Congress about national security; an alternative buyer was ultimately found.

But in an e-mail message yesterday, a spokesman for Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said that the congressman was “generally supportive that Citi was able to raise capital and reassure investors.”

Senator Charles E. Schumer, chairman of the Joint Economic Committee and a senior member of the Senate Banking and Finance Committees, said in a statement that “this transaction will bolster Citigroup’s capital and competitiveness, and thereby help preserve New York’s status as the world’s financial center.”

Because, hey! everybody's doing it!

Earlier this week, Dubai International Capital, a private equity company owned by the ruler of Dubai, bought a minority stake in Sony. Borse Dubai, the government-controlled exchange, agreed to take a 19.9 percent stake in the Nasdaq and to buy Nasdaq’s 28 percent stake in the London Stock Exchange.

The Abu Dhabi government owns a 7.5 percent stake in the Carlyle Group, and Istithmar, an arm of the Dubai government, bought one of fashion’s crown jewels: Barneys New York.

China has also used its growing supply of cash for acquisitions, buying almost 10 percent of Blackstone Group before its initial public offering. Citic Securities, China’s largest investment bank, formed a joint venture and invested $1 billion in Bear Stearns.

The Citigroup deal came together over the Thanksgiving holiday week after a marathon series of phone calls and an 11th-hour trip by Robert E. Rubin, Citigroup’s chairman, to Abu Dhabi, the capital of the United Arab Emirates and the richest city in the world, according to people briefed on the negotiations.

Please note that Citigroup made a deal for $7.5 billion from Abu Dabai in November. Now they need another $10 billion. The UN is predicting a world-wide recession, and the reason is the US subprime mortgage meltdown. But remember: taxes take money out of the economy, and government spending is bad.

In America, anyway.