Would U.S. politicians really let China buy Morgan Stanley?

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There are reports today that Morgan Stanley is talking to the China Investment Corp. (CIC) about buying 49% of the suddenly under-fire investment bank. (There are also reports that it’s talking to Citic, a Chinese securities firm, but those appear to be wrong.)

But what doesn’t appear to have penetrated the consciousness of the U.S. media yet is that CIC is a division of the Chinese government. It’s the People’s Republic’s sovereign wealth fund. “I don’t think we’ve ever in our history had a foreign government own such a substantial stake in a financial intermediary,” said Brad Setser of the Council on Foreign Relations when I had him on the phone a few minutes ago, adding, apropos of China, “It’s not like it’s a noninterventionist state.”

Setser and I were trying to estimate what the chances were of such a deal ever getting government approval. We both put it well below 50%, although he did wonder if politicians might be wary of blocking the deal because they wouldn’t want to be seen as having killed Morgan Stanley and endangered the financial system. Things have already gotten desperate enough that hardly anybody complains about the U.S. government buying large financial companies. But the Chinese government? Well, they do have the money.

Oh, and TIME’s Simon Elegant reports that there’s also talk in China about buying into AIG. (Which was founded in Shanghai, after all.)

Update: A reader, who wrote a nice article about short-selling today, writes:

And they are going to buy it with our money. In a Catch-22 way, it makes perfect sense. It’s a way to protect their U.S. dollar hoard and keep their most important trade lackey, er partner, solvent. Hell, they should just buy Wal-Mart, too and close the loop.