State intervention

15 Jan 2008 By Martin Hutchinson

New Jersey s investments in Citigroup and Merrill Lynch happen to help protect large local employers. By that token, so do China s investments in its local banks. When states use public money to bail out companies, they risk negating free market price signals.

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Citigroup has approximately 4,000 employees in New Jersey and Merrill Lynch approximately 6,000, over and above New Jersey residents who work for the banks in New York City. The finance and insurance sector employed 207,000 people in New Jersey in 2006.

The New Jersey Division of Investment, with $80bn in assets, was a substantial investor in both the $12.5bn Citigroup preferred share issue and the $6.6bn Merrill Lynch preferred share issue.

Michigan decided in 2005 to devote $400m of tobacco settlement moneys to investments in capital investments and loan subsidies for new businesses in Michigan. Its pension fund was also a major investor in David Stockman's Heartland Industrial Partners, which made a number of investments in auto parts manufacturers including Collins & Aikman, which subsequently filed for Chapter 11 bankruptcy.

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The New Jersey Division of Investment, with $80bn in assets, was a substantial investor in both the $12.5bn Citigroup preferred share issue and the $6.6bn Merrill Lynch preferred share issue.

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