It would seem that we have entered a period of bipolarity in global financial affairs. On the one side we have (Eastern) sovereign wealth funds charged with investing vast sums amassed through explosive economic growth (China, Singapore) or the skyrocketing price of oil (Saudi Arabia, Qatar, Russia) and on the other, (primarily Western) private sector financial institutions who, though wounded by the current credit crisis, still wield considerable power through their role as capital mediators and gatekeepers to the vast infrastructure through which the world's wealth flows.

The national security anxiety surrounding SWF investment in U.S. financial institutions can be traced to one word - sovereign. The question is really one of financial power and whether nation-states maintain the ability to project power via the financial markets. When China took an 8% stake in Blackstone last year, for example, objections were rooted in a kind of populist counterintelligence - that is, critics argued that Beijing could gain access to sensitive information via Blackstone's holdings in national security-related industries. Setting aside such painfully ill-informed analysis, would the same objections have been raised had the investor been Deutsche Bank? What about Renaissance Capital, or Nomura?

Similar anxieties are harbored by many emerging market governments with respect to global financial institutions, particularly when many sport market capitalizations which exceed the GDP of a great many emerging market economies. The activities of such financial giants are often viewed as a proxy for national policy, and perhaps this is reasonable given that national prosperity is increasingly tied to globalization. While the sheer magnitude of the wealth being deployed ($2 trillion) by sovereign wealth funds should indeed raise eyebrows, the issue is really whether the governments behind these funds can influence U.S./Western policy through their activities in global financial markets. To the extent that they cause a stir in the media, and as such in the minds of voters, the answer may be yes. But when one considers that hedge funds (who know no national allegiance) control over $1.3 trillion in notional (i.e. highly leveraged) value, and that institutional investors in general control over $50 trillion worldwide, perhaps the SWF issue is a bit of a distraction.

By the way, this week's Economist cover story: "Invasion of the Sovereign Wealth Funds," and the December issue of Euromoney: "The New Rulers of Finance."