Imagine what would happen were a candidate for president to propose that the federal government begin buying up shares of major U.S. banks. Denunciation would be swift. Amid cries of "socialism," critics would warn of the potential for undue political interference in private economic decision making.

In 2001, Treasury Secretary Paul O'Neill told Congress, "Government has no business owning private companies." He got no arguments.

As Americans, we realize the folly of allowing our government to own our private companies, yet paradoxically, some appear far less alarmed by the prospect of another country's government doing the same.

Foreign governments, operating sovereign wealth funds, have recently been purchasing sizable stakes in U.S. companies -- particularly in the financial services sector -- and hardly a question has been asked. It is time that we start.

Since our colonial days, we have always welcomed private foreign investment. This tradition stretches back to 1606, when King James granted a charter to the Jamestown Company to finance the first British colony. Our earliest forefathers realized that capital from abroad is instrumental to a burgeoning American economy.

More recently, it has been foreign governments, not private companies, amassing large financial reserves and looking to invest. Driven by America's unprecedented trade imbalance and costly energy imports, this trend is almost sure to continue, with amounts totaling trillions of dollars. It would be folly to prohibit these investments. Allowing funds to be reinvested in America mitigates the consequences of transferring so much wealth abroad for energy and consumption. It also strengthens our economy, creates jobs, improves productivity and keeps interest rates low.

However, neither long-term economic benefit nor our short-term need to weather the sub-prime crisis should obscure the fact that investments by foreign governments are inherently different than private investment. Sovereign nations have interests other than maximizing profits and can be expected to pursue them with every tool at their disposal, including financial power. For this reason, Congress must establish standards for transparency and behavior now to prevent unwarranted interference in our economy by foreign governments.

The current administration has suggested a purely voluntary approach based on "best practices," but moral suasion alone has rarely deterred nations from pursuing their interests. Incentives for compliance and meaningful consequences for sovereign wealth funds that refuse to comply must be adopted. It would be a mistake to give a multinational organization like the International Monetary Fund responsibility for oversight, because the IMF lacks enforcement power and has proven ineffective in discharging many of its current responsibilities.

At a minimum, the U.S. ought to require passive investment by sovereign wealth funds. The oil-rich nations of the Persian Gulf have a long track record of passive investing, but Russia's recent behavior and China's drive for economic advantage -- including rampant intellectual property theft, currency manipulation and subsidies for manufacture and export -- raise serious concerns about how sovereign funds might be used.

The Committee on Foreign Investment in the United States is charged with reviewing foreign deals for national security considerations. But a CFIUS review is triggered only when an investment exceeds 10% of total ownership. The recent change in leadership at America's largest bank, Citigroup, was brought about in part by a Saudi prince whose ownership interest constitutes just 5%. The Citigroup deal may have been the right decision undertaken for entirely appropriate reasons, but we would be naïve to believe that influence cannot be achieved absent a 10% interest. A more realistic standard is required.

Likewise, many benefits detrimental to broader U.S. interests can be derived without formal power like a seat on the board of directors or regular shareholder voting rights. If sovereign wealth funds become the global investor of last resort, recipients of their largess in times of distress will have enormous incentives to comply with all manner of requests. American business often works in this informal way, and we should anticipate that deals involving foreign governments will be no exception.

Globalization of capital flows is irreversible and has many benefits for the U.S. economy. We should always be a safe and attractive place for investment from whatever origin. But occasionally, our national interests will diverge from pecuniary concerns. Occasionally, foreign governments will have agendas different from our own. They will pursue them using all resources at their disposal, including financial levers. No great nation can permit such interference with its sovereignty.

Our need for capital investment and the benefits it brings must not deter action. To date, I have held one hearing in the U.S. Senate. More are needed. Reasonable regulations now will keep foreign investment flowing and help us avoid a potentially xenophobic reaction down the road.

Sen. Bayh (D., Ind.) is chairman of the Senate Banking Subcommittee on Security and International Trade and Finance.