الأحد، مارس 29، 2009

Sorious" Talk


"Sorious" Talk

George Soros Thinks that we

Are nowhere near the Bottom

By:

Wael Nawara



When someone like Soros talk about the financial crisis, the world has learned, from bitter experience, to listen. Soros predicted the global economic crisis several times before. In 1993, Soros predicted the collapse of the British Pound and made some 1 billion dollars in profit practically overnight as he had been backing his predictions with heavy investment in forward Forex contracts for a few weeks or months before the actual collapse happened. Amidst the current economic crisis, the 78-year-old still managed to make a profit of $1.1 billion last year alone and a total of $2.9 Billion since he came out of retirement back to managing his funds in 2007.


In the nineties, Mahathir, former prime minister of Malaysia, then blamed Soros for the Asian currency problems when all Soros had done was to discover, point out, aggressively exploit and profit from, serious structural flaws and loop-holes in the Asian markets.



Last year, Soros again predicted the collapse of the global financial system. In April 2008 he had a famous interview with Judy Woodruff where he predicted the coming crisis. He even wrote a book outlining the dangers of believing in misconceptions such as the total blind faith in market self-corrections. Soros was one of the few people to anticipate, prepare for and nake vast profits from the current economic collapse. In that book, The New Paradigm for Financial Markets, which came out many months before the collapse of Lehman Brothers in Sep 2008, Soros wrote that "we are in the midst of a financial crisis the likes of which we haven't seen since the Great Depression." In the book he put forward a general theory of "reflexivity", emphasizing how important misconceptions are in shaping history.


Soros believes that the world needs to recognize that the financial system, as it currently operates, is built on false premises. Market "fundamentalists" insist that markets are self-correcting; and Soros thinks this to be false because it's generally the intervention of the authorities that saves the markets when they get into trouble. Soros names only some of the crises which occurred since 1982 where the authorities had to intervene: the international banking crisis in 1982, the bankruptcy of Continental Illinois in 1984, and the failure of Long-Term Capital Management in 1998. Each time, the authorities bailed out the market, or helped companies to do so. But as "intervention" was seen as a "dirty" word for years, even decades, officials were reluctant to install or inact regulations necessary to curb unsafe practices carrying risks which are bigger than the system's capacity to bear. It is like driving at 150 mph, two feet behind a giant truck. The truck will eventually stop or slow down and you will just crash because you neglected to have a proper safety distance. But while the drive went by, everyone was high, intoxicated by speed, euphoria and adrenaline.


It was not just Soros who warned of the crisis to come. Several others including NYU economics professor Nouriel Roubini who predicted the collapse in Feb 2007 and even one Fed governor, Edward Gramlich, who warned of a coming crisis in subprime mortgages in a speech in 2004 and a book published in 2007. But the authorities didn't want to see it coming, possibly because it was not ideologically acceptable. For instance, Greenspan once spoke about the "irrational exuberance" of the market. This comment was not well-received and so he stopped talking about it. It is the regulators' job to stop an asset bubble from forming. They did not do that assuming that the market will correct itself. But by the time this happened, there was just too much water head behind the dam. The fall was painful and triggered a chain reaction which hit the banking system, the stock markets and the global economic system as a whole in a massive domino effect.

For instance the credit-default swaps had grown to make to a staggering $45 trillion market that was entirely unregulated according to Soros. This is more than five times the total of the US government bond market. Knowing that the US national debt has reached about 11 trillion dollars, allowing betting of $45 trillion dollars on house loan defaults is similar to someone gambling with five times the money that he owes to others! People like that are usually declared insane and locked up.


In addition to being a billionaire, a genius in the world of finance, investment and speculation, George Soros is a big-time philanthropist and a political activist! He was born in a Jewish family in Hungary in 1930. He is the founder of "Open Society Institute", a New York - based foundation which gives grants in several places around the world supporting open societies, education, media, reform and development. This foundation operates in Egypt through civil society partner organizations.

In 2007, Soros asserted that America should pressure Israel to negotiate with the Hamas-led unity government in the Palestinian territories regardless of whether Hamas recognizes the right of the Jewish state to exist. Soros went on to say that one reason America has not embraced this policy is because of the influence of the American Israel Public Affairs Committee (AIPAC). Democrats and Republicans were quick to denounce these "opinions" and deny his claims that AIPAC drives American foreign policy. Soros has been a generous supporter of the Democratic Party causes and campaigns. Soros wrote another book arguing that the entire idea of a "war on terror" is a misleading concept that has caused unprecedented decline in the political influence and military power of the United States.




Now the question is, what is going to happen in the coming G20 meeting? Will the "big boys" have enough courage and long-term focus to do what necessary to rebuild the global financial system on sound basis? And on the short term, what measures will be taken by governments and central banks to prevent the world from sliding into a total financial chaos? What is the future of the US Dollar as a global reserve currency? The dangers and the risks are clear and present calling for serious orchestrated actions between governments and central banks before things get much worse.





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