Thursday, October 16, 2008

George Soros on free market fundamentalism

This is an amazing interview with Soros.  A fan of markets he nevertheless sees deregulated financial markets as delivering a biased reflection of reality that generates booms, busts and bubbles.  The reason - too much credit, too much leveraging.  Free market fundamentalism is just as misguided an ideology as socialism.

Soros sees the current crisis as the end of an era and the beginning of a potentially catastrophic shock. His solution - minimise foreclosures on mortgages by resetting mortgages below the market value of homes and using public and private capital to replenish the equity base of the banks.

His major fear for the world longer-term is not financial it is climate change. His medium term solution to the current catastrophe - create a global investment boom designed to address the effects of climate change so that the world can live sustainably rather than basing its global prosperity on excessive and destructive levels of US consumption that are driven by grossly excessive debt and agency problems.

I subscribe to his emails here.  Great value and always of interest.

6 comments:

sir Henry Casingbroke said...

The whole of the US economy now operates on debt. The spike in consumption in the US (and here too) is largely driven by the amazingly low prices courtesy of the income disparity and currency arbitrage in favour of the overvalued US dollar.

And, the availability of a flood of money, both from the oil producers, but also from China, who are all supporting the dollar in order to maximise their profits in their exports to the US.

The cheap credit has led to speculation in shares some of which were 40 times earnings and of course real estate.

This is all as a result of the Dubya period in office. The amazingly bad deterioration in terms of trade is congruent with the last two terms of the current president.

Come November and Americans will throw this useless, know-nothing scion of East Coast establishment masquerading as a Texan good old boy into the trashcan of history.

Dubya was shoehorned into office to do the bidding of the funny money. This included electoral fraud to get him into office.

This is the recession America had to have. The pity is that the rest of the world had to suffer as a result, including you H, through the now 6% drop in the value of your UniSuper.

jc said...

Ever tried reading his Alchemy of Finance. It's the biggest load of crap to ever hit the street. You could always get a job at his fund if you praised his book. Stanley Druckemiller did which is how he got a job there.

Recall the 87 stock market crash? The reason the lows were hit was because Uncle George's fund was getting out in the afternoon and he panicked out.

uncle George should only be allowed to pick stocks and never ever offer economic advice as he really doesn't know what he's talking bout. Ignore him.

hc said...

Sir Henry, I agree with most you say - second last para questionable but pretty astute otherwise.

But as Soros points out this era is over.

sir henry casingbroke said...

I think it is time you cried uncle, Harry. The headlines are all screaming this evening: the world has been saved by governments' action. (Bit premature, but still, we have a drowning chap here...)Even Glenn Stevens is kicking the intervention can. He must be a Commo...

So what has happened to the notion classical economics? You know: individual freedom and limited government? Er, Hayek, Stigler, Friedman, Chicago School, that sort of thing. Let the free markets sort it all out. They are engines of rationality after all.

In Descartes' Error, neurologist Antonio Damasio writes that humans who behave purely rationally are brain-damaged.

He has studied people who have suffered injury to the brain in the part that governs emotion, but who still have all their rational marbles in place. And guess what? They all behave in socially aberrant ways.

May I suggest you have another look at the film Robocop.

hc said...

Jack, I am debating the international socialists at an SRC gathering tomorrow. See my post that looks at these broad issues tomorrow and my critique of free market fundamentalism. It is the villan.

Sir henry casingbroke said...

Yes, I noticed the new post. I am looking forward to reading it tonight. I might say, btw, your blog has now truly come into its own - with your mix of interesting and erudite comment and humour-laden tolerance makes this the blog of choice for the times.