Sunday, April 13, 2008

George Soro: Face of a Prophet

Last week George Soros rushed out a book, his 10th, warning that the financial pain has only just begun. The New Paradigm for Financial Markets.

The market theory Soros has promoted for two decades and espoused most of his life is something he calls "reflexivity". The idea is that people's biases and actions can affect the direction of the underlying economy, undermining the conventional theory that markets tend toward some sort of equilibrium. Soros says all aspects of his life — finance, philanthropy, even politics — are driven by reflexivity, which has to do with the feedback loop between people's understanding of reality and their own actions. Reflexivity is still dismissed by many economists. But Nobel Prize-winning economics Columbia professor Joseph E. Stiglitz says Mr. Soros' theories might still meet with acceptance:
With a slightly different vocabulary these ideas, I think, are going to become more and more part of the center
Soros says:
  • To make a contribution to our understanding of reality would be my greatest accomplishment,

  • I consider this the biggest financial crisis of my lifetime ... I may well be proven wrong ... I would say that I'm the boy who cried wolf three times.

  • Regulators failed to regulate. They thought that excesses were random and that the market would always come to an equilibrium. They were adopting the wrong paradigm ..... They thought the ideal way to deal with this is control money supply and credit. But credit conditions and money supply don’t go hand in hand. They should have focused on curbing credit expansion, introduce margin requirements for loan. In many cases, they have margin requirements, but they have not used it. The belief that markets can regulate themselves is a false idea.
Give a listen!