Soros Speaks

My idol, George Soros, speaks about regulatory failure, our misguided bailout, and the inability of sloth-like bureaucrats to deal with an imminent crisis. Video link here. Here are some excerpts:

Markets have the ability to adjust and they’re very flexible. There is this invisible hand. But it is also prone to be mistaken. In other words, markets instead are reflecting reality. They always look at reality with a bias. There is always a prevailing bias. I’ll call it, you know, optimism/pessimism. And sometimes those moods actually can reinforce themselves so that there are these initially self-reinforcing but eventually unsustainable and self-defeating boom/bust sequences or bubbles. And this is what has happened now. This current economic disaster is self-generated. It was generated by the market itself, by getting too cocky, using leverage too much, too much credit. And it got excessive.

Unfortunately, the authorities are behind the curve. They are reacting to these crises as they emerge. One thing leads to another, one market after another gets into difficulty. And they react to it. And they don’t quite understand what’s hitting them. So they are not anticipating and not gaining control of the situation.

This housing bubble, when that burst, it was only the detonator that exploded the bigger bubble, the super bubble, which is this 25 years of constant credit expansion using greater and greater leverage. The amount of credit in the economy has been growing at, I don’t know, I don’t know the exact figure, but maybe at least twice as fast as the economy itself. I think it’s more like three. And now, suddenly, you have a contraction of credit. And it’s a sudden thing. And it’s a period of great wealth destruction. And that’s how these poor people in Texas suddenly find that their 401(k) is worthless.
This is the end of an era. And this is a fact.

BILL MOYERS:End of an era? Capitalism as we have known it?

GEORGE SOROS:No. No, no, no. Capitalism will survive. But [it marks the end of] the period where America could run ever increasing current account deficits. We consumed six and a half percent more than we are producing. That had to come to an end. You see, for the last 25 years the world economy, the motor of the world economy that has been driving it was consumption by the American consumer who has been spending more than he’s been producing. So that motor is now switched off. It’s finished. It’s run out of — can’t continue. You need a new motor.

BILL MOYERS:Well, don’t be shy. What do you think the new government should do?

GEORGE SOROS:Well, first of all you have to prevent housing crisis from overshooting on the downside the way they overshot on the upside. You can’t arrest the decline, but you can definitely slow it down by minimizing the number of foreclosures and readjusting the mortgages to reflect the ability of people to pay. So you have to renegotiate mortgages rather than foreclose. Recapitalize the banks.

BILL MOYERS:One of the British newspapers this morning had a headline, “Welcome to Socialism.” It’s not going that way, is it?

GEORGE SOROS:Well, you know, it’s very interesting. Actually, these market fundamentalists are making the same mistake as Marx did. You see, socialism would have worked very well if the rulers had the interests of the people really at heart. But they were pursuing their self-interests. Now, in the housing market, the people who originated the [mortgage loans] earned the fee. And the people who then owned the mortgages–their interests were not looked after by the agents that were selling them the mortgages. So you have an agent principle problem in socialism, and you have the same agent/principle problem in this free market fundamentalism.

BILL MOYERS:The agent is concerned only with his own interests, not with the interest of the people who they’re supposed to represent.

GEORGE SOROS:That’s right.

GEORGE SOROS: Both Marxism and market fundamentalism are false ideologies.

BILL MOYERS:Is there an ideology that is not false?

GEORGE SOROS:Yes: the recognition that all our ideas, all our human constructs have a flaw in it. And perfection is not attainable. And we must engage in critical thinking and correct our mistakes.
That’s my ideology. As a child, I experienced Fascism, the Nazi occupation and then Communism, two false ideologies. And I learned that both of those ideologies are false. And now I was shocked when I found that even in a democracy people can be misled to the extent that we’ve been misled in the last few years.

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