monetarist/lasseiz-faire free market fundamentalism assumptions are
false and silly, markets are not self righting and are not perfect,
reagan, thatcher, freidman ruined the world
http://www.bloomberg.com/apps/news?pid=20601087&sid=ajkPSW_domB4&refer=home
Soros Sees Additional Market Declines After Reprieve (Update1)
By Katherine Burton
April 3 (Bloomberg) -- Billionaire George Soros called the current
financial crisis the worst since the Great Depression and said markets
will fall more this year after a brief rebound.
``We had a good bottom,'' Soros said yesterday in an interview in New
York, referring to the rally in stocks and the dollar after JPMorgan
Chase & Co. agreed to buy Bear Stearns Cos. on March 17. ``This will
probably not prove to be the final bottom,'' he said, adding the
rebound may last six weeks to three months as the U.S. moves closer to
a recession.
Last summer, worried about market disruptions that started with rising
subprime-mortgage defaults, Soros, 77, returned to a more active role
in managing the $17 billion Quantum Endowment Fund, whose profits pay
for his philanthropic projects. Quantum returned an average of 30
percent a year before Soros started using outside managers in 2000 for
much of his money.
He also decided to write a book, his 10th, ``The New Paradigm for
Financial Markets'' (Public Affairs, 2008). Released today online, the
book explains the causes of the current meltdown, a crisis he says has
been in the making since 1980, and the trades he put in place this
year to protect his wealth, much of it in Quantum.
Soros has bet on declines in the dollar, 10-year Treasuries and U.S.
and European stocks this year. He expected foreign currencies to rise,
as well as Chinese and Indian equities. The latter bet helped Quantum
return 32 percent in 2007. Quantum's returns this year have ranged
from up 3 percent to down 3 percent.
`Heightened Uncertainty'
The euro has climbed 7.5 percent against the dollar this year and the
Japanese yen has gained 9.1 percent. These and other currencies may
continue to strengthen, he said.
``There is an increasing unwillingness to hold dollars, though there's
a lack of suitable alternatives,'' he said. ``It's a period of
heightened uncertainty.''
Federal Reserve officials dropped their benchmark interest rate 2
percentage points this year to 2.25 percent, and Soros doesn't see
that they can lower the rate much further, given the weak dollar.
``We are close to the limit,'' he said.
New York Federal Reserve Bank President Timothy Geithner said today
capital markets are still ``substantially impaired'' and policy makers
and financial industry leaders must ``act forcefully'' to stem the
crisis.
As for his wagers on developing markets, Soros hasn't abandoned his
holdings in India, even with the 22 percent drop in the benchmark
Indian index this year.
``The fundamentals remain good,'' he said. He is less certain about
what will happen to Chinese H shares, which trade in Hong Kong.
They've fallen 18.5 percent this year.
Credit-Default Swaps
Credit default swaps -- a way to bet on the creditworthiness of a
company -- may be the next crisis area because the market is
unregulated, and it's impossible to know whether counterparties can
meet their obligations in the event of a bond default. The market has
a notional value of about $45 trillion -- or about half the total
wealth of U.S. households.
Soros recommends the creation of an exchange with a sound capital
structure and strict margin requirements, where current and future
contracts could be traded.
The cause of the current troubles dates back to 1980, when U.S.
President Ronald Reagan and U.K. Prime Minister Margaret Thatcher came
to power, Soros said. It was during this time that borrowing ballooned
and regulation of banks and financial markets became less stringent.
Avoiding a `Super-Bubble'
These leaders, Soros said, believed that markets are self- correcting,
meaning that if prices get out of whack, they will eventually revert
to historical norms. Instead, this laissez- faire attitude created the
current housing bubble, which in turn led to the seizing up of credit
markets and the demise of Bear Stearns, Soros said.
To avoid a super-bubble in the future, Soros said banks must control
their own borrowing. They must also curtail lending to clients such as
hedge funds by demanding greater collateral and margin requirements on
loans.
Asked if such moves would make it impossible to achieve returns like
those of his pre-2000 days, Soros laughed.
``Since I'm designing these regulations, they would not hurt me,'' he
said. ``We made direction bets but we haven't used leverage'' like the
$25-to-$1 borrowing that brought down John Meriwether's Long-Term
Capital Management LLC in 1998.
To contact the re****ter on this story: Katherine Burton in New York at
kburton@[EMAIL PROTECTED]
Updated: April 3, 2008 11:40 EDT
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