If George Soros doesn't believe in capitalism...
When George Soros says that capitalism is broken -- condemned to recurring bubbles -- and that regulation doesn’t work either, is that a sell signal? I’ll leave the market mechanics to others. But Soros, one of the original hedge fund “masters of the universe,” put in quite a performance today. To call it gloomy didn’t do justice to the level of weltschmerz.
A little background. One of the reasons to come to Davos is to listen to Soros, the financier turned philanthropist. In recent years he managed to be just a bit more pessimistic than most others here -- and thus ended up looking all the more like a genius when the financial world went to hell.
Soros hosted a lunch today to voice his latest musings about the miasma of international capitalism. Even for veteran Soros-watchers, this was a downbeat assessment, summarizing arguments he makes in a new book called “The Soros Lectures.”
His basic contention is that the crash of 2008 wasn’t an anomaly -- an exogenous shock to the system -- but a demonstration of the system itself. In place of the conventional economic view of markets moving toward equilibrium, he said it’s just as likely that they are moving away from it. “Bubbles are inherent in financial markets,” he said. The system doesn’t tend toward balance but imbalance.
Okay, then, you say: Maybe we need more regulation. But Soros doesn’t believe in that, either. “The flaws in regulation are even worse than in the markets,” he said, noting that regulators are subject to political influence and could easily be captured by those they’re supposed to regulate. He likes the idea of global regulation, mandated by a new Bretton Woods conclave. But I wouldn’t hold my breath waiting for that one.
A final shot of darkly contrarian wisdom from the master: He likes President Obama’s idea for limiting the risk-taking activities of banks, but he thinks it’s coming too soon, before the banks have really recovered from the 2008 crack-up. So it could make things even worse -- by making the banks even more cautious about lending, and thus increasing the risk of a double-dip recession.
I just arrived in Davos today, so I can’t tell you how widespread the Sorosite pessimism is. But two business executives who left the lunch at the same time I did were shaking their heads: Capitalism doesn’t work; regulation doesn’t work. Time to repair to the executive lounge for a shot of caffeine.
By
David Ignatius
| January 27, 2010; 9:49 AM ET
Save & Share:
Previous: Inside the Davos goodie bag
Next: Chronic disease in the developing world
Posted by: Chagasman | January 27, 2010 12:24 PM | Report abuse
He's absolutley right in that free markets tend to imbalance. Left unsaid is that a truly FREE market will also tend to correct and rebalance. Its regulation that prevents the correction and rebalancing effort and that causes "bubbles". Its regulation that encouraged banks to lend to unqualified buyers. Its the lack of regulation that allowed banks to "cloak" these risky loans in bundled investments where their true value was unknown. In a FREE market The sole purpose of regulation should be to ensure transparancy in all transactions so that both seller and buyer know what they are buying/selling. All other regulation merely empowers bureaucrats.
Posted by: walkerlw | January 27, 2010 12:29 PM | Report abuse
walkerlw: "Its regulation that prevents the correction and rebalancing effort and that causes "bubbles". "
I would be interested in knowing what regulations persuaded 17th century Dutchmen to speculate in tulip bulbs? Or produced the canal mania and railroad mania of 19th century Britain?
Posted by: sjpatejak | January 27, 2010 12:42 PM | Report abuse
It's the act of government intervention that creates the 'bubbles'. Leave the markets alone. Pumping money here or there only creates a temporary stay ala Cash for clunkers. Purchases that would have been made over a 1-2-3 year haul were suddenly made within a 6 month window. Now that the window is closed the bubble now must deflate harder versus having left the market untouched. Now one asks what of years 2-3 and beyond..well...the government inflated bubble must now burst. Same in housing, etc, etc. Leave it alone.
Posted by: short1 | January 27, 2010 3:10 PM | Report abuse
Soros is proof that idiots can become billionaires, just as John Kenneth Galbraith was proof that idiots can teach economics at Harvard. Galbraith was an idiot because he said in his book THE NEW INDUSTRIAL STATE: "companies such as GM are so large as to be immune from market forces." For someone to make that assertion and have tenure at Harvard says a lot about the devaluation of getting an econ degree from Harvard.
Soros is an idiot because he thinks "capitalism has failed." Quite the contrary, capitalism was about to get rid of the likes of BoA, CITI, AIG, GM, and Chrysler, all FAILED enterprises, until the Feds stepped in and rewarded the failure.
Finally, when MORONS VOTE, MORONS get ELECTED! And most Americans have proven themselves MORONS!
Posted by: vince33x | January 27, 2010 4:50 PM | Report abuse
Call it the post-baby boomer syndrome where socialist capital has "rescued" capitalism.
Posted by: ordak100 | January 28, 2010 4:57 AM | Report abuse
The comments to this entry are closed.
Soros too easily dismisses regulation of capitalism. The banking and financial regulations in effect in the US used to work just fine, until they were changed by a Congress influenced by and bought out by the financial sector. The only problem with regulations is trying to find honest people to write them, people not already under the influence of money and greed.