Product Description

Product Details

• Amazon Sales Rank: #194 in Books
• Published on: 2008-05-05
• Number of items: 1
• Binding: Hardcover
• 208 pages

Review
Tucson Citizen
“Brilliant…examines a complex problem with both insight and philosophical depth….A much-needed contribution that should help many of us better understand the great credit crisis and what it means, not just for the United States but the entire world.”

BBC Business editor Robert Peston
“Totally compelling”

The London Times “They're wrong about oil, by George: In short, the standard economic assumption that supply and demand drive prices is only a starting point for understanding financial markets. In boom-bust cycles, the textbook theory is not just slightly inaccurate but totally wrong. This is the main argument made by George Soros in his fascinating book on the credit crunch, The New Paradigm for Financial Markets, launched at an LSE lecture last night.”

Reuters
“Soros says market rebound a bear-market rally: Billionaire hedge-fund manager George Soros said at LSE on Wednesday that the current rebound in stock markets is only a bear-market rally, because monetary authorities are unlikely to be able to handle the credit crisis.”

About the Author
George Soros is chairman of Soros Fund Management and is the founder of a global network of foundations dedicated to supporting open societies. He is the author of several best-selling books including The Bubble of American Supremacy, Underwriting Democracy, and The Age of Fallibility. He was born in Budapest and lives in New York City.

Customer Reviews

Required reading for our children and grand children
Our financial condition today is a mess. As George Soros explains we have been in a credit driven economy, out of control, completely inundated with new financial instruments, huge debts and obligations to our citizens as in Social Security and still adhering to the notion of a self correcting equilibrium economy. Time is running out
and we are adding to the problem by engaging in a disastrous war.

Putting Limits on Leverage
George Soros thinks that the current credit crunch is the most severe financial crisis since the 1930s and that it marks the end of an era of credit expansion based on the dollar. In this book he argues that a new paradigm is urgently needed to better understand what is going on. The paradigm used until now by most economists was based on false premises.

The existing paradigm, often referred to as free-market fundamentalism, holds that markets are self-correcting, that they naturally tend toward equilibrium. Economists as far back as Adam Smith have argued against regulation or government intervention of any kind since it would interfere with the natural forces of the market.

Soros correctly argues the contrary. In fact government intervention has repeatedly saved the market. A few examples are the bankruptcy of Continental Illinois in 1984, or the failure of Long Term Capital Management in 1998, or the current bolstering of Fannie Mae and Freddie Mac (my example). The notion that the market deviates from an orderly path is the rule rather than the exception.

The new paradigm that is needed, according to Soros, must incorporate the theory of reflexity. Developed in previous works by himself and his mentor Karl Popper, reflexivity examines the relationship between thinking and reality, between the cognitive function and the manipulative function. In the investment world, this means that when investors are bullish on, say, housing or mortgage backed securities their values go up, not because they become intrinsically more valuable, but because everyone else is thinking they are more valuable. This is basically old-fashioned market psychology dressed-up in theory. The mechanism that allows the market to go up is self-reinforcing but ultimately self-defeating. The market goes from euphoria to despair overshooting the top, and ultimately the bottom too. Witness today's housing market.

We are currently experiencing the consequences of unregulated credit markets and Soros argues that if more is not done the crisis could get much worse. He points out that moneterist doctrine in inadequate. Controlling the money supply is only half of the picture. The internet bubble, the housing bubble, and the current commodities bubble were created through excessive use of leverage. The amount of debt currently outstanding is unprecedented. Any new financial regulations will need to temper the use of credit to avoid future bubbles.

Soros argues that the US must come to grips with the new realities if it is to maintain its preeminent position in the world. If we are not careful the dollar will lose its standing as the reserve currency of choice. The task of regulating credit will now became even more precarious since the credit market is already tightening. Soros, as a former hedge fund manager, realizes that credit is the lifeblood of capitalism and any overregulation will also damage the economy. Reflexivity theory aside, this book is an excellent discussion of the challenges we are facing today.

Don't look in this book for financial advice.
The subtitle of this book, "The Credit Crisis Of 2008 And What It Means", is completely misleading unless you are satisfied with an answer that things are "changing". Beyond that, Mr. Soros doesn't have much to say. But don't take my word for this, just go to pages 158-159 in the Conclusion of his book where he states, as follows; "Near panic conditions prevail in financial markets. People want to know what lies ahead. I cannot tell them because I do not know. What I want to tell them is something different. I want to explain the human condition."
The fact that Mr. Soros has made several billion dollars is probably more likely to disqualify, rather than qualify, him as an expert on the human condition. He certainly would not be my first choice as a philosophical consultant. Mr. Soros would be well advised that when he doesn't have something to say about making money, he probably shouldn't say anything at all.