The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means

The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means | George Soros | Putting Limits on Leverage

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The New Paradigm f...

	The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means George Soros PublicAffairs, 2008 - 208 pages average customer review:based on 30 reviews view larger image
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In the midst of the most serious financial upheaval since the Great Depression, legendary financier George Soros explores the origins of the crisis and its implications for the future. Soros, whose breadth of experience in financial markets is unrivaled, places the current crisis in the context of decades of study of how individuals and institutions handle the boom and bust cycles that now dominate global economic activity. ?This is the worst financial crisis since the 1930s,? writes Soros in characterizing the scale of financial distress spreading across Wall Street and other financial centers around the world. In a concise essay that combines practical insight with philosophical depth, Soros makes an invaluable contribution to our understanding of the great credit crisis and its implications for our nation and the world.

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Excellent insights

George soros brings in an unbiased perspective of impact of current events in capital markets and shifting paradigms of dominance from US to other countries A must read for global citizens

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.

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dave

3 stars because well written. Get inside the mind of the man who is attempting to destroy America. Or rather talk America into self destruction. A man who grew up under and understands propaganda. Founds and Funds the newest best propaganda organization in america (Moveon.org).

This man states in this book that facts don't matter. It's only what people believe that matters. This is true right up until the tyrant seizes control of all power. It is true right up until the other speculators looses all their money. Soro's made his fortune in the futures markets.

This is Mr. Soro's 'Mien Koff' ("My Struggle" referring to the book by Adolph Hitler; 'Mien Koff')

I recommend this book because you should read the words and attempt to understand your enemies.

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reviews: page 1, 2, 3, 4, 5, 6

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