Archive

from Tales from the Trail:

Gingrich cites Soros in attempt to paint Romney as “liberal”

When renowned investor George Soros referred to Newt Gingrich as an "extremist conservative" last week, he didn't mean it as a compliment. But that hasn't stopped Gingrich from wearing it as a mark of honor.

In an interview from the World Economic Forum in Davos, Switzerland, Soros told Reuters Digital Editor Chrystia Freeland that in his view there wouldn't be "all that much difference" between President Obama and a President Romney. But an "extremist conservative" like Newt Gingrich or Rick Santorum, he said, "would make a big difference."

Gingrich, fighting to close the gap with frontrunner Mitt Romney a day ahead of the Florida primary, seized on his words, starting with an appearance on Good Morning America. Gingrich told host George Stephanopoulos that Soros "said publicly, in a Reuters interview on video, that he’s perfectly happy with either Obama or Romney, that they’re the same people. Minor differences. He said, 'Gingrich, now, that would be real change.’”

"There are a lot of parallels between these two guys. Romneycare and Obamacare are essentially the same," Gingrich said. "In the long run, the Republican Party is not going to nominate the founder of Romneycare, a liberal Republican who is pro-abortion, pro-gun control, and pro-tax increases. It ain't gonna happen."

Gingrich repeated the point at campaign events throughout the day, first in Jacksonville: "George Soros in Europe yesterday said it makes no difference to us whether it’s Romney or Obama, we can live with either one. But not Gingrich, that would be a real threat,’" Gingrich said. “It’s so perfect you’d think we made it up.’’

Later, in Tampa, he again reiterated Soros' point, concluding that "George Soros is right: I am real change and that’s why the establishment in both parties is terrified. Because we will change things."

from Chrystia Freeland:

‘Kumbaya’ capitalism collides with self-interest

DAVOS, Switzerland--George Soros is a traitor to his class. That’s not an insult or a tabloid exaggeration. It is, instead, a direct quote from my conversation with the billionaire investor and philanthropist at the World Economic Forum here.

‘‘I am a traitor to my class,’’ Soros said. ‘‘I think that the income differentials are too wide and ought to be narrowed,’’ he added, which is why he favors a bigger hit on those, like himself, at the very top.

But among his plutocratic peers, he said, that is very much a minority opinion. In fact, Soros, who helped spearhead the muscular Wall Street support for Barack Obama in the 2008 presidential election, particularly among hedge fund and private equity investors, believes the president’s call for higher taxes is the reason he has been ditched by the financiers: ‘‘That has led my hedge fund community to abandon Obama in favor of any Republican, because they don’t like to be taxed.’’

Henry Blodget, a former (and formerly disgraced) Wall Street analyst who has been resurrected as one of the smartest writers on business and politics, agrees that the financial class is strongly attached to its tax breaks. After his Wall Street friends have had a few drinks, he said, ‘‘they are cackling that they have fooled everybody into thinking that there’s some justification for this.’’ ‘‘This’’ is the carried interest tax provision, which allows some private equity and hedge fund managers to pay tax at 15 percent.

But the cackling may be coming to an end — and the hostility toward the president mounting — following his State of the Union speech on Tuesday. A centerpiece of that address, and most likely a central theme on the campaign trail over the next nine months, was Obama’s insistence that the 1 percent must pay up.

‘‘Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households,’’ Obama said, in an oblique attack on the carried interest tax break and on Republican candidate Mitt Romney, who paid an effective tax rate of 13.9 percent on income of $21.6 million in 2010.

‘‘Tax reform should follow the Buffett Rule,’’ the president said. ‘‘If you make more than a million a year, you should not pay less than 30 percent in taxes.’’ And, like Soros, the president has decided not to duck charges of class war: ‘‘Now you can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense.’’

from Chrystia Freeland:

George Soros on Europe’s future

Watch George Soros tell Chrystia why he thinks it will take years for Germany to realize that Europe needs additional stimulus and why he would be loading up on Italian government bonds if he were still an active investor.

from Chrystia Freeland:

George Soros: I’m a “traitor to my class”

Watch as the billionaire investor tells Chrystia why the hedge fund community has abandoned President Obama and why there's not a huge gap between the views of the president and Republican front-runner Mitt Romney.

from Chrystia Freeland:

George Soros’ advice for the euro zone

Europeans could use a little cheering up this week. One man who is trying to do that is George Soros. He knows his way around a currency crisis, of course, and he isn’t usually accused of being a Pollyanna. Soros thinks it is not too late to save Europe and the euro — but he warns that time is running out and that Europe’s leaders must fundamentally change their strategy to succeed.

Let’s start with the bad news. “Right now, the crisis has hit a new high, because there’s an unresolved government crisis in Greece and in Italy,” Soros said. “There is also a looming worsening of the financial crisis, because all the efforts to leverage the E.F.S.F. have run into legal or technical difficulties.” He was referring to the European Financial Stability Facility, the bailout fund for the euro zone.

“That means that currently Europe has no ring fence against a possible Greek default, and that is what is pushing the market into a renewed panic,” he said. “I expect the market to fall into despair and panic and I expect that to get worse.”

Despair may indeed be the right emotion, if you accept Soros’s prediction of what will happen if European leaders don’t get ahead of the markets: “This crisis is potentially bigger than the crash of 2008, because we have survived the crash of 2008 and we have not yet survived this one. There is a danger if they get it wrong then you have a financial meltdown. If there is a disorderly default in Greece, and the rest of the euro zone has not been insulated from contagion, then you could have a meltdown not only of the Greek financial system, but of the European and in fact the global financial system because we are so interconnected.”

So far, so dire. But Soros has two ideas that should perk you up. One is about the bazooka, and one is about the most important woman in the world.

The bazooka is the financial weapon Europe has created to defend ailing European economies from the skeptical traders who are betting against them. To end the crisis, Europe needs a bazooka big enough to convince the markets that making a wager against Frankfurt will be futile — and expensive.

Until now, the story of this financial crisis is one of European leaders consistently being one step behind the markets: bringing a fist to a knife fight, then a knife to the gun fight — and never bringing out the bazooka. Conventional wisdom — and the verdict of the markets this week — is that the European Financial Stability Facility war chest of €440 billion, or $600 billion, is a continuation of this pattern of insufficiency.

from DealZone:

Deals wrap: Fund manager Soros ending career

Billionaire hedge fund manager George Soros will be returning capital to outsiders and ending his nearly four-decade long career. In a letter to investors, Soros' two sons cited tougher impending regulations on the hedge fund industry being the reason for returning the money. Soros said he will now only manage money for himself.

A study has found more than one-fourth of the 94 U.S. securities fraud lawsuits seeking class-action status and filed from January to June were related to so-called Chinese reverse mergers. Despite this surge in lawsuits, investors may have trouble recouping their losses even if they win.

Walt Disney Co., the majority shareholder of India's UTV Software Communications, is proposing to buy most of the shares it does not already own in the company and delist them from all bourses. The deal has a market value of $826 million.

from Chrystia Freeland:

Hungary’s revolution and the Arab Spring

BUDAPEST - Sometimes the conventional wisdom is right. The Arab Spring really is the most important political event since the 1989 revolutions in Eastern Europe. So it makes sense to find out what the East Europeans make of the uprisings in the Middle East and North Africa and to ask what they think it will take to transform the promise of these rebellions into a lasting political transformation.

A good place to look for those answers this week was Budapest, where Central European University, one of the intellectual centers of the region's political and economic transition, is celebrating its 20th anniversary.

The scholars and activists who gathered here to toast those two decades strolled along the sunny banks of the Danube, listened to a special concert of Liszt and Mahler -- and spent a lot of time debating the lessons of their revolution for the Arab Spring.

Here are four of them:

-- The first is that selling democracy has become harder now than it was 20 years ago. That's because, as Aryeh Neier, the human rights activist and head of the Open Society Foundations, explained, the equation of prosperity and democracy, which was universally acknowledged in 1989 and the period that followed, has broken down today.

"In 1989, the U.S. had succeeded in conveying the view that economic prosperity and political freedom go hand in hand," Mr. Neier said. "That is by no means so certain today. The rise of China and the difficulty the West continues to have in recovering from the financial crisis have broken the link between prosperity and freedom."

-- A second big idea was that while technology has probably made it easier to rebel against authoritarian governments, it has also made it tougher to build enduring, deeply rooted democratic polities to replace them.

from Chrystia Freeland:

The U.S. capitalist love affair with Communist China

The American blogosphere lit up this week with discussion of a report from the International Monetary Fund that, by some measures, the Chinese economy will be bigger than the U.S. economy by 2016.

It makes a great headline, but that story was, of course, old news: Given China’s size, and the speed with which it is growing, simple arithmetic tells you that its economy will one day be bigger than that of the United States. The only question is when.

The bigger surprise is the huge affection U.S. capitalists have for Communist China.

“When I go to China, I find more people in government who are interested in learning about the things that private equity can do to help an economy and help companies than you often do in Washington,” David Rubenstein, co-founder and managing director of Carlyle Group, one of the world’s largest private equity firms, said in an interview this week.

“Washington, for a number of reasons, is not as focused on the joys of private equity,” Rubenstein explained. “So very often, you have to defend yourself when you’re talking to a member of Congress.”

In contrast, he said, he gets a warm reception in the People’s Republic: “What they really think is that private equity firms have shown in the West that they know how to make companies more efficient, that they know how to make workers more efficient and managers more efficient and how to make companies more productive. And that’s something they want.”

The content of his remarks is conventional wisdom among U.S. business people today: it is a truth universally acknowledged that China – with its censorship, central plan and one-party state – is a better place to do business than the United States.

from Chrystia Freeland:

‘We can’t say they didn’t warn us’

Chrystia wrote an essay for Foreign Policy's Top 100 Global Thinkers Issue on the economists and financiers whose ideas survived the financial crisis:

In a letter to shareholders written just after the dot-com bust, Warren Buffett observed, "You only find out who is swimming naked when the tide goes out." The 2008 financial crisis had a similar effect on our economic and financial gurus: It revealed whose thinking was based on whiggish, End-of-History assumptions about the essential triumph of Western democratic capitalism and whose mental framework admitted the possibility of radical disruption. The thinkers whose intellectual -- and maybe even psychological -- starting point was that Western market democracy is neither perfect nor eternal turned out to be much better at foreshadowing the financial crisis, and it is those thinkers whose ideas are the most relevant today, in the uncertain, post-crisis world.

These specialists in uncertainty are a broad church: They range from academic economists who saw the crisis coming, like New York University's Nouriel Roubini and the University of Chicago's Raghuram Rajan, to philosophers of finance like George Soros and Mohamed El-Erian, who have made huge market bets, as well as intellectual ones, on how bubbles are formed and how they burst. One striking similarity between many of them is that they have seen regime change up close.

The most dramatic example is Soros, whose formative life experience was the Nazi invasion of Budapest when he was 13 years old. That trauma taught him two things: that the world could change overnight, and that those, like his beloved father Tivadar, who responded to that upheaval instantly were the ones who survived. Roubini, who is sometimes caricatured as either Dr. Doom or the Hugh Hefner of the dismal-science set, is likewise best described as a specialist in revolution. He spent his childhood being moved around volatile parts of the world from Istanbul to Tehran to Tel Aviv -- and began his career as an economist studying the 1990s emerging-markets crises in Latin America, Asia, and Russia. El-Erian, Rajan, and Daron Acemoglu, a widely cited young Turkish economist, also have both personal and professional experience of rapidly, and sometimes traumatically, changing social and economic orders.

These men were all born or at least partly raised outside the United States. That is surely no accident. In the 20th century, and even in the 19th and 18th, America was the world's laboratory, the place where many of the best, and most revolutionary, ways of organizing government and the economy were being worked out. The United States is still the world's most powerful country and most intellectually vibrant -- after all, these global thinkers now make their home in America -- but partly because the United States is so big and has been so prosperous for so long, American-centric thinkers have been relatively slow to spot the challenges to the Washington Consensus and offer coherent alternatives.

Being a "global nomad," as Roubini calls himself, has another intellectual advantage. Thanks to communism's collapse, the lowering of trade barriers, and the technology revolution, the world economy is more interdependent than ever. This group takes America's connection to the global economy as the starting point for its analysis -- hence El-Erian's emphasis on global financial imbalances (also a signature theme of Martin Wolf's Financial Times columns) and the relationship Rajan traces between rising income inequality and its U.S. political manifestation in subprime mortgages.

This crew is all about big ideas and the big picture -- their frame of reference is global, and their intellectual strength is their ability to understand that entire economic systems can, and do, collapse. Paradoxically, the opposite impulse is simultaneously in fashion: You might call it the economics of small steps, an approach that eschews the big theory altogether in favor of smaller, achievable, and, crucially, measurable proposals.

Posted by Peter Rudegeair.

from Funds Hub:

Markets could be derailed again, warns Soros

Railway porter-turned-billionaire financier George Soros delivered a stark warning last night that the financial world is on the wrong track and that we may be hurtling towards an even bigger boom and bust than in the credit crisis.

The man who 'broke' the Bank of England (and who is still able to earn a cool $3.3 bln in a year) said the same strategy of borrowing and spending that had got us out of the Asian crisis could shunt us towards another crisis unless tough lessons are learned.

Soros, who worked as a porter to pay for his studies at the London School of Economics after emigrating from Hungary, warned us to heed the lesson that modern economics had got it wrong and that markets are not inherently stable.

"The success in bailing out the system on the previous occasion led to a superbubble, except that in 2008 we used the same methods," he told a meeting hosted by The Economist at the City of London's modern and impressive Haberdashers' Hall.

"Unless we learn the lessons, that markets are inherently unstable and that stability needs to the objective of public policy, we are facing a yet larger bubble.

"We have added to the leverage by replacing private credit with sovereign credit and increasing national debt by a significant amount."

One crumb of comfort could be the 10-year period between the 1998 Asian crisis and the 2008 credit crisis. If the pattern is repeated, it should at least mean we have another 8 years to go before the next crash...