Live blogging George Soros interview

April 6, 2009

Billionaire investor George Soros is in our New York television studios for an interview with Reuters. Here are some highlights from the interview. We’ll be updating this post through the morning.

On the banking system:

* Soros says US recapitalization of banks has taken wrong shape, too much like bush administration approach
* Soros says we have not succeeding in recapitalizing banks in way that allows them to provide credit going forward
* Soros, on Obama administration, says “this administration did not come out of the gate with a totally fresh approach”
* Soros says advocates a new “clean bank,” not “bad bank” approach
* Soros says public private investment partnership will work, but will not be enough, and gives hidden subsidy to banks
* Soros says “hidden subsidy” causes congress to be less willing to provide fresh capital to “clean” banks, which could spur more lending
* Soros says nationalizing U.S. banks is “out of the question”
* Soros says “the banking system as a whole is basically insolvent”
* Soros says U.S. stress test could be precursor to more successful recapitalization
* Soros says many steps being taken now, such as watering down of mark to market, sets US up for zombie banks

On the U.S. dollar and stimulus:

* Soros says U.S. dollar is not strong because people want to hold dollar, is strong because people have debt in dollars
* Soros says when US authorities take away stimulus, could be tipping point resulting in higher interest rates
* Soros says a sharp steepening of Treasury yield curve could “choke off the recovery,” and perhaps lead to stagflation
* Soros says consumer spending was 72 percent, needs to go back to 60 percent
* Soros says cannot see basis of substantial U.S. growth
* Soros says “I’m not predicting the dollar collapsing”
* Soros says energy or other areas with skillful management could be source of economic dynamism in US
* Soros says many critical voices in Russia are not being repressed now
* Soros says is surprised that for the moment, there is “lively criticism” of management by Russian leader Putin
* Soros says hedge fund assets under management likely to drop by as much as 2/3
* Soros says uptick rule needs to be modified
* Soros says banning of naked shorting could be sufficient, uptick rule may not be necessary
* Soros says trading CDS on exchanges is not enough

On economic growth:

* Soros says rate of growth of gnp globally and in US is going to be
significantly lower than in last 20 years
* Soros says “we are facing now a period where you won’t have very much overall
* Soros says imf special drawing rights could replace US dollar in the long run
* Soros says distribution of economic growth could be different going forward
than it has been in recent decades
* Soros says primacy of dollar is under question, system must be reformed so US
is subject to same discipline as other countries
* Soros says “in the long run, having an international accounting unit rather
than the dollar may be to our advantage”
* Soros says not allowing China to buy unocal pushed them into countries that
were “beyond the pale” like Angola, weakening international system
* Soros says China will be first country to come out of the recession
* Soros says China will probably emerge from recession in 2009
* Soros says world economy should grow in 2010, partly led by China

On world economies:

* Soros says Germany has recognized it does have responsibility toward EU states
* Soros says widespread use of CDS exacerbates risk to Europe
* Soros says economic difficulties give countries more incentive to stay in Eurozone
* Soros says it is a “great advantage” to be a member of the eurozone
* Soros says eastern European countries Latvia, Lithuania and even Estonia have “some serious problems”
* Soros says ukraine default is not far
* Soros says Lehman Brothers Holdings Inc <LEHMQ.PK> bankruptcy was “a game-changing event”
* Soros says g20 first time authorities saw crisis coming and were ahead of the curve
* Soros says Lehman bankruptcy “pushed the real economy into a freefall,” but “the shock is wearing off”
* Soros says “the system was fundamentally flawed, and there is no return to where we came from”
* Soros says does not expect US economy to recover in Q3 or Q4, we’re in for lasting slowdown
* Soros says “the authorities are actually beginning to catch up” in trying to fix structural problems in financial system
* Soros says when recovery happens depends how deep downturn is, but 2010 is possible
* Soros says timing of recovery “depends on how deep you go”


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Soros is generally viewed as a socialist, or command economy advocate, so his musings on free enterprise are disregarded by many. He states that bank recapitalization has taken the wrong shape – coincidentally a strategy followed by every G20 country. OK, so how exactly would Soros get credit moving forward, in a manner that is much smarter than the rest of the world?? He doesnt say. He is frequently quick to criticize, but never offers a concrete substantive alternative. He states that the rate of GNP growth globally is going to be slower than the last 20 years? Really? And what is that conclusion based on? Productivity? Innovation? Trade? No, its based on the sport of pontification.

Posted by JJ Natura | Report as abusive

American Dollars are true value is less then the cost of the paper they are printed on. .. Excluding the INK.

Posted by J Fernandes | Report as abusive

I agree with Mr. Soros had there been no Lehman Bankruptcy the whole scenario would be different right now…

All these i-banks are inter-twined due to complex OTC products they trade/sell.. If one goes down … the rest follow..

Posted by VN | Report as abusive

The pioneer of Hedge Funds is telling us this;

Even tho its a VERY respected voice, will he be heard?

Sadly not…. and in his words and those of another wizard, Arthur Cashin I end…..

These are strange and new times.. this is not just a black swan, this is a platypus we’re looking at…
we’re not going back to any place we’re familiar with…
we’re going to a new normal, and I just hope its comfortable enough to live in.
~Arthur Cashin.

The recession will last a long time. “Look, we are not going back to where we came from. In that sense it’s going to last for ever.”
~ George Soros

Posted by hedonist | Report as abusive

Soros as a socialist? Balderdash! He is the ultimate realist who has written extensively in an attempt to educate those willing to listen about how to attempt to avoid what happened after September 15.

What we have seen is a classic scenero described by Soros: the increase in systemic risk accompanied by increasing opportunities for malfeasance. Gillian Tett’s book describes it well.

How can we systematically determine the calculus necessary to build a Gothic arch in the sixteenth century or go to the moon in the twentieth and not be able to calculate the systemic risks in our banking system has only two possible excuses–stupidity, or worse, criminal negligence.

How our financial officials and financial professionals can fail to be alert to the risks of high levels of malfeasance has only one excuse–criminal negligence.

I think Soros was out of this market; but if he was in it, I bet he made a mint.

Does he know what should be done? When will anyone ask him who really cares about his opinion.

Meanwhile, what we have done is to take markets that were artificially inflated and re-inflate them with public funds. It would have been better to have put a stop to “irrational exuberance” years ago, and built a sustainable economy. Now, through a policy of panic, I fear we have created a monster that we cannot control.

Of course, 10% inflation will reset values that have not come down to earth. But a better policy would be to insure that workers earn according to their contribution, and build wealth that can sustain our economies in the future.

That is the way Henry Ford saw it. And he was no socialist.

Posted by Bob Hullinghorst | Report as abusive