The Financial Crisis: An Interview with George Soros

The following is an edited and expanded version of an interview with George Soros, Chairman, Soros Fund Management, by Judy Woodruff on Bloomberg TV on April 4.

Judy Woodruff: You write in your new book, The New Paradigm for Financial Markets,^[1] that "we are in the midst of a financial crisis the likes of which we haven't seen since the Great Depression." Was this crisis avoidable?

George Soros: I think it was, but it would have required recognition that the system, as it currently operates, is built on false premises. Unfortunately, we have an idea of market fundamentalism, which is now the dominant ideology, holding that markets are self-correcting; and this is false because it's generally the intervention of the authorities that saves the markets when they get into trouble. Since 1980, we have had about five or six crises: the international banking crisis in 1982, the bankruptcy of Continental Illinois in 1984, and the failure of Long-Term Capital Management in 1998, to name only three.

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George Soros : The worst market crisis in 60 years

The current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the end of the second world war at intervals ranging from four to 10 years.

However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.

Boom-bust processes usually revolve around credit and always involve a bias or misconception. This is usually a failure to recognise a reflexive, circular connection between the willingness to lend and the value of the collateral. Ease of credit generates demand that pushes up the value of property, which in turn increases the amount of credit available. A bubble starts when people buy houses in the expectation that they can refinance their mortgages at a profit. The recent US housing boom is a case in point. The 60-year super-boom is a more complicated case.

Article Link - The worst market crisis in 60 years.

Related Links :

• George Soros - The World Economic Forum
• Discussing the economic issues of 2008 in Davos, Switzerland, with George Soros, Soros Fund Management; Larry Summers, former Treasury Secretary & CNBC's Maria Bartiromo.
• Soros calls for global markets oversight
• View from the Top, George Soros
  

FlashBack - Q & A with George Soros

In a classic book “Soros on Soros”, there is an insightful Q & A with George Soros. He talked about his investing framework, philosophy, general theory of reflexivity and boom/bust theory.

Article link.

FT.com Interviews with George Soros

FT interviewed with George Soros in New York on March 6. He talked about markets turbulence, appreciation of the yen, liquidity, emerging markets, private equity, American politics, Russia etc.

Video Direct Link (Scroll down to Mar. 7)
Transcript Direct Link.