|The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means
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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.
- Insightful for the layman but not so much for those with backgrounds in economics
Soros' book offers quite a few insights into the financial markets for the layman but not so many for those with backgrounds in economics and financial markets (academic or practical). In short, the book's most important insights are (not necessarily in order of importance):
1) Soros' views on what he calls "reflexivity". He posits that the current prevailing paradigms in economics that stress that supply and demand are independent of the actions of market participants is flawed AND that, contrary to rational expectations theory, markets may not reflect economic fundamentals (i.e., may instead reflect "herd mentality"). Soros' view is not new with respect to what he has written in past. For more detailed discussion on "reflexivity" one should refer to his "Alchemy of Finance". With respect to behavior economics one would learn much more reading one of Schiller's books (i.e., Irrational Exhuberance or Market Volatility). They discuss the gap between actions based on economic fundamentals and psychological factors in much greater depth. However, the fact that he even provides such a critique is mind opening even to those who have had many years of education in undergraduate economics. It forces one to question the all important assumption of "rational expectations" and the assumption that in economic markets the actions of the economic actors and the results in markets are independent of each other. These assumptions undermine modern micro, macroeconomic and financial market theory and seriously need to be examined.
2) Soros provides his views as to the causes of the current financial bubble (i.e., a combination of high leverage, cheap credit, introduction of many financial instruments that have not been that well understood and corporate malfeasance). If you are student of economic history this is nothing new.
3) Soros also provides his advice as to how to mitigate (at least partially) the problems caused by the latest bubble, in particular liquidity in the housing bubble. He stated in the book (written in early 2008) that the Federal Govt. would almost inevitably have to step in to provide liguidity in the housing, banking and other financial sectors (i.e., large investment banks or what may also be called "market makers"). The weekend of September 7, 2008, he was proven correct regarding with respect to the Government's bailout of Fannie and Sallie Mae. Earlier the government had to prop up some of the larger investment bankers. He argued that not doing so would lead to massive contraction in liquidity surrounding the markets, particularly housing markets, with implications much like those leading to the Great Depression.
4) Related to item 3 above, he calls for greater regulation of financial markets due to the risks implied in high leverage, liguidity crunches, nd the inherent risks of high leverage financial instruments being introduced (especially in early stages when they are least understood - much like Collaterized Debt Obligations). With respect to CDOs, his fears were born out in mid and late 2008. It turns out that many of the participants in that market really did not have a grasp on the risks. This even included the rating agencies that were supposed to have graded these instruments (in reality they did a very poor job hence leading poor quality debt being given a higher rating and being passed on from banks and fianncial entities issuing them to other market participants).
If you have a good economics background (especially in economic history and financial instruments), items beyond 1) are not that profound. For layman, however, his views are probably of quite a bit of value.
The one weakness of the book is his lack of a much more detailed disucssion regarding poor audit work by the large accounting firms and the poor credit ratings issued by the major credit agencies. For a great discussion of the former one should read Boogle's The Battle for the Soul of Capitalism. Unfortunately few, if any, decent books for the layman have yet to come out (as of September 2008) on credit agency ratings poor performance and the resulting implications for the credit markets. Something is desperately needed here. ...more info
- Buy it.
This book will take you a long way in understanding what just happened in the financial markets and with the housing bust.
Whether or not you want to buy Soro's theory of 'reflexivity' as 'the new paradigm' is up to you, but he does make the simple and accurate point that any economic theory that had human beings objectively describing the world and then making decisions based on that 'accurate' intelligence is a silly theory.
Market fundamentals? Those are actually our perception of market fundamentals, so if we delude ourselves about those fundamentals(housing prices will never come down, the dow is going to 30,000) then we mis-take the markets. And people can be delusional as all hell if you haven't noticed. It just keeps on happening...
Soros describes bubbling phenomena with his 'far-from-equilibrium' theory. He gives an 8-stage descriptive theory of bubbles (pg. 65-66) that is, in and of itself, enough reason to buy this book. Look at gold in the 1970s...it followed the exact pattern.
This text advanced my understanding of how markets work and why it is that human idiocy is such an important variable. George wants to explain how this idiocy can actually drive a market, and I appreciate the attempt.
Soros also lets his political opinions be known, but so what. You don't have to agree with him.
- Surprise, surprise -- Republicans and free markets caused the credit crisis and Democrats will regulate us out of it
Alan Greenspan's Ayn Rand - inspired political views are responsible for the real estate bubble (the truth is that Freddie and Fannie with support from Democrats started the bubble with loans to people who could not afford them and Republicans including Greenspan tried prevent that by reforming Freddie and Fannie but were voted down by the Democrats). An "excessive reliance on the market mechanism" by Republicans and "market fundamentalists" who don't understand the Soros Paradigm -- Lack of a tendency towards equilibrium in financial markets -- (this seems to be repeated on every other page) created the "super bubble".
Actually a case can be made that government regulation gave birth to this "super bubble". Democrats like Barny Frank and Chris Dodd got the bubble going by pushing, on a massive scale, reverse redlining (giving loans to unqualified people). This Democratic over-reaction to redlining (denying loans to people who can afford them) is not discussed by the author in a forthright manner.
"Only a Democratic president can be expected to turn things around and lead the nation in a new direction. The new direction will be less reliance on the market mechanism and more reliance on more government regulation. But today as we are going through the worst financial crisis since the Great Depression more regulation of markets (including massive bail outs) is unavoidable and is being put in place by a Republican Administration as I write. If the Republicans do not get it right. Soros and Obama may well get their chance to put the market mechanism into strangle hold outlined in this book. They could destroy the power of creative destruction by wrapping it up in red tape. Economic growth could be stifled for decades.
The author's discussion of social science and natural science and supply and demand curves is done much more clearly in numerous fine textbooks. What you can't get out of textbooks or anywhere else is the back pain and spasms that Mr. Soros got at the right time. They were his early warning signs about his positions on the market. These early warning signs apparently helped him make billions. If this book does cause some readers to get a spasm it won't be the money making kind.
- The future is uncertain
For those who are not familiar with Soros's previous books, I would shortly summarise his main philosophical idea, which is updated in his new book. Mr Soros criticises the equilibrium theory (which contends that markets tend toward equilibrium, and therefore correct their own excesses; or, in other words, that prices, although they may take random walks, tend to revert to the mean). Equilibrium theory is the actual paradigm used by the economists to offer universally valid generalisations that can be used reversibly to provide determinate predictions and explanations similar to the theories of natural science. One of the examples being the supply and demand curve.
Mr Soros's theory, which was created by him 20 years ago and which he calls Theory of Reflexivity, contends that social events (and therefore financial markets) are fundamentally different from natural phenomena because their thinking participants, who have biased views and misconceptions, introduce an element of uncertainty into the course of events. For example, the demand and supply curves are not independent variables, but they are actually influenced by each other. Mr Soros believes that events in the financial markets are best interpreted as a form of history: the past is uniquely determined and the future is uncertain.
For those familiar with Quantum mechanics, this theory is similar with the Uncertainty principle which was developed by Heisenberg between 1925 and 1927 , which is often called more descriptively the "principle of indeterminacy." Like physicians who studied the Uncertainty principle at that time, economists are slow to accept Mr Soros's theory of reflexivity not only because of its abstract nature and lack of mathematical model, but also because of its lack of predictability. Most likely Mr Soros seminal work will determine the development of an alternative paradigm, like Schrodinger's wave mechanics, which will entail a (more familiar) mathematical model. The reason being simply that we, as humans, can not bear theories which increase uncertainty instead of reducing it.
In conclusion, an interesting book for those who can afford the `'luxury'' of reading a rather philosophical book, and a disappointment for those looking desperately for investment hints from the most famous financial speculator. But definitely a buy for both categories of readers, for the intellectual quality of its arguments and for explaining the history and the context of actual status of financial markets.
After reading George Soros' book, The New Paradigm for Financial Markets, I can imagine him tracking us down, asking, "Can you hear me now?" Much of this new book revisits and explains again his earlier work, The Alchemy of Finance, and his theory of reflexivity. Under his theory, there is constant interaction between the objective dimension of cognitive analysis, and the subjective component of trying to beat other investors by taking particular actions. In both books he makes the case for imperfect markets, arguing against the prevailing theory of market equilibrium. Soros suggests that we would be well served if we worked toward a better understanding of the human condition. We are sorely mistaken if we think financial markets can be captured and understood solely by mathematics. He notes that the recent cycles of bubbles and bust prove his theory. The 162 pages of this book are well worth reading, and it's always interesting to listen to what a billionaire has to say.
Rating: Three-star (Recommended)
- Soros Gets Two Thumbs Up
I recommend Soros' "The New Paradigm for Financial Markets: The Credit Crisis of 2008." He's the back out of retirement billionaire hedge fund mogul who brought down the English pound and is blamed for the Malaysian economy's demise during the Asian economic crisis. His calling card is exploiting currency arbitrage opportunities. I recommend this book for two reasons: First, he is a smooth and elegant writer, which is nice if you appreciate the English language and a readable book. Second, he really writes on a secondary market problem, which is the real problem since it is huge due to the world of derivatives. You may need Investopedia to help translate some of what he describes, then again, you may not. As an added bonus, Soros delivers his philosophy on the markets and confirms what many already know - perception is reality and it is unpredictably dynamic. Most people understand the problem on Main Street: 6.5 million foreclosures by 2012 and $2 trillion in credit losses. Few understand the bigger problems coming from Wall Street that is closer to $40 or $50 trillion in size. The U.S. economy is $14 trillion in size. Soros helps make these matters clear. This is not reading for the faint of heart with a cup of hot chocolate in warmed hands. This is scotch and water on the rocks reading.
Author of Mortgaged and Armed
- Too much philosophy
The first half of the book talks about philosophy. He could have just put in one chapter and the reader would have got the point. The second half of the books talks about the financial market. An average read....more info
I admire Mr. Soros for his philanthropy but I find this book disappointing. I was hoping to gain some insight into the economic crisis but instead got the wordy, unedited version of what amounts to a paper on his theory of reflexivity. The book contained too many extraneous pages about how he always wanted to be a philosopher, how criticisms of his initial theory were right (sort of) but also wrong and why he is now vindicated and is truly a philosopher. There was a chapter documenting trades he made recently that seemed out of place.
Had the editor done her job I think this book would have deflated into a paper which presented little to nothing new. ...more info
- Will Obama be America's Gray Davis?
This book raises the question of timing of elections. It is unfortunate that Americans' elections are at fixed time intervals and that the American people cannot decide when they want to call their own elections in a crisis, as they do in other countries.
It is unfortunate that the American people cannot recall their elected leaders on the federal level, like they can at the state level.
Americans should be able to vote to recall and elect their own leaders, since it was their votes that put them there in the first place.
If you can vote someone in, why can't you call an election to vote them out? (like they did with Gray Davis in California?)
American voters need the voting rights to directly vote to impeach and recall the leaders they elected, especially in times of crises like these. They need the right to call elections in times of crises and not just at fixed intervals. Even two years seems too long to wait for new elections at this point....more info
Written in poor English, very confusing book. I read Finance and Economics books every week and this one was the worst ever. Almost fell asleep on every page,...more info
- 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.
- 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. ...more info
- Smart Thinking
Very interesting theory that anyone should read which describes how people believe they make freely a choice. Soros is real modern philosophe.
Soros should be an adviser of Obama. A such potential is needed for America....more info
- Soros mixes recent history and economic philosophy.
This book is short, to the point, and easy to read. I strongly recommend the book to anybody who wants to understand the current economy or anybody with a passing interest in economics. This makes a GREAT gift for a friend who constantly preaches total abiding faith in economic forces. This book gently demonstrates a few problems with that philosophy.
Soros gives a brief account of economic history beginning with the repeal of the gold standard in 1972. He believes that the dominant economic philosophy of the past 30 years (conservative) has led us to the present housing crisis and he gives a recap of economic events to over this period. He offers an economic theory that contradicts the conservative dogma that markets always tend towards equilibrium. Soros claims that markets tend towards periodic bubbles for two reasons: (1) People have imperfect knowledge and (2) while institutions aptly consider the consequences of a single economic action (i.e. issuing a single sub-prime loan), they do not consider the consequences where that economic action is converted into a general policy (i.e. issuing sub-prime loans to everybody). He faults excessive deregulation of the financial industry for the present housing crisis and points out that the US taxpayer is eventually forced to bail out the system. Since market forces do not automatically protect tax payers, we have a right to be protected under a sensible set of regulations....more info
- Amateur philosophy by a speculator whose success has gone to his head
The core idea of this book is a concept that Soros calls "reflexivity". He describes this concept as "a two way connection between participants' thinking and the situation in which they participate." Reflexivity in the financial markets, according to Soros, leads to "an element of uncertainty in the course of events that is absent from natural phenomena."
What Soros fails to explain is why the uncertainties caused by reflexivity are special and need to be treated differently from other uncertainties in the financial markets (and in life) that we take for granted. No one believes that financial markets behave deterministically. Much of the activitiy in the financial world aims at measuring and allocating risks of all sorts, including those that arise from behavior that is widely acknowledged as psychologically driven.
The New Paradigm for Financial Markets (Soros)
Thus, despite claiming a philosophical advance that he implies is on a par with those of Karl Popper and Emmanuel Kant, Soros has a hard time offering up any suggestions for improvement upon current approaches to risk management or regulation. He does offer some specific policy prescriptions, but most of these are narrow proposals for dealing with the 2008 credit crisis, and none are particularly original. For the most part, he resorts to vague suggestions such as that credit creation must be regulated more strictly (but how, exactly?).
Amusingly, at the end of a book whose core thesis is that there are intractable uncertainties in financial markets, Soros provides a journal of his investment decisions at the beginning of 2008 beginning which he starts by making, with great confidence, specific predictions about market direction (so much for reflexivity??). In last journal entry, he goes on the record as having lost money on his bets.
The bottom line: having been a successful speculator some years ago does not make one qualified to pontificate on the nature of the human condition of the limitations of knowledge. ...more info
- Russell's paradox in the financial markets
George Soros has forgotten more about finance, economics and trading than most of his critics will ever know. He has made more money than most of his critics put together will ever make. So when George Soros speaks on matters to do with money, I listen, and when he writes a new book, I read it.
When Soros speaks about politics, which he frequently does, I also like to listen. He is a sharp critic of the United States especially under the policies of the Bush administration, as well he should be since we'll be paying for the stupidities of the Bush administration both nationally and internationally for many years to come. But here in this book, he puts aside (for the most part) the political and concentrates on one of his pet ideas, which he calls "reflexivity."
This is the idea that human interactions and the "truth" of those interactions are shaped not only by fundamentals and events in the natural world but by our perception of those events. This might be called the Heisenberg uncertainty principle as applied to the social sciences, markets and interpersonal relationships. The value of a stock is influenced by a feedback loop that is in part based on the perceptions of buyers and sellers. This makes the value of a stock or commodity a moving target forever in flux. As in Russell's self-referential paradox, reflexivity makes it impossible to accurately predict where markets will go, or to predict in principle the direction of human activities. Simply put, there is a quality in economics, the financial markets and like phenomena that is self-referential leading to uncertainty. Soros concludes that markets do not tend toward equilibrium and they are not "efficient" and price fluctuations are not "random walks" away from a "true" value. Finally, he concludes that financial bubbles arise because the self-referential quality of markets is not understood by economists and others in the financial world.
Here's how he puts it more generally at the start of Chapter 1: "...our understanding of the world in which we live is inherently imperfect because we are part of the world we seek to understand." (p. 3)
Soros sees reflexivity as a "two-way feedback loop, between the participants' views and the actual state of affairs. People base their decisions not on the actual situation that confronts them but on their perception or interpretation of that situation." Our decisions, he contends, have dual functions. One is the "manipulative function," the other is the "cognitive function." As we try to understand the world, we also try to manipulate it to our advantage. He notes, "The two functions operate concurrently, not sequentially." This "creates an indeterminacy in both the participants' perceptions and the actual course of events." We are (of course) "obliged to form a view of the world, but that view cannot possibly correspond to the actual state of affairs." We are obliged "to act on the basis of beliefs which are not rooted in reality."(pp. 10-11)
Taking a clue from cognitive psychology, evolutionary psychology and neuroscience, it is clear that we construct (as the postmodernists are wont to remind us) a "reality" within our heads that only approximates the "real" world and is biased by our needs and desires and is limited by both our senses and our ability to make meaning of what we perceive. Soros's reflexivity is in essence putting a name on something that has generally been known (but mostly ignored) for a long time.
A consequence of Soros' view is "the postulate of radical fallibility" which, when applied to financial markets allows one to "assert that, instead of being always right, financial markets are always wrong." (p. 76) As for financial bubbles and what follows, he writes (all in italics for emphasis on page 78), "there has to be both some form of credit or leverage and some kind of misconception or misinterpretation involved for a boom-bust process to develop." Of course he is referring most directly to what he calls "The Current Crisis and Beyond" which is the title of Part II of the book.
In Chapter 7 Soros makes some predictions about what is to come. The last note in the book is dated March 23, 2008. I read through the "outlook," and from the perspective of today (February 13, 2009) it's easy to see that Soros is substantially right. He is not only an expert on international markets but a fine connoisseur of bubbles and the opportunities they present. "Nothing is quite as profitable as investing in an early-stage bubble," he writes. (p. 129)
Soros has a way of saying the obvious that some of his critics have disparaged, but sometimes the obvious is what we overlook. According to his "new paradigm" based on reflexivity, "events in the financial markets are best interpreted as a form of history. The past is uniquely determined, the future is uncertain. Consequently it is easier to explain how the present position has been reached than it is to predict where it will lead." (p. 104)
I would add that this is what economists are quite expert at: telling us what has happened. Guessing what is going to happen is what Soros is very good at....more info
- Awesome outline
A good summary of Who's Soros and what's his take for the market--past and future. Most helpful is his insight on the big picture, which could lead to good investment ideas even if he doesn't provide any specific tip. ...more info
- superbubble worry, but it is heuristic
Soros' little book is a delightful read due to an exceptional sincerity and intellectual honesty. His youthful curiosity and seemingly consuming desire for philosophical debate is disarming and infectious but also a bit narcissistic, as student "bull sessions" tend to be. In fact, the two smiling photographs of him at the end of the book corroborate the aura of a person eager and happy for philosophical discourse and being entertained by and thoroughly enjoying a reciprocal and progressive discussion.
He admits trying to be a philosopher who worked out a new theory, reflexivity, that is to say humans engage in two functions: l. cognitive objective analysis and 2. manipulative and subjective actions designed to evoke change and personal benefits. The two functions interact, hence reflexivity.
Karl Popper was Soros' philosophical mentor at LSE, and Soros denies Popper's Unity of Method, i.e. the scientific method and the social scientific method are and should be the same. Soros denies this and rightly so. Though he mentions Hayek only once very briefly as being anti-communist, he seems unaware that Hayek had already exhaustively analyzed the need for an entirely different method for economic analysis and the social sciences. In fact, Hayek believes the attempt to mimic the method of the natural sciences in the social sciences, in particular in economics, has done substantial harm. Soros, who seems quite pre-occupied with outmatching Popper and limited to him, could have benefited from Hayek, Dilthey, Wittgenstein and many others who have already partially or fully worked through epistemologically what he is doing to Popper. But it's quite understandable that he wants to outmatch his professor. Lots of students have that impulse and lots of profs have experienced this pattern. It's proof that Soros retained a youthful disposition throughout his life.
Soros correctly denounces both the Enlightenment's objectivity and rationalism as well as the post-modern idiom which he ties to Bush and Karl Rove. Though being aware that ignorance determines far more than knowledge and rationality, he still believes that understanding reality should take precedence over manipulating it. For this was not done by Bush and cohorts, who hoodwinked the nation into the Iraq war, causing a precipitous decline in U.S. power and influence. Soros has it absolutely right here and shows the same honesty and objectivity he personally displayed when he characterizes his experience as a 14 year old Jewish youth in Budapest in '44 hiding under false identification as "exhilarating" and "high adventure," an admission that may cause some criticism.
Soros seems to overemphasize the impact ideas and philosophical notions have on politics. Politics is quite indifferent to ideas and philosophical analysis. Power and influence mediate and resolve issues in the political arena, not rational debate.
Too often, Soros assumes that having made what he calls "a killing" in the markets is proof of superior intellectual analysis relative to overall economic analysis outside the financial sector. This is a somewhat egotistical and a logical flaw, for too many who lost a fortune in the stock markets have, nevertheless, given brilliant and valid analyses of socio-economic events. His contrary-mindedness and, to be sure, many aspects of his theory of reflexivity, no doubt were crucial in making fortunes. But will he admit that this involves redistributing wealth from many smaller investors to the few and, thus, one can conclude that the heavy participation of tens of millions of Americans in the stock markets actually kept them from increasing the median family/individual net worth? It made them poorer than they would otherwise have been.
Criticizing both classical equilibrium analysis and the Rational Expectation School, Soros then ventures into a more detailed analysis of the background, causes and course of the current economic malaise. Credit expansion, the Japanese carrying trade, budget deficits, expanding leverage funds, etc. all interacted to create what he terms a "superbubble" of which the subprime mortgage fiasco is just a trigger. It all began with the recycling of the petrodollars in the late sixties and early seventies. He covers the banking crisis of the '80s, the international crisis of the '90s and, quite correctly, faults Greenspan for taking interest rates down to 1 percent between '01 to '04. In so doing, Greenspan caused the real estate bubble. It spread the risk, causing more risks to be assumed. Here Soros is at his best. He believes that risk in this period was passed on through newly fangled instruments and sophisticated formulae from those who knew it best to those who knew it far less. Regulators lost track of risk assessment and catastrophically abdicated their duties.
China will challenge the U.S. faster than is believed and thus, Soros asserts, again quite correctly, that the Project for a New American Century, which Bush and cohorts used extensively to guide policy, will prove to be highly ironic. Though he doesn't say so, he agrees with Kevin Phillips' conclusion that the financial industry was allowed to get too big. Finally, Soros affirms Barney Frank's solution for the subprime mess.
Unfortunately, Soros' analysis is limited to the financial markets and does not deal with lots of other factors that heavily determine and impinge on the U.S. economy. For that, the reader may want to consult my own assessment on why the U.S. needs an economic miracle by accessing "http://comparativegems.blogspot.com/" which provides an overall comparative historical evaluation of the U.S. economy which Soros does not deal with.
- Successful Trader Failed Philosopher
Poor George! This is the second book written by Soros that I have read. The first was the "Alchemy of Finance", a rambling, confused and disoriented text about "reflexivity" (whatever that is). I gave up reading the book and tossed it. I tried this new book of his in the hope I could understand "reflexivity" and relate it to the brilliant investment decisions that George makes. No such luck! There is no connection. George rambles on and on about "cognitive functions" and "manipulative functions" and "two way connections" but he never gives an example of how he uses these 'functions' to make an investment decision. He does talk about shorting the dollar and government bonds and of buying Bear Stearns shares but he never shows the connection between these buy/sell decisions and his "reflexivity" theory. George apparently has an overwhelming desire to be considered a major figure in Philosophy but this continuing series of books filled with philo-babble are doing nothing to achieve that goal....more info
- Let Soros's words speak for themselves...
I believe this quote from Ch. 8 expresses what Soros really thinks, as opposed to the many subtle to blatant distortions of some of the reviewers:
"Clearly an unleashed and unhinged financial industry is wreaking havoc with the economy. It needs to be reined in. Credit creation is by its nature a reflexive process. It needs to be regulated to prevent excess. We must remember, however, that regulators are not only human but also bureaucratic. Going overboard with regulations could severely impede economic activity...Credit availability not only fosters productivity but also flexibility and innovation. Credit creation should not be put in a straight jacket. The world is full of uncertainty, and markets can adjust to changing conditions much better than bureaucrats. At the same time, we must recognize that markets do not just passively adjust to changing circumstances but also actively contribute to shaping the course of events. They may create instabilities and uncertainties that make their flexibility so valuable. Markets should be given the greatest possible scope compatible with maintaining economic stability."...more info
- Mr. Soros tries prove something - what?
OK, let me state first - who is Mr. Soros and who's me - to make a critics there. But.
I was hesitating to write this, but I truly want, that if you are reading this review, you are making the decision, whether to get the book on your shelf or no.
1. I had read a lot of books, will read more, but such an EGO driven book is a one I face first time. Mr. Soros is trying to prove something to someone. Me, my, I, me, my father, I, me, us........... It's like a da ja vu, once you are at the end of book.
2. Mr. Soros is very good at telling us WHAT HAPPENED, and WHY it happened, saying that subprime crisis will lead to trouble (of course saying - but I knew it, but I knew it..lalala... all are dumb, all are stupid only me knew it).
3. All the time Mr. Soros is trying to prove, that he is not ONLY a SUCCESSFUL SPECULATOR (if you my reader stil are in doubt who is a winner, I will call all chapter as "SUCCESSFUL SPECULATOR"), byt he also a Philosopher, and as any extrapolated to cosmos ego driven maniac he is placing his name near a all antique Greek philosophers and more contemporary ones. In that way Mr. Soros is devoting a whole chapter to his cloudy Theory of Reflexivity, which says a lot words, a lot of everything, but it can e said in 2 words - you can not predict future events based on past because the knowledge of people are not absolute, and they behave as social creatures.
4. Well, yeah, great. So, what we do? If you say, that we scroll the economy factbooks and recycle them at nearest garbage bin what next?
5. Next is at the end of book. Mr. Soros is proudly announcing that he is going short US bonds (now biggest rally in history), and long on China stocks (hardest hit of equity markets last year).
6. Oh, you still think Mr. Soros write book not for his ego, but you my friend?
How about this - I am citing - "I will not write anything about Russian market because I do not want invest here"...more info
- No Holy Grail
Having read all of the Soros books I would say this is less convoluted and less disappointing than most. If you are looking for concrete investment ideas prepare to be let down. Interesting discussion of markets and the current crisis in particular-as the title suggests Soros is bearish and not without good reason. Only time will tell if he got it right this time....more info
- AT LAST ON TIME
Mr. Soros finally got it! he wrote and wrote about the inherent instability of financial markets, the coming economic train wreckage because of the faulty structure of the post-post WWII financial system and the speculators freewheewling, and of the need for a new framework if we wanted to avoid the coming collapse.
In this one he is more clear about proposing a "New World Order" ( in which he surely wants to play a big part), not so dependent on the poor old US.
At least he does not insist so much on his "philosophy" of reflexivity which is probably the must repeated, flimsy, pretentiounsly proposed and obvious concept produced by any author I know. The theory perhaps had a merit before the quantum phyisics era (more than a century ago.) Now is just, as far as I see, a ridiculous ornamental sham for his other proposals.
- Theorists Abound
Whether we find ourselves in the aftermath or the subprime mortgage crisis, or still very much in the development of its full repercussions, there has been no shortage of industry icons trying to make sense of a catastrophic series of events that were not foreseen by an army of proprietary risk models that failed to forecast a fundamental weakness in debt markets.
Enter George Soros, the philosopher turned money manager whose special brand of socioeconomic theory stands in the face of three centuries of equilibrium theory since its birth in the pages of Adam Smith's Wealth of Nations. His theory of reflexivity propounds the idea of a two-way connection between objective and subjective aspects of reality that essentially alter each other in a reflexive manner. This abstract concept has been aptly applied to the financial markets in his 1987 text, The Alchemy of Finance, and all the more so to a general insight into the instabilities of the lending industry, specifically our most recent turn of events, in The New Paradigm for Financial Markets (2008).
While his opinions have been constantly scrutinized in academic circles for completely disregarding equilibrium theory and rational expectations, now may be the time to give reflexivity its fair due. It may not have the theoretical predictive power of traditional economic theory, but it surely makes more intuitive sense to even the most detached bystander in such "far-from-equilibrium" situations as the one in which we are currently enmeshed. There is a certain ease in being able to analyze the circumstances of an asset bubble in hindsight, be it observing the skyrocketing numbers of debt-to-GDP and specifically a housing boom as a result of negative real interest rates following the attacks on the World Trade Center, but few have been prepared to challenge the very infrastructure of the financial markets themselves.
Mr. Soros has some piercing words for the apparent efficiencies of free-market lending, especially in the context of an economy that has embraced financial services as their competitive advantage in a globalized market. The perpetrators of this crisis have, indeed, been the torchbearers of a free market ideology that has forged a religious following. Whether the time has come to add some disclaimers to an ideology peculiarly susceptible to such drastic booms and busts of the last few decades, it is up to the convincing manner in which Mr. Soros passionately states his case against its most passionate disciples. If that is not enough, he would have to resort to allowing his performance record of the last 40 years speak for itself. ...more info
- Wasn't too helpful
Found the book interesting but felt that it's premise and conclusions were obvious, especially given the current situation. I give him the benefit of the doubt that he couldn't have seen what ultimately would happen to our economy in the next few months and he reviewed what had previously happened and made it easy to understand.
Bias or the individuals perception of a situation is involved in everything, especially with him as his political position is obvious in his book. He is an example of his own theory of relfexivity.
Think he is trying to develop a theory of ecomomics to prove he is an intellectual on par with his father. Although I enjoyed the book I don't think he has done it. The blurb by his son explaining that he buys and sells on the basis of his backaches is incredulus and doesn't help in giving his theories validity. ...more info
- The ramblings of an old man who was once relevent
This book's point could have been made in one paragraph on a BLOG. The rest of the book is a waste of cellulose fibers. Soros is a brilliant investor who has an interesting theory that markets do not tend to equilibrium but are significantly effected by human emotion. Thus there is a bubble effect. There ya go - save your money for the book. The rest is just ramblings. If he were to do any real analysis it would have been worth the time to read.
It would be interesting to bring Milton Friedman back from the dead and have him and Soros on a 4 hour TV special to argue their points. Soros is clearly in conflict with Friedman and clearly in conflict with Bush administration shock politics (Naomi Klein) and clearly in keeping with the Obama socialist movement. Soros idea is a 'cheerleader in the bleechers' for the current wave of change in the US....more info
- Ingenious Incites
Soros captures the missing link in fundamentalist theory. If you do not understand Soros' theory of reflexivity you are missing a true understanding of the way markets work. Additionally, Soros outlines some of the problems with current policies in U.S and international regulation. If you care about your rights, open society, or the future of the United States, you should read this book. We must understand the problems we face, in order to address them. ...more info
- Practical insights and new rules from George Soros
Legendary financier George Soros is worried. The financial markets face the worst credit crisis since the Depression and their existing paradigm needs to be replaced. The new paradigm Soros recommends is based on what he calls the "theory of reflexivity." This book-length essay provides a crash course in the billionaire investor's philosophy and view of financial markets, the origins and consequences of the current credit crunch, the boom-bust model and the behavior of market participants. Soros intersperses his market analysis with enough personal details from his early life and career to keep the book lively. He is also quite vocal in his political beliefs; Democrats will probably appreciate the case he makes against President George W. Bush's administration and its policies. One weakness of the book, other than its repetitiveness as Soros explains his theory, is that he relies heavily on technical and financial jargon, which makes it tough to penetrate and may prove a barrier to some readers. Ironically, he seems to be fully aware of this shortcoming when he writes that readers may find one of his particularly theoretical chapters to be "somewhat repetitive and hard-going." Nevertheless, his warm personal voice and the depth of his financial experience, which spans more than half a decade, is hard to match. Thus, getAbstract notes that this book has much to offer executives, investors, and students of financial markets and theory. (As is true of every Abstract, the following views are those of the author and not of getAbstract.)...more info
- The New Paradigm for Financial Markets
George Soros is a fortunate speculator and manipulator of the markets for his benefit, so his insights on why we are in the current mess we're in is worthy of a read. However, what we tend to get is Soros proving that his reflectivity theory is valid and that Republicans are the sole cause of this mess. Anyone who does more than a casual look at the politics involved in this financial crisis can point the blame at as many Democrats as Republicans, so Soros' assertion that somehow Democrats are the solution is misguided at best.
One thing I like about the book is how Soros debunks the common view that supply and demand is the sole cause of determining oil prices. Supply and demand plays just one of a myriad of factors in determining prices, and that is according to the National Futures Association's own handbook. I also like how Soros describes the need for a new "framework" if we are to prevent a further collapse. Although we certainly disagree on the level of regulation that is needed, as my suggestions would prevent Mr. Soros from adding another billion or so to his coffers, even if it saves average investors.
Don't count on this book to give you a clear path to the future, but it may be worth reading to give you a perspective on how one the most successful investors' views the current crisis....more info
- Absolutely mindbreaking!!
Soros goes where nobody has ever gone before, he actually proposes a new paradigm that contradicts actual economic theory common sense, which can be empirically proved on an everyday basis. This new paradigm, based on his theory of reflexivity, helped me understand better how markets tend to behave sometimes, and will surely help every reader in the same way. Definately recommended for everyone who is interested in the subject, from economic theory grad students, to hedge fund managers....more info