Dissent Mag

Posted Apr 3rd 2008 1:04PM by Joseph Lazzaro
Filed under: Forecasts, Politics, Housing

Billionaire investor George Soros believes the current financial crisis is the worst since the Great Depression, and said stocks have not bottomed yet, Bloomberg News reported Thursday.

Soros said the most recent market bottom “will probably not prove to be the final bottom,” adding that the current stock rebound will last six weeks to three months as the United States moves closer to recession, Bloomberg News reported.

Further, Soros, in an op-editorial column in The Financial Times, argued that the cause of the market’s current problems is a flawed premise: the belief that markets are self-correcting and tend toward equilibrium. They aren’t and don’t, Soros argues, and the laissez-faire policy creates bubbles, including the most-recent housing bubble, which, in turn, when it started to burst, led to the current credit crunch.

Soros cites deregulation

Soros added that the market’s current troubles originated in 1980 when U.S. President Ronald Reagan and United Kingdom Prime Minister Margaret Thatcher led a laissez-faire movement that reduced/eliminated regulation of banks and financial markets, the FT reported.

Soros’ reforms to correct current system flaws include: changing bankruptcy laws to allow mortgage terms to be modified, and creating an exchange with a sound capital structure and strict margin requirements where current and futures contracts could be traded, Bloomberg News reported.

Economic Analysis: Soros, who is completing interviews as part of a promotional tour for his new book, was characteristically expansive. Briefly, he lays the blame for the financial system’s woes at the feet of excessive debt, bad judgment / market excesses, and a lack of rules / under-regulation. Soros’ critique points are valid, but, of course, the ultimate shape markets will take will depend on policy makers’ decisions regarding: 1) what constitutes acceptable and unacceptable uses of debt / leverage and 2) which financial instruments enhance liquidity / limit risk and which are reckless / create systemic risk.

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