|The New Paradigm for Financial Markets
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In the midst of one of the most serious financial upheavals since the Great Depression, George Soros, the legendary financier and philanthropist, writes about the origins of the crisis and proposes a set of policies that should be adopted to confront it. Soros, whose breadth of experience in financial markets is unrivaled, places the current crisis in the context of his decades of study of how individuals and institutions handle the boom and bust cycles that now dominate global economic activity. "This is a once in a lifetime moment," 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.
- 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
- Some interesting insights from a suspect individual
I dislike George Soros. He takes billions out of the pockets of US and British tax payers and "repays" us with his hideous [...] propaganda and falsehoods. Compare this with John Templeton, who was a signficantly BETTER investor than Soros was, and put his money in underpriviledged parts of the world to help build them up. Templeton also used his money to create more value in the world through his humanitarian organization and Templeton Prize for worthy people like Mother Teresa.
I learned new things from Soros' analysis of "where we are, how we got here and why this might be the end of a period of stability" and think that's worth the read. On the other hand, his prescriptions and remedies are highly suspect. As another review wrote, it's good that Soros wrote this down so we can better understand what lurks in the mind of this creepy guy. (I believe he's one of Obama's puppet masters, so it's important to learn as much as we can before the November elections).
Investment books talk about how doctors and other professionals don't make good investors. I think the same can be said that good investors don't necessarily tranfer their skills into other areas. The Theory of Reflexivity may work for Soros, but it's a repackaging of LOTS of other people's work, only in a dumbed down, non-testable way. This book won't be getting Soros the respect that he apparently seeks from professional philosophers....more info
- Okay, But Not Great
Soros really, really wants to be taken seriously as a philosopher so he spends much too much time explaining and justifying his views on Reflexivity. The next problem is that his thinking is so completely guided by his liberal political views that his only conclusion is that the U.S. is going to fall into a giant abyss and the rest of the world will take over while we whither away. So based on that you should put your money in gold, any currency other than the U.S. dollar, and stocks of other countries. He is almost rabidly anti-American. Soros is clearly a smart man but his judgement is much too clouded by his political views. I read this book prior to the financial meltdown and I knew then he was going to be wrong on many counts. If Soros, the financial guru, had written this book it would have been great. Instead it was written by Soros, the political activist and Jr. philosopher....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
- Interesting, readable, novel concepts.
George wants to share his theories. They are good theories. He is a great practical philosopher and he likes to see novel concepts and give them new names. He is so right, it is so important to do so. This is what makes this book worthwhile. George has also given a lot back to this sad old world, I read elsewhere, but this book is not about that.
Apparently economists like to pretend that they are all caring and sharing and give out accurate information and that events tend to equilibrium like in a healthy body. George explodes these myths with his concepts of reflexivity, radical fallibility, and super-bubbles.
While economists pretend to be like medical physiologists, their roles are more akin to military strategists- all sides are actually on the attack against each other, usually by the same misinformation tactics used by the military (my analogy not George's). They have a veneer of respectability, which most of them deserve, except for the fact that their science has been proven to be useless, particularly by recent events and also by Taleb's wonderful books.
Also, not being trained in medical physiology, economists and perhaps George, do not realise that in physiology only NEGATIVE feedback loops lead to equilibrium, whereas POSITIVE invariably lead to disease or death, as we are now seeing.
George likes to allude to the Heisenberg uncertainty principle- so I presume he is the man Taleb is berating when Taleb savages this approach- though I see George is correct in principle.
I do wonder why George and Taleb both ignore Catastrophe Theory- such a simple easy model. It could be taught in senior high- unlike the messy Chaos Theory. It only takes 2 pages to learn.
So this book is different, it is educational and interesting. And how often do you get the genuine opinions of somebody who actually shaped modern world finance, as opposed to some impoverished academic.
- Attractive title from a famous speculator, but really disappointing.
George Soros obviously is a great speculator. As a consquence, I was expecting something related to speculation, bubbles, prices going high and low, etc. Instead he tries to creat a new economic theory and my impression is that he lacks the appropriate credentials to be taken very seriously as an economist.
If you are trying to get insight of the credit crisis look somewhere else....more info
- Worth the read
Enough has been said --in the preceding reviews-- about Soros' theory of Reflexivity and how this plays a major role in his boom-bust analysis that, in his view, marks the end of international US credit expansion with the greenback as the reserve currency. Though redundant, his explanation of the theory itself is worth the read, but can be hard to follow as he warns at start. Perhaps he understood this and was obliged to repeat it throughout the book to drive it in -his entire premise is built on this theory. I enjoyed the succinct, historical account regarding his participation and observations of US/global financial history. He was overly optimistic, though, in his outlook for 2008 when it comes to developing economies like China, India and other commodity based nations feeling these would be left untouched by what is now, officially, an international financial crisis. He felt the commodities boom would continue, which fortunately for the consumer, has not. I find it odd Soros would miss this given China's internal economy is not developed enough to support the growth it has obtained through exports and -especially-- needs to maintain to ensure social stability. For example, he believed iron ore would rise driven by Chinese demand; He seems to contradict his own idea that information and how it is processed or perceived can introduce a level of indeterminacy that can change the entire panorama. I shouldn't be surprised either: his theory of reflexivity is better at explaining crisis than predicting them. It is also more philosophical and psychological in nature, way more to be exact, than mathematical.
I am sure those more informed and knowledgeable in economics will encounter more nicks or sources of mental irritation, but again, independent of his conclusions, his well thought out theory has much going for it and highly worth consideration.
- Good Insight, Not Yet a Theory
George Soros sees right through the bunk of market fundamentalism and neo-classical economics, its archaic equilibrium theory, but he lacks the math to develop a good alternative. Yet from a philosophical point of view, he is dead on when he puts the manipulative function of human reason on par with the cognitive function. Not blinded by free-market ideology, he can see why unregulated markets are intrinsically destructive.
Soros' notion of "reflexivity" expresses how the manipulator and the manipulated interact, emphasizing the psychological aspects of this interaction. Thus manipulators and gamblers in the housing or stock market don't just exploit the market, they change the market, creating the all-too-familiar boom/bust cycles. In a different way, regulators and markets interact in ways that may seem to have unintended consequences, but Soros sees that regulation is essential, even if imperfect, as it avoids far worse damage.
Mathematically, "reflexivity" corresponds to certain kinds of non-linearity. Unfortunately Soros is not familiar with non-linear mathematics, such as the mathematics of chaos or the non-linear dynamical systems used in the "Limits to Growth" studies. In fact his view of "natural science" is of the linear mathematics that dominated 19th century physics. To get a real theory, you could start from the simplest mathematical model for boom/bust cycles: the classical predator-prey pair of non-linear differential equations, the Lotka-Volterra equations.
For example, "Wall Street" can be viewed as the predator, and the profits of "Main Street" as the prey. Initially a modest Wall Street provides credit that helps to nourish a flourishing Main Street, but soon an unregulated Wall Street finds ways to skim off more and more of the profits of Main Street. Eventually it becomes a Wall Street feeding frenzy that so damages the profits of Main Street that a bloated Wall Street, its "food" disappearing, begins to collapse. Finally, a collapsed Wall Street frees Main Street to grow again, restarting the cycle.
These predator-prey equations may be modified in many ways to model various aspects of the Wall Street / Main Street interactions more accurately. This would constitute the kind of theory that Soros is searching for. But even in this simple form we see a big problem with the "bailout" strategy currently being pursued. The fundamental purpose of the bailouts is to keep Wall Street from collapsing, but without this collapse Main Street cannot grow again because it has to keep feeding Wall Street.
Soros' insight is at its strongest when he diagnoses the current crisis as a super-bubble, the result 30 years of deregulation and a globalized credit / leverage bubble interacting with bubbles in the real economy, such as housing and commodities. However he is unaware that the oil bubble of 2008 was actually a reflection of Peak Oil, with speculators only amplifying the consequences of demand exceeding supply. More generally, when you take into account resources and environment, you could view the entire course of industrial civilization as a super-super-bubble, now peaking, with decline imminent, and collapse possible within decades if the world doesn't get its act together.
From this point of view, the best result right now would be a collapse of the global financial system, to free the governments and peoples of the world from the grip of Wall Street, allowing them to get together and to redirect resources toward survival. That is, eliminate the vast amount of waste in the first world and help create a sustainable and equitable global civilization, one that is far smaller in numbers and that nurtures, not devastates, the earth.
But Soros' is so embedded in Wall Street that even he doesn't see the larger peril we face - the need for the kind of "creative-destruction" that could lead toward a far more stable and productive global financial system. This system must husband precious resources and apply them to our most critical needs, not exploit them for whatever luxuries might turn a profit.
- 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
- is this about the credit crunch? nah..
this book is not about the credit crunch and what it means...i think the publisher has to use that title to attract buyers....mr. soros just writes whatever that interests him. this book is about either himself or philosophy, not much about the credit crisis itself...it isn't really a finance book..i enjoy philosophy a lot, so it was okay for me. the title is indeed very misleading...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
- Excellent book
Amazing! This book manages to speak about complicated things like credit derivatives and bubbles in prices in a fairy simple way. Chapters on philosophical concepts are interesting but not that clear.
In any case, no matter what your background is, if you are interested in reading something meaningful about current crisis - that is your first choice!...more info
- Soros's attempt at rewriting J M Keynes's General Theory(1936)
Soros correctly shows that uncertain,indeterminate, changing expectations of the future ,based on incomplete,limited,and ambiguous knowledge and information,lead to multiple equilibria( and not a unique,single ,stationary ,stable equilibrium around which plus and minus standard deviations of prices cancel themselves out).However,this has already been done.It was done by J M Keynes in 1936 in his General Theory.Keynes's technical analysis was done in chapters 20 and 21 of the GT.Keynes analyzed the interaction and feedback effects of his expected aggregate demand(D) and supply(Z) curves in these chapters in his D-Z model.Unfortunately,no economist in the 20th or 21st century has been able to figure out what it was that Keynes did in these chapters.The main problem for economists is that they are unable to integrate the derivatives,either on pp.283-284 of the GT or in footnote 2 on pp.55-56 of the GT,in order to derive Keynes's Z function,which incorporated profit expectations based on his chapter 26 presentation in his A Treatise on Probability.Keynes's D function incorporates price expectations.The actual results are determined by the chapter 10 Y-multiplier model.Only in the very special case where the expected prices from the D-Z model are equal to the actual prices from the Y-multiplier model, which must then be equal to the optimal prices embedded in the boundary of the Production Possiblities Frontier curve(PPF),will the neoclassical result,under the assumption of perfect and complete knowledge or the assumption that all prices changes in all markets are normally distributed(an assumption rejected by Keynes and proven to be false by Benoit Mandelbrot for over 50 years) actually occur.Soros needs to at least read Keynes's statements on p.xi and pp.293-294 of the GT in order to realize that Keynes is dealing with shifting equilibia and not static,stable ,unique equilibriums.Soros will then realize why his very similar theory has been rejected by ,and will continue to be rejected by,the economics profession in the same way that Keynes's theory was rejected.Soros is correct that the demand and supply curves(agregate demand and aggregate supply curves) are not independent of each other This is due to the fact that "The shape of the supply and demand curves cannot be taken as independently given because both of them incorporate the participants' expectations about events that are shaped by their own expectations.Nowhere is the role of expectations more clearly visible than in financial markets.Buy and sell decisions are based on expectations about future prices'and future prices,in turn,are contigent on present buy and sell prices"(Soros,p. 55).This leads one to conclude that "...how can we act with any degree of confidence when we may be wrong and our actions may have unintended adverse consequences ?"(Soros,p.46).This ,of course,leads to the desire to hold money in order to engage in purely speculative ,short run activities that allow one to avoid the unintended adverse consequences of investing in fixed capital goods in the face of constant financial and technological change over time.This is the conclusion of Keynes's theory of liquidity preference.It REQUIRES that(a) expectations be uncertain and indeterminate over time and (b)incorporates questions about the degree of confidence one has in existing estimates,as well as the disposition of the decision maker(his optimism and/or pessimism,ie.his "animal spirits").
Soros summarizes in the following manner:"I assert that there is a two-way connection between thinking and reality,when it operates simultaneously,introducing an element of uncertainty into the participants' thinking and an element of indeterminacy into the course of events.I call this two way connection reflexivity,and I assert that reflexivity distinguishes unique,historical developments from humdrum,everyday events."( Soros,p.51).Keynes would agree completely.
Soros needs to carefully read the GT(chapters 5,12,19,20,21,and 22) and the A Treatise on Probability( TP;1921-chapters 3,5,6,15,17,20,22,26,29,and 33) in order to show what in his theory is different from Keynes's theory of decision making under conditions of risk,ignorance, and uncertainty(Ellsberg's ambiguity) based on interval estimates of probabilities that are indeterminate.It can then be judged to what degree Soros has improved upon Keynes's approach.
However,Soros should expect that he will receive NO consideration from ANY economist,especially any economist who has been trained to analyze all consumer,producer,and pricing behavior as if it could be modeled as some sort of Normal probability distribution.(joint,bivariate,multivariate,log).
- Geo-Political Investment-Banking Student
Just excellent!!! Soros puts into updated context his original concepts on International Reflecivity and a clear/understandable narrative on the impact of it. A must have book....more info
- Rampaging Smart Guys
I saw Mr. Soros testify before Washington State (home state of my favorite soccer goal keeper) Sen. Maria Cantwell's committee the other day (on TV, of course) concerning possible oil futures speculation. I was impressed with Senator Cantwell (although we'd agree on little, policy-wise) and with Mr. Soros (despite myself). So I picked up this book to see what he had to say on the central economic issue of the day.
I won't bash the book, exactly, but it was pretty rambling, pretty repetitive, and spent a considerably longer time trying to defend/explain his theory of "reflectivity" and bashing Republican politics than discussing the credit crisis. Still it offered some useful points and observations. It's personal account of worlwide historical financial events that Mr. Soros himself not only lived through but participated in as well as a concise account of the events that comprise the subprime mortgage meltdown were themselves worth, in my view, the price of admission.
In the end, though, the central theme of the book, it's overarching structure, is Mr. Soro's longstanding theorem about "reflectivity" in financial markets. He maintains that both the factual "reality" and the participants' resort to emotional facilities as a result of imperfect informational access interact with each other in a kind of feedback loop. As a result of this "reflectivity" serious degrees of uncertainty are injected into the marketplace that are not predicted by "classical" economic theories of "rationality" or "equilibrium". This, he says, invalidates market models based on those classic concepts. What to do about that, of course, he's not quite so clear about, except, perhaps, you should vote Democratic (his advice, not mine).
Unfortunately by his own analysis, this theorem is unsatisfactory as anything other than a cautionary alarm bell. By it's own definition and assertion it is untestable and (in the terms of one of Mr. Soros's own favorite philosophers, Karl Popper) incapable of falsification. Since it's prime tenent is that it's unpredictable and not even of consistent relevance in any given situation, it is roughly akin to the statement of Cretan philosopher, Epimenides, (quoted by Soros himself) that "all Cretans always lie". If, claiming unpredictablility, "reflectivity" yields accurate predictions, it is false.
Nassim Nicholas Taleb has called these same kind of events as said to be caused by "reflectivity" black swans. Inductive reasoning in financial markets has led to some frightening financial meltdowns. Having seen only white swans (even in their hundred thousands) and therefore betting the ranch there ARE only white ones is a sound foundation for disaster. Mr. Taleb helpfully also points out that somewhere downunder there are, in fact, black swans.
Benoit Mandelbrot has suggested that his fractile geometry, rather than bell curves, is a better financial model and, in fact, perhaps allows for better predictability. Don't know about that. The intersection between regulators and markets that Mr. Soros rather convincingly argues must be, at least in part, responsible for the subprime mortgage meltdown, doesn't strike me as a geometric intersection, fractile or otherwise. And besides, Herr Doktor Mandelbrot's math is WAY beyond my (or I'd postulate any other non genius math brain's) comprehension.
For me though, the persuasiveness of Mr. Soros's point about unpredictablity and odd shaped (non bell) curves can be found in the seminal work of William James, who demonstrated 100 years ago what every good salesman has always known (at least by instinct, if not overtly): that human beings ACT on feelings and use their intellectual reasoning to rationalize the result. I would accept, a priori, that no single individual actor in today's complex financial markets in our globally interwoven world can possibly know all the relevant facts about any one proposed action therein. Thus he must have imperfect information. And even as among the myriad of facts he does "know", he will use his experience, his intuition based on it and on the recounted experiences of those he has learned to trust, to value those various factual inputs.
I would submit (and I don't think Mr. Soros would raise too strenous an objection) that gernerally speaking, in a broad enough marketplace, all those individual "emotional" decisions ought to cancel each other out to a degree that would render them indistinguishable for practical purposes from randomness. Perhaps not perfect bell curves (some fat tails and modified kurtosis), but within acceptable (and perhaps hedgeable) limits.
But humans are also herd animals (we, however, call them tribes), and that instinct is a survival trait and still strong. One need only contemplate the blowing of a single car horn on a gridlocked highway that is inevitably followed in nanoseconds by hundreds more, to understand it's continued pervasive presence. When that happens in financial affairs, when smart guys get afraid of being left behind the "easy" money, when they can't stand the other tribe harvesting all that golden fleese or bear the thought of some young ambitious upstart taking over their hard won desk by merely following sombody else's playbook (what have you done for me lately says the boss), then homework vanishes. Smart guy follows smart guy in a kind of stampede. Risk of loss no longer matters or is outweighed by the risk of being stranded alone. Each of us (no I'm not a trader, but empathy demands the collective pronoun) falls all over ourselves to steal candy from the blind confectioner, never mind that we know that the poison pill is there in one of those jars on one of those shelves. It won't happen to me, we say. I'm too smart, I'll see it coming, I'll get away. This time it'll be different. We rationalize the emotional decision to chase after the leaders, to blow our horn, too.
This is far too long, let me try to wind up. In this crisis surely whole truckloads of the "smartest guys in the room" demonstrated levels of greed, arrogance, and impaired judgment that, despite being all too human (to borrow a phrase from Nietzsche, who seems particularly apt in this context) are still, in retrospect, shocking. Still, "free markets" provide efficiencies and multiplicities of choice that cannot be duplicated (or even approached) by any central planner or micromanaging regulator. But when these herd markets fail as spectacularly as they have here, the individualist free marketer along with the "reflectivist" (if I may be so bold as to lable Mr. Soros) are both left wanting a better way, a better regulatory system, for keeping these rampaging smart guys from trampling in their passing our own hard won little (in my case) or not so little (in Mr. Soros's) net eggs. This is a thoughtful book. Even just trying to "deconstruct" it may lead you down interesting thoughtways. ...more info
- Intellectual Diarrhea
Mr. Soros' philosophical rumblings are unbearable. His understanding of economics does not go beyond economics 101, yet he pontificates about the shortcomings of economics and all other financial market theories.
His own theory of reflexivity (what economists call endogeneity) does not provide any actionable insights and really is not a theory but intellectual diarrhea.
His analysis of recent financial events is rather pedestrian.
Do not buy this book....more info
- 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.
- 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
- Quick Read
If you're looking for specifics on where to invest in 2008/2009, this isn't a book for you.
Book is short. Reflexivity is a nice idea/theorie, but he never shows a mathematical example. He does mention that the market participants can reinforce a trend and so on, explaining that markets don't go to equilibrium. He fails to mention natural disasters, drought, or market manipulation as other real world reasons that economic models don't work.
First half of the book gives you an idea of how he thinks, the past that has influenced his ideas, and good examples of the basis for the current credit crisis. There is a section on history of the markets, boom in 60s, stagflation 70s, reagan 80s, and so on...
Second half of the book is the meat. (Take note of the charts, very timely, and more informative than anything you'll see on the news) Lots of info and a timeline on the spread of the crisis. The pearl in all this, is that the economy runs on credit, and with credit lending damaged, basically even if the crisis is averted, limited credit will hamstring the economy for the next 3-7 years. (he does not draw any comparissons to Japan, which was a combo corporate and consumer credit bubble with a similar but worse fate. Lack of credit and slow growth occured in Japan in the 10 years afterwards... read "The bubble economy" for more on that.)
He busts on the current administration, lack of leadership etc. Well a real estate bubble and booming oil bubble while most other industries fall behind is nothing to be proud of... If he's right, and all we've done for the last eight years is create paper wealth and run a deficit, then we're going to pay for it over the next 8 years and it's gonna bite.
One thing I don't buy in what he writes... He talks about a super bubble, and it being based on US finance, since Bretton woods agreement etc... Historically economies expand during periods where scientific discoveries can be applied to industry or our everyday lives. Booms created by autos, railroads, electricity, computing, plastics/chemicals... Then we hit a bust. The Feds job is to offset the busts and the govt basically spends on infrastructure during the busts to keep everything going. Now that inovation, with a huge economy, and a sound military, is what gives the dollar, our goods, dominance on the world stage, not some piece of paper signed 50 years ago.
He is right in that the US is sucking in value right now, as wealth funds save the banks, and the Fed gives out credit to save the system. Basically anyone holding US Bonds overseas is taking a bath to keep our system going. I think it's this short term Dollar/Bank moves, that has him upset, but he's blaming Reagan for it... Eh... I think it's more a banking problem with the current administration turning a blind eye.
Look at it this way. If it wasn't for the housing bubble... adding 4% to GDP or more each year... We'd still be stuck in recession since 2000... Bushes big problem is that it just popped on his watch. Now they're mailing checks worth 1% GDP just to keep us "Technically" out of a recession... Buying time until someone else comes into office and then it's "Their problem"... LOL
No mention of the new financial markets in Dubai or oil trading there.
Does mention the Gulf Arab states now reinvesting in their own countries and industries... Which is really happening.
Say's he's bullish on China and India, that the china bubble is in there early stages... (I think it's late) and he looses money when their markets tank this year... At least he's honest and admits it.
Definately worth buying (used) but skip the first half of the book. Flip to page 79 and start there. Read ALL of the rest of it.
- Worthwhile the reading regardless of the merits of Soros' paradigm
This is a short and very insightful book regarding the ongoing financial crisis, but be aware that, as the title suggests, Soros' main purpose for rushing publication (April 2008 still in the midst of this crisis) was to put forward and test the validity and importance of the theory of reflexivity, a new framework or paradigm he is proposing for financial markets and social sciences in general. Part One of the book deals almost exclusively with the concepts and details of the refined version of his paradigm, which Soros first proposed in his 1987 book The Alchemy of Finance. He explains that reflexivity was his guiding framework during his very successful trading years, however his proposal was never taken seriously in academic circles. He is convinced that the ongoing international crisis will provided the opportunity for his proposed paradigm to finally be taken seriously and further developed by others.
Most of the book's content in Part One presents the rationale for this new paradigm but unfortunately most of the discussion is in the grounds of philosophy, and heavily influenced by the ideas of philosopher of science Karl Popper (see The Logic of Scientific Discovery and Open Society and Its Enemies) combined with theoretical concepts from social sciences, economics and some finance. Therefore, Part One is not an easy reading for those unfamiliar with these philosophical and technical concepts, as these chapters were clearly written for an audience of scholars and practitioners. He wants to be taken seriously in the academic world and not just as a successful speculator.
In a nutshell, Soros' reflexivity theory states that contrary to classical economic theory, which assumes perfect knowledge, neither market participants nor the regulators can base their decisions purely on knowledge. Their misjudgments, biases and misconceptions affect market prices, and more importantly, market prices affect the fundamentals they are supposed to reflect. He claims that markets never reach the equilibrium postulated by economic theory and financial models, and therefore policies and predictions based on market fundamentalism are both false and misleading. He explains that outcomes are subject to diverge from expectations, and he claims that markets move away from a theoretical equilibrium almost as often as they move towards it, and they can get caught up in initially self-reinforcing but eventually self-defeating processes.
Fortunately for the general public, Soros explicitly gives the readers the option to jump directly to Part Two, where he concisely discusses in detail the roots of the current crisis, along with his criticism to the prevailing paradigm in terms his new paradigm. Whether Soros' new paradigm is right or not, his analysis of past and the present boom and bust bubbles is worth the reading, as the key mistakes, misconceptions and actors self-deceiving behavior is analyzed in depth, and lets you understand why almost nobody saw this crisis coming, despite the lessons learned from previous bubble bursts and warnings by some prestigious individuals.
In Soros view the origin of the present international crisis or super bubble as he called it, can be traced to three trends. A first trend is to be found in the ever increasing credit expansion. Another trend is the globalization of financial markets and the last, the progressive removal of financial regulations and the accelerating pace of financial innovations. The last two trends began in the 1980s, when under Reagan and Thatcher administrations began an excessive reliance on the market mechanism, or what he calls, market fundamentalism, and the inception date of the super-bubble is the 1980s, when market fundamentalism became the guiding principle of the international financial system, and this process started with the recycling of petro-dollars generated by the 1973 oil crisis, and accelerated during the Reagan-Thatcher years. Chapter 6 is particularly interesting in understanding the chain of events and how the previous bubbles and crisis led to the present "super-bubble".
He claims that regulators abandoned their responsibility and because the newly invented instruments were so sophisticated that regulatory authorities did not fully understood these new instruments and lost the ability to calculate the risks involved, and they came to depend on the risk control methods and evaluations developed by the institutions themselves, and even worst, something similar happened to the rating agencies who were supposed to evaluate the creditworthiness of the financial instruments, as they too came to rely on the calculations provided by the issuers of those instruments. Soros found this the most shocking abdication of responsibility on part of the regulars, because if they could not calculate the risk they should not have allowed the institutions under their supervision to undertake them. By relying on the risk estimates of the market participants, the regulators unleashed a period of uncontrolled credit expansion. Soros is particularly critical of value-at-risk calculations, as high standard deviations occurred with high frequency and this warning signal was largely ignored by regulators and participants alike. Here he blames Alan Greenspan for allowing his political views to intrude into his conduct as chairman of the Federal Reserve more than would have been appropriate, and so he missed the chance to stop the real estate bubble.
Even if his paradigm is wrong Soros raises several very interesting and insightful ideas. Paralleling Heisenberg's uncertainty principle Soros asserts that our understanding of the world "is inherently imperfect because we are part of the world we seek to understand" and this introduces an element of uncertainty into the course of events that is absent from natural phenomena. This implies that "social events have a different structure from natural phenomena", and particularly economist do not accept this limitation because this will downgrade their "science", economists have to accept a reduction in their status, no wonder they put up resistance. He claims that financial models are mistaken and they do not represent reality, and its widespread use for the design of synthetic financial instruments is at the root of the current financial crisis
He makes several bold conjectures and among the more controversial ideas he asserts that the ongoing crisis will have far-reaching consequences, resulting in the end of an era, with a decline in the power and influence of the US and a decline of the dollar as the internationally accepted reserve currency. Among other significant changes, he thinks sovereign wealth funds (from China, Singapore, the oil producing Arab-states, etc.) will become important players in the international financial system. He also contends that market fundamentalism is no better than Marxist dogma, as both ideologies cloak themselves in scientific guise in order to make themselves more acceptable, but the theories they invoke do not stand up to the test of reality, they use scientific method to manipulate reality, not to understand it.
The book ends with a chapter on policy recommendations that rather presents Soros' summary on lessons learned for the future and identifies some key social issues that need urgent attention. Among the key recommendations, Soros concludes that obviously the financing industry needs to be regulated in order to prevent excesses, but severe regulation could impede economic development, so the right balance must be found. Leverage has to be controlled even if it results in the reduction in both the size and the profitability of the financial industry.
He also concludes that some of the newly introduced financial instruments are unsustainable and they will have to be abandoned, but the regulators need to gain better understanding of these instruments and they should not allow practices they do not fully understand. Risk management needs to be managed by the regulatory authorities, not the participants, that was an aberration.
Soros also advocates that additional measures are required to avoid foreclosure to allow as many people as possible keep their homes; they are victims of the housing bubble deserving some relief and to avoid the human suffering and social problems that are likely to hit senior citizens, Hispanics, and black communities.
Highly recommended, even if you only read Part Two or if you are skeptical about his reflexivity framework. Personally I think Soros is quite right to question the predictive capabilities of economic and financial models however, I do not think reflexivity is truly a paradigm, but rather one key assumption made in economics, and indeed in some application (such as finance) practitioners got mistakenly carried away and forgot to properly take this uncertainty into account, because then their models would be worthless.
- Do not Bother
Soros has lost touch with the markets, is just about all I can add to "Read and Think"`s excellent review....more info
- An interesting view of actual economic policy
This book talk about the fact that the mathematic knowledge allows to
the economic player to give a rationality to him behaviour.
The actual microeconomic theory reduces the complexity of the bussiness world and it is important the relation about what Kahneman tells. ...more info
- A philosophical approach to the markets.
This is a very small book (160 pages) that can easily be read in one sitting, yet very hard to read and understand.
Soros tries to explain why we need to come up with a new paradigm for the financial markets. He explains that the present market theories do not reflect real life, and thus cannot be depended on. He further explains that since we live in this `life,' and are part of it, it is very difficult to try to explain it. In other words, we have to be outside this `life' to be able to really comprehend it. He doesn't mean thinking out of the box. He is saying that we need to be God to understand our world. Financial theories can therefore help in understanding the markets, but in no way are they the absolute truth.
Soros does admit in this book that he always wanted to be a philosopher, and his writings reflect that. You can say this book is a philosophical approach to the markets.
Bubbles, according to Soros, happen all the time. Our mistake is that we never learn from them. Once a bubble starts, we all know it will eventually burst, yet nothing is ever done until it is too late. Soros asks, `Why is that?' Something must be fundamentally wrong with our financial theories. He discusses the Super-Bubble Hypothesis.
Soros reveals his outlook for 2008. He believes that a new world order is on the horizon. This is a cyclical event, according to him. This also justifies his belief that our theories are not absolute, and they eventually are replaced (in this instance, by the emerging of a new world order). He offers policy recommendations.
Soros also recounts his early life, and talks about his father. When his father was imprisoned in Siberia during World War II, he managed to escape on a boat on one of the many rivers in Siberia. He had no idea that all rivers in Siberia end in the Arctic. Once he realized that, he backtracked. By the time he arrived back to civilization, the war was over. He would have been home earlier had he not escaped!
In conclusion, Soros argues that the equilibrium theory, whereby markets always find an equilibrium, does not work, and that a new paradigm must be devised. Interestingly, he says that while a recession in the United States is now inevitable, there is no reason yet to expect a global recession. This was written in April 2008, and he obviously was wrong in his prediction. A Global crisis did hit the global markets in 2009! He also says that the end of the super-bubble does not mean the end of all bubbles. On the contrary, new bubbles are already in formation.
He ends the book by saying, `I should like to end with a plea. Let this not be the conclusion but the beginning of a concerted effort at better understanding the human condition. Given our increased control over the forces of nature, how can we govern ourselves better?'
Do not expect to get new market insights or forecasts. This book is a philosophical journey through the world of the global markets....more info
- New "paradigm"
Here's the "new paradigm": SOMETIMES investors are wrong. Like I was wrong in reading through almost half of this book. Spend the 3 hours you would save by not reading this book going through your portfolio, or read to your kids. That's an investment worth the time....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
- 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
- Tenderness of the wolf.
My main purpose to read this book was to get a better understanding of Soros' theory of Reflexivity. I find it a true theory, while writing-wise he is repeating himself a few times in the book.
What is important to keep in mind, though, is that he is the GREATEST market speculator, and therefore anything he says should be taken with a suspicion.
Someone who is so well educated in economics definitely knows that oversupply leads to price depreciation. Yet at the end of the book, he approves of USA government efforts, especially those of Barney Frank, to keep housing crisis ongoing by artificial measures, while those foreclosed houses should have been simply liquidated to eliminate excessive supply and stabilize housing pricing and prevent deflation.
Thus, as always with market makers, I find his views contradictory. Some points make sense, and others don't appear to be so, unless we admit that Soros has substantial real estate investments and is in favor for the Government to minimize his losses. Privatise profits, socialise loss. And old and proven principal of the financial elite.
I also do think that deep inside indeed he may be an admirer of the communist regime, as he father was in Soviet Union during the revolution. These must be very private reasons, but according to his own theory, irrational may become rational.
Inconclusive book, in my opinion.
- Difficult Reading, but Worth It!
The "bad news" about George Soros is that he wants to be known as a philosopher, and fills "The New Paradigm for Financial Markets" with arcane language in that pursuit. The "good news" is that the book is worth plowing through.
Soros opens with "This is the worst crisis since the Great Depression," and goes on to explore its origins and implications. Soros sees the housing bubble as not merely another bubble bursting, but also the end of a "super-bubble" that has covered the last 25 years or so. This super-bubble is caused by a prevailing credit expansion, accompanied by the Fed bailing out investors one crisis after another (creating a moral hazard), along with an increasingly laissez-faire market environment. Globalization further encouraged the super-bubble as the U.S. (via IMF and World Bank positions) forced developing nations to adhere to cyclical policies while bending the rules for itself - thus creating a higher-yielding haven in the U.S. for investors in those nations. Reagan-era deficits also served as a source of credit expansion. Still another was the new financial instruments and greater use of leverage by banks and hedge funds.
The housing bubble had its origins in the late 2000 bursting of the Internet bubble, followed by 9/11. The Federal funds rate went from 6.5% to 1% (7/03); for 31 consecutive months the base short-term rate was negative. The bubble was also fueled by new vehicles to keep positions off balance sheets and shift risks to eg. pension and mutual funds. Meanwhile, rising home values boosted asset values on banks' balance sheets, prompting them to loan more. Prices rose still further, etc., etc.
Half of GDP growth in the first half of 2005 was housing related (includes indirect effect of spending cash from refinanced mortgages). Forty percent of homes purchased in 2005 were investments or 2nd homes. Since income growth during that period was anemic, loans required increasingly strained ingenuity to qualify those involved. Complex mortgage-protection deals reached $43 trillion (1.5% margin requirements), vs. a U.S. stock market capitalization of $18.5 trillion, U.S. treasuries only $4.5 trillion; obviously the "protection" was superficial at best. Collapse of the housing bubble is now leading to an increasingly unwillingness of other nations to continue holding dollars.
Why the repetitive bubbles? Soros contends that financial markets are not perfect - in fact, they are usually wrong. The problems began in the '70s when defense conglomerates saw their earnings falling with the end of the Vietnam War, so they used their then still high-multiples to acquire other firms, creating the ILLUSION of sustainable earnings growth. Eventually the acquisitions required to sustain the growth were too large to pass even a limited perception of reality; at the same time, accounting shenanigans began coming to light, a recession loomed, and it all collapsed. Basically the same thing with REITs - accompanied by ever relaxation of lending and regulatory standards, and expansion of loan-to-value ratios, LTCM, international markets (Russian Ruble, Mexican Peso, etc.).
Soros confuses his discourse with an extended discussion of "reflexivity" - a term he never well defines, though I sense he means the trend-following habits of speculators. Alternatively, the "bigger fool" theory is a much simpler and similar explanation, though not as inclusive.
A brief review of Soros' investments over the years suggests he has made billions investing on the front-end of over-shooting bubbles, and shorting their similarly over-reacting down-sides.
Where do we go from here? Soros believes that credit conditions have been relaxed so far it is difficult to see how they could continue as such. (However, he also admits being wrong in the past, and also sees printing more money as an option. The latter, however, is somewhat inhibited by existing popular outcries against rising oil prices and other commodities - especially food.) He also believes regulatory authorities need to prohibit financing mechanisms that are beyond basic comprehension. The 2008 market will go below 2007's low. About 40% of subprime loans and ARMs will default over the next 2+ years - housing prices will need to decline over 20% to clear the market, and government intervention is essential. Unfortunately, Soros does not comment on what would happen if Asian and Arab states stop holding dollars.
What's Soros doing now? He's short on U.S. and European stocks, U.S. ten-year government bonds, and the dollar; long on Chinese, Indian and Gulf States stocks (even though he sees them as overvalued) and non-US currencies (China's in particular seems guaranteed to rise)....more info
- enjoyable and intellectually stimulating
It is never redundant to re-visit the basics, as they are the foundation.
This book is a great and succinct re- iteration of both theory of reflexivity and George Soros, the speculator.
Very enjoyable and intellectually stimulating. Hard to argue with.
- 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
- 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
- Cliff Notes on Soros
This 208 page book might be thought of as Cliff Notes for his previous 367 page book, The Alchemy of Finance, and will appeal to the same audience. During the 21 years between the books, Soros has mellowed somewhat and now describes his extreme Popperian position as radical falsification. I think he fears being called a skeptic. We know what happened to Socrates.
Soros continues to refine and advocate his philosophy of Reflexivity. For this book Soros acknowledges the editorial help from philosopher Colin McGinn. A career in academic philosophy begins with critical appraisal of prior work, followed by the creation of a new paradigm with a unique language and definitions. The philosophic basis for his market insights deserves its own book which might be called The Epistemological Roots of Reflexivity.
Soros defines Reflexivity as a fuzzy connection between knowledge and reality, belief and action, individual action and group behavior. We perceive reality within a context of prior knowledge. Our knowledge leads to actions which influence reality and produce new knowledge which leads to new actions. In engineering this is called a feedback loop and when the feedback gain is positive it produces an unstable system. In financial markets a positive feedback loop produces increased volatility, a boom and a bust.
Reflexivity is not unique to finance and appears in many walks of life including warfare and medicine. In warfare an officer makes decisions based on incomplete and perhaps false information, knowing that any action will change reality and demand new knowledge, decisions and actions. In medicine there is an unresolved problem of patient informed consent. The physician explains the diagnosis and treatment to the patient. The patient relates this new knowledge to his reality, hopes and fears, perhaps missing some important nuances and facts. The patient's imperfect knowledge impacts a series of choices as additional information and treatment are provided by the physician.
Soros dislikes the concepts of market equilibrium and probably does not support the strong and the weak form of the Efficient Market Hypothesis. His world view is more like the recursive loops described by philosopher Douglas R. Hofstadter.
Soros ends his book with an entry dated March 23, 2008. The financial markets continue to unravel. He admits that his Foundation portfolio has a slight year-to-date loss. Although he discusses oil, housing, currency, Europe and Asia, he omits other commodities and countries. Perhaps Soros has a unique problem with Reflexivity. Soros has such world fame that any prognostication will surely affect financial markets.
- 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
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
- Compelling, But Massive Fraud Is At Work Here As Well
Soros, the master manipulator, takes the reader on a journey through market machinations that have landed us in our current predicament, himself no doubt a shrewd but willing participant in the wild ride. However, he fails to give sufficient weight to the outright fraud that has riddled the mortgage market over the last five years. Every single excess in the financial markets over the last 30 years can be traced to corruption, fraud and outright theft. Our current meltdown? Lies on the mortgage applications, lies on the financial statements, lies on the appraisals, lies and misrepresentations in the rating agencies, etc. etc. ...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.
- 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
- thought-provoking, even if flawed
as an investor, free-thinker, and proponent of free society, i found deep value in this book. whether soros is right or wrong--i'm certainly not sold on all of his claims--the book stokes thought on the fundamental nature and function of markets, economics, and society.
what reader's will gain
* a clear, concise explanation of the scope and causes of the subprime crisis.
* an introduction to soros's philosophy and worldview. he addresses reflexivity, fallibility, human uncertainty, the boom-bust model, and the open society.
* a few financial predictions. soros is at times cagey, but there are just enough predictions on currencies, asset classes and countries to satisfy the investor. nevertheless, specific financial forecasts are not the focus of this book.
* insight into markets, economics, human behavior, society, and politics. for example: soros foregrounds the need for inhabitants of an open society to value and reward truth over demagoguery. this is the ethos of science. somewhat conversely, politics values power over truth. the book also contains an excellent example of reflexivity at work: one person stating to another "you are my enemy."
new paradigm repeats some material from the alchemy of finance. nevertheless, the concision of the book, plus the promise that it contains the author's best-yet exposition of his philosophy, make the repetition tolerable. i no longer feel any compulsion to finish alchemy, which i left in medias res to read new paradigm.
the book's flaws
some of the old, low-resolution diagrams from alchemy have found their way into new paradigm. these diagrams are difficult to read, especially in an e-book. i expected high-resolution, zoomable images. (by the way, there's a spelling error on p. 124, "sbome".)
soros is, at times, alternatively self-indulgent and self-nullifying. he occasionally reminds the reader that he is launching a philosophy career with his new book. he then proceeds to obliquely apologize for this self-indulgence. the book might have been better without such self-referential chatter. that said, it is somewhat comforting to see a self-nullifying billionaire who is willing to admit that he is "always wrong" and repeatedly corrects his perceptions to match reality (see his google talk).
readers will have to think carefully about reflexivity, human uncertainty and other elements of soros's philosophy. whether soros is right or wrong is secondary because, in your analysis of his work, you'll learn.
* soros builds reflexivity and the human uncertainty principle on the following foundations: strong epistemological skepticism (especially with regard to the possibility of knowledge about the future); a specific interpretation of the correspondence theory of truth; some of karl popper's conclusions. as a result, many of soros's arguments are susceptible to the same objections that can be raised against their foundations. (i won't get into those objections in this review. they are better tackled as problems of epistemology and philosophy.)
* soros waffles on market equilibrium. although he berates the efficient markets hypothesis, he nevertheless contends that markets are mean-reverting and easy to predict so long as they are not under the influence of reflexivity, which is relatively rare. soros then argues that, in reflexive situations, equilibrium becomes the exception rather than the rule. if reflexive situations are exceptional, doesn't that leave markets near equilibrium most of the time? in the long run, perhaps even boom-bust cycles are a form of self-regulation. the devastating effects of each bust engender a new generation of market cognoscenti. (soros himself may be living testimony to this idea. how much of his financial acumen derives from the nazi "bust" that marked his youth?) note that reflexive situations are the unruly ones that, in soros's eyes, necessitate market regulation. this brings us to the next point.
* why regulate? as soros himself admits--in alchemy, i believe--it is in reflexive situations that the greatest opportunity for profit lies. and yet these are precisely the unruly situations that he wishes to mitigate? that's an easy position for an already-made man. moreover, the human uncertainty principle seems to imply that more humans amounts to more uncertainty. so why should soros expect that adding human regulators to the market would tame its uncertainties? the solution is simple, but soros never produces it. i propose that regulators, if they are to act at all, should only work to limit the quantity of leverage available to market participants. regulators must never interfere in the direction of the market. or perhaps markets are best left completely unregulated. who or what can regulate with the efficiency of pain and euphoria?
* soros never explicitly addresses the relationship between size, reflexivity and human uncertainty. in physics, for instance, the uncertainty principle is significant at the quantum level, an infinitesimal scale. uncertainty has little bearing on macro events, such as dropping a 1kg rock from your hand. in somewhat inverted fashion, the broader market is scarcely influenced by the individual trader. since the typical trader cannot move the market, he can safely assume that his cognition of the market is independent from his participation. he can, in this particular instance, safely ignore reflexivity. on the flip side, and somewhat ironically, reflexivity emerges as a market-wide force once a critical number of market participants adopt the same bias. therefore reflexivity is applicable in some instances and not in others. those instances can be sorted along dimensions such as scale. to be fair, soros implicitly addresses some of the criticisms in this paragraph, but he would do better to treat them explicitly....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
This is not for a lay reader. Unlike Paul Krugman, who can describe economic theory in lucid prose, Soros writes in a turgid style that makes the text a dreary, unenlightening read. ...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.
- Soros tries to wow the philosophy crowd with his home-made souffle. Fails.
George Soros has tried and, on his own account, failed to persuade the world of his philosophy before. This book is another crack of the whip, which he justified by reference to the credit crunch (as it was in March 2008, note - still a vigorous and persistent financial storm and not yet the apocalyptic hurricane it was to explode into in September of that year). Even as of March 2008 it was a situation of such unparalleled intensity that, Soros believed, fin-du-si¨¨cle laissez-faire orthodoxy of the last 25 years had finally and unequivocally been falsified.
The world order is broken, and we need a new model. Wherein lies Soros' optimism that, this time, the world will listen.
As a preliminary observation, therefore, those wishing to hear war stories and glean trading tips from the saddle of the warrior who conquered Sterling in 1992 will be disappointed: Lamont's vanquisher is in reflective mood. Some - including his son, it would seem - would say it doesn't suit him. Currency speculation, not metaphysics is George Soros' strong suit. George Soros, apparently, sees it rather differently.
In a nutshell, his view is this: market orthodoxy - that markets tend towards equilibrium; that event probabilities follow a normal distribution; that it is meaningful to act on assumptions that market participants ever have perfect information, rational expectations and unlimited choice, are flat out wrong. Any philosophy that proceeds on these assumptions is headed for disaster.
There is good evidence for this in the frequency of extreme market shocks. Assuming a normal "gaussian" distribution of events (on which conventional risk metrics such as VaR are based), a crash on the magnitude of October 13 1989 might be expected once in approximately 15,000 years of market trading; an event on the scale of the LTCM collapse is not statistically likely even in the entire history of the universe. Now either we're freakishly - reeeeeally freakishly - unlucky, or the Gaussian distribution is a bad measure.
Soros adopts the latter approach, and explains it by way of his "doctrine" of reflexivity. Markets are social things; they're comprised of human beings, who both observe and react to the markets, and participate (and therefore inform) them. There's a feedback loop, therefore - what Soros terms "reflexivity" - whereby the actions and aspirations of market participants in themselves have a compounding effect on the market level itself. The occurrence of one event by its very occurrence alters the probability of another such even occurring. Normal distributions don't have that "interrelated" quality.
About this much, George Soros is very compelling, though it must be said this isn't really news - Benoit Mandelbrot in particular has been banging on about this for years, and with a fair bit more rigour and detail.
Like fellow literary trader Nassim Nicholas Taleb, George Soros yearns to be taken seriously as a philosopher - a discipline in which he has little formal training - and perhaps by way of compensation therefor, he couches his theory in terms of "postulates", "constructs", "doctrines" and "hypotheses". This would be fine - if a little pompous - were the theory in other respects considered, organised, and contextualised within a prevailing stream of contemporary philosophical tradition. But is isn't. The New Paradigm for Financial Markets is distinctly short, lean on ideas, repetitive, haphazardly organised and overtly hurried into print - if this really was George Soros' great push to turn the world on to reflexivity, he's muffed it through haste and laziness in execution.
For all his personal commitment to reflexivity it remains poorly described - aside from the grandly labelled (but gingerly articulated) postulates, Soros doesn't really flesh out what reflexivity means let alone what it does or what practical use it has, other than undermining our faith in Gaussian distributions - which in itself is fair enough though hardly news (it did not escape the financial world's attention that LTCM wasn't meant to happen in this universe).
Reflexivity also suffers from philosophical illiteracy - surely a serious shortcoming for an aspiring philosopher. Just as, like Taleb, Soros hankers to be a philosopher, like Taleb, he hasn't spent nearly enough time actually reading it, and instead sees the laboratory of his own eventful life (featuring Nazi and Communist oppression on one hand; pistol-whipping Norman Lamont on the other) as all the empirical data and research he needs. This leads to a predictably idiosyncratic theory, and one shot through with incongruity: he pledges allegiance - repeatedly - to intellectual hero Karl Popper, yet titles his book after the central concept in Thomas Kuhn's subsequent theory, which did much to throw Popper's own paradigm of falsifiability into crisis, so to speak, in the philosophy of science.
The thing is, Soros *is* onto something, though better familiarity with the philosophical (and scientific) literature may have helped him to see that considerable work has already been done here. Not only have Mandelbrot, Taleb and others written extensively about power law relationships, but the reflexive loop - and its relationship through language with Goedel's undecidability theory - has received some in depth treatment from Douglas Hofstadter, Dan Dennett and Roger Penrose.
The introduction to the book was valuable and interesting, but the paucity of Soros' epistemology (some decidedly dodgy appeals to the correspondence theory of truth and what Soros perceives as a hard line between "truthy" physical sciences and "value laden" dismal ones like economics) and his tendency to repeat the same points over and over again - surely a bad sign in such a short book - leave this as being a disappointing experience.
Olly Buxton...more info
- A waste of time for any serious investor.
As with any finance or investment book I read, I can't wait to savior any new thoughts or ideas the author might share. Since this was the first Soros book I read, I had high expectations. Unfortunately, I was quickly disappointed.
Soros immediate argument is: the US and other countries are suffering another bust and this is caused by old economic ideas. Therefore, we should try new ideas that have not been tried before. His idea is the Theory of Reflexivity. I patiently read anxiously waiting for an explaination for this theory. After 100 pages, it never happened. Unfortunately, I had to put the book down and go to another source to understand this idea of Reflexivity.
Not only does Soros never explain his theory, he uses much space to criticize free market theory as well as the Republican party. So the theme of this book becomes 1) I, liberal headed Soros, has a great idea; 2) Soros does not like free market theory; and 3) Soros does not like Republicans.
After finishing the book, I felt a more appropriate title might be, "Why I Love Democrats", or "Why I hate Republicans", or "I have an idea about our economic situation but I don't know how to explain it".
The best thing I experienced from this book is I did not buy it, I borrowed it from the library.
- Definitely Worth Reading
I really enjoyed reading this book. Mr.Soros is an excellent thinker and his recount of financial history was very helpful. I skimmed the philosophical portions as I am primarily interested in his trading insights. His concept of reflexivity is very important for traders to understand....more info
- Don't look in this book for financial advice.
The subtitle of this book, "The Credit Crisis Of 2008 And What It Means", is completely misleading unless you are satisfied with an answer that things are "changing". Beyond that, Mr. Soros doesn't have much to say. But don't take my word for this, just go to pages 158-159 in the Conclusion of his book where he states, as follows; "Near panic conditions prevail in financial markets. People want to know what lies ahead. I cannot tell them because I do not know. What I want to tell them is something different. I want to explain the human condition."
The fact that Mr. Soros has made several billion dollars is probably more likely to disqualify, rather than qualify, him as an expert on the human condition. He certainly would not be my first choice as a philosophical consultant. Mr. Soros would be well advised that when he doesn't have something to say about making money, he probably shouldn't say anything at all.
IMPORTANT ADDITION TO THIS REVIEW (10-06-08)
Although Mr. Soros did not offer any advice on what to do, in light of the current credit crisis, it turns out that he was rather accurate in his assessment that big changes were coming. If you want to understand what is actually going on in the economy, and learn what you can do to protect your assets, I strongly recommend that you check out a new book (published last month) entitled "Guide To Investing In Gold And Silver" by Michael Maloney. The title is somewhat misleading because only one chapter is actually devoted to buying gold and silver. The rest of the book, in a very facinating and easy to understand way, explains our monetary system, the federal reserve system, and the ramifications of having a fiat currency. (I know this sounds like a tough read, but it's not.) Once you understand these things, you'll understand what the hell Soros was trying to say and, most importantly, you'll have the knowledge to make YOUR OWN assessment of the economy, and you won't need George Soros or anyone else to tell you what you should do....more info
- Excellent insights
George soros brings in an unbiased perspective of impact of current events in capital markets and shifting paradigms of dominance from US to other countries A must read for global citizens...more info
- The New Prardigm for Financial Markets: The Credit Crash of 2008 and What It Means
I was surprised how poor a writer Mr. Soros is. He should have had someone ghost write it for him His concepts were not fully developed in an understandable way. The conclusion I came to is that his success comes more from his "back pains" than in definalble concepts. ...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
- 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
- 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
- Missing the Obvious
All the discussion about the "crash" by a billionaire of dubious motives...misses the obvious. The "crash" was created in the first 4 months of Bernanke's 14 year New Term as Head of the Fed. He raised rates 2 percentage points over these first 4 months of his term (Sept 2006 to Jan 2007). Then was boasting in January 2007 he would raise them yet again. Now keep in mind that millions of people were "SOLD" creative financing of all types since 2001 by the very banks that crashed. All of these creative loans revolved around Adjustable rates that would only benefit the banks when rates went up. Sounds like everyone got a little greedy to me. They got their payback. Unfortunately, it hurt the average home buyer, who bought in believing in the High prices created by the Lowered rates since 2001 by Greenspan would continue and they would be out in the cold without a home. Please note that homes in the Bay Area of CA went up from an average price of $250,000 in 2001 to $650,000 in 2006. Most thought that this price hike was due to increased demand. It was created by low rates of Greenspan. Please note that the government indexes stated inflation during this period was 2% when it was really 300%
It is only too obvious. Benanke's group wanted to become part of the "Billionaire Club". It backfired on them; and all of us. The Adjustable rates which benefit the lenders only..backfired on the world.
3 stars because well written. Get inside the mind of the man who is attempting to destroy America. Or rather talk America into self destruction. A man who grew up under and understands propaganda. Founds and Funds the newest best propaganda organization in america (Moveon.org).
This man states in this book that facts don't matter. It's only what people believe that matters. This is true right up until the tyrant seizes control of all power. It is true right up until the other speculators looses all their money. Soro's made his fortune in the futures markets.
This is Mr. Soro's 'Mien Koff' ("My Struggle" referring to the book by Adolph Hitler; 'Mien Koff')
I recommend this book because you should read the words and attempt to understand your enemies....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.
- 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
- I have read them all
I have read all of the latest books on the financial crisis. I can say without fear of contradiction that this is the worst of them all. It generates literally no insights into the crisis. It is the work of a wanna be philosopher who"s money making ability over the years has generated a market for his pseudo-philosophical assessments of the world....more info
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)
- Good for Some Light Reading
This book was pretty short, so whether you end up liking it or not, it's not like you will have wasted much time in reading it.
Basically, George Soros is just explaining his perception of the economy as a linear, historical process rather than a series of cycles. I think he is trying to say that history does not repeat itself. My explanation may not be the greatest, but that's what I got out of it...
I think if you really want to know what is going to happen in the next year, don't expect too much from this particular book. On the other hand, if you are interested in gaining some perspective, understanding a different viewpoint, and maybe learning a few basics about the elements of finance and economics relevant to the credit crisis, it is a good book to read. It doesn't matter if you are a staunch Republican and can't stand George Soros' politics (I am most definitely not a Liberal, by the way). It will still provide some food for thought, and it would be a shame for political alignment to prevent any intelligent readers out there from reading a different point of view without getting upset.
Conclusion: read it to learn and gain perspective, not for economic forecasting.
I give 3 stars because it was pretty interesting, but not life-altering....more info
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