the infinite conversation – markets, life and everything


Wise words from George Soros, global financier and philanthropist…

In my opinion, in addition to the housing bubble that was the trigger that set off the financial crisis, there is a super bubble that has been going on for 25 years or so that started in 1980 when Margaret Thatcher became prime minister and Ronald Reagan became president. That is when the belief that markets are best left to their own devices became the dominant belief. Based on that, we had a new phase of globalisation of financial markets and liberalisation of financial markets. The idea is false. Markets do not [correct] towards equilibrium.

If [as a regulator] you only use your powers to bail out the failing institutions you introduce, this will encourage the phenomenon of moral hazard. That is what has been going on for the last 25 years. As a result, credit creation has been encouraged and these periodic crises managed to be dealt with without any serious fallout in the real world. That reinforced credit creation and the misconception that markets correct themselves.

That is how we arrived not only at the housing bubble but also the creation of this alphabet soup of synthetic instruments so that when the sub-prime crisis happened, the authorities were totally unprepared that the whole system would fall apart. Markets that I didn’t even know existed ceased to function. That revealed that the whole construct, this really powerful financial structure, has been built on false grounds. For the first time, the entire system has been engaged in this crisis and the authorities have considerable difficulty even in providing enough liquidity.

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