The “Penitence” of a Wall Street Robber Baron: George Soros
May 6, 2000
“Markets basically are amoral, whereas society does need some kind of morality—a distinction between right and wrong. And by allowing market values to become all-important, we actually narrow the space for moral judgement and undermine public morality.
This has actually happened, and globalization has increased this aberration, because it has actually reduced the power of individual states to determine their destiny.”
“If I ruled the world, I would establish an international regulatory agency to rein in speculative excesses and provide financing during economic crisis.”
One may erroneously assume that the above statements would be an expression from the head of the socialist country or at least the left-leaning scholar who adamantly believe that unfettered capitalism should be regulated to conform with the social justice and equality.
Quite surprisingly, it has come from the mouth of George Soros, who has been reigning his hedge fund empire, Quantum Fund, for two decades beginning in 1969.
Hedge funds—largely unregulated investment pools open only to wealthy investors and big institutions—aim to provide consistently outsized returns on stocks, bonds, currencies or other securities while limiting losses from market downturn. Since the funds hold such a vast volume of capitals under its control, the collapse of the company would touch off a global financial panic that even the US government has orchestrated bailout of one of the big and near-broken a Connecticut-based Long-Term Capital Management to stem the global financial meltdown.
Wall Street is populated by some of the most cynical and greedy bastards on earth, and George Soros has been one of them since his move to New York in late 1950 as a Hungarian Jew who had avoided the fate of many Jews by posing as the godson of a Hungarian official overseeing the confiscation of Jewish properties.
He has become a house hold name as a currency speculator when his Quantum and related funds, largely using piles of borrowed money, have made more than $1 billion in a few weeks by betting against the British pound and eventually broken the back of the central Bank of England.
In 1997, Soros’ funds were shorting Thailand’s currency, the baht, and Malaysia’s, the ringgit, betting that the value of both currencies would drop and his attack has resulted in Asian financial crises.
“The Jews robbed the Palestinians of everything, but in Malaysia they could not do so, hence they do this—depress the ringgit,” said Mahathir Mohamad, the Prime Minister of Malaysia.
And newly elected DJ Kim was so frightened with the power of Soros that he has invited the notorious speculator to his palace and begged for leaving the South Korean currency alone.
Soros was revered such in the global financial market that the Brazilian president has hired one of his fund managers as the head of the Central Bank in order to salvage the downturn value of its currency.
However, his manifold roles in world market appeared to be in trouble when his funds jumped into the Russian market in 1997 where politically powerful Mafia, known as oligarchs were having the field days to rob the national wealth in the privatization of Russian industries.
He has established $1 billion partnership with one of the Russian Mafia in the telecommunication firm, and during the Russian economic meltdown in the summer of 1998, he personally contacted with Robert Rubin, the American Treasury Secretary and members of Yeltsin’s administration in his failed attempts to rescue Russia from bankruptcy and eventually ended up losing $2 billion.
In recent years, his prediction that the Euro would rise and the yen would fall against US dollar was miserably wrong and his Quantum Funds have lost billions in its currency speculation.
In addition, during recent collapse in tech-stocks, the Funds lost again one fifth of its value, wiping out $3 billion from the fund’s net assets, which stand at $8.2 billion.
Last Friday, George Soros has announced that he would withdraw from large scale and high risk hedge fund investing and reorganize his Quantum Fund into a group of smaller funds based on lower risk strategies, accepting the resignation of two top money managers
Soros announcement follows hard on the heels of the closure of the second largest hedge fund company, Tiger Management LLC, which had investment returns averaging 32 percent a year during last decades, experienced a drop in asset values of $16 billion in the last year, much of which was due to the fall in technology stocks.
Explaining the reasons for his withdrawal, Soros mumbled: Maybe I don’t understand the market or maybe in some ways I think the music has stopped—only most people are still dancing. When markets are extremely risky, we will be more conservative, have less exposure to the market and accept lower returns.
One of his resigned managers mused: I never thought the NASDAQ would drop 35 percent in 15 days. This business is a bit like a drug. When you are doing well, it’s hard to quit.
In recent Tokyo conference, a leading member of the US Federal Reserve Board has given one of the clearest indications yet that alarm bells are starting to ring in American financial circles over the impact of the stock market bubble on the U.S. trade deficit and the growing indebtedness of the U.S. economy.
The latest statistics show that the current account deficit reached an all-time high of $339 billion last year a more than 50 percent increase over 1998, and this growing trade gap is being funded by the inflow of funds from the rest of the world, sending the US deeper into debt.
Net obligation to foreign creditors were 18 percent of Gross Domestic Product (GDP) at the end of 1998 and are now estimated to be more than 20 percent of GDP. In 1997 they amounted to 13 percent of GDP and stood at zero a decade ago. (In South Korea, the ratio of imports and exports against GDP reaches 60-80% at times. In 1995, it was 57% for Korea, much higher than that of Japan 15%)
The Feds said that the U.S. cannot indefinitely be the engine of growth for the world economy without running the very risk of economic and financial difficulties that could well weigh on many of the world’s economies.
Capitalism is essentially an amoral system based on exploitation, and George Soros and other financial mavens have been on a high alert that the global capitalist system would be coming apart at the seams.
The system was based on the belief that markets, if left to their own devices, would tend to return to an equilibrium position, which has been false and instead of acting like a pendulum, the financial markets have recently acting more like a wrecking ball knocking over one economy after another.
Markets can not be perfectly efficient or rational because investors are working on the swings and vagaries of human behaviors such as herd mentality, that people who communicate regularly think similarly, the myth of fully independent judgement, or amazing human capacity to simultaneously hold conflicting beliefs with no apparent discomfort, etc.
Now once-feared financial guru has brought together his fear about the operations of the international financial markets saying: “We live in a global economy, but the political organization of our global society is woefully inadequate. Without the control, the global economy is liable to break down. The development of a global economy has not been matched by the development of a global society. The basic unit for political and social life remains the state-nation that has no control of global financial markets.”
It is extremely bizarre to see Soros who has made a fortune speculating and now turn around to advocate regulating the financial markets. It is as if he has suddenly found the absurdity of capitalism and wants to metamorphose from a Robber Baron into a Ralph Nader of the Wall Street.