George Soros: Worst Financial Crisis in 60 Years Marks End of an Era ~ market folly

Friday, January 9, 2009

George Soros: Worst Financial Crisis in 60 Years Marks End of an Era

"The current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the second world war at intervals ranging from four to 10 years.

However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years."

Read George Soros' column from January of 2008 over at the FT.

Also, an excerpt from one of his recent articles 'The Crisis & What to Do About It,' from last month (early December):

"The salient feature of the current financial crisis is that it was not caused by some external shock like OPEC raising the price of oil or a particular country or financial institution defaulting. The crisis was generated by the financial system itself. This fact—that the defect was inherent in the system —contradicts the prevailing theory, which holds that financial markets tend toward equilibrium and that deviations from the equilibrium either occur in a random manner or are caused by some sudden external event to which markets have difficulty adjusting. The severity and amplitude of the crisis provides convincing evidence that there is something fundamentally wrong with this prevailing theory and with the approach to market regulation that has gone with it. To understand what has happened, and what should be done to avoid such a catastrophic crisis in the future, will require a new way of thinking about how markets work."

Read the rest of this column over at NY Books.

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