Monday, February 23, 2009

George Soros: This is the End of the Free Market Era; Situation Similar to Disintegration of Soviet Union - Somewhere Phil Gramm Smirks

I won't get into the politics of it all but I just wonder what Phil Gramm is thinking - he of "hey it's just a mental recession" and whose workings to kill off almost any form of regulation helped set the seeds of our destruction. Ah yes, he is in one of those ex Congress folks who is now gainfully employed (at multiples of his Senate salary) by those who dutifully lobbied him for years - UBS Securities.

  • The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, enacted November 12, 1999, is an Act of the United States Congress which repealed part of the Glass-Steagall Act of 1933, opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services. The Act is most widely known for repealing portions of the Glass-Steagall Act, which had regulated the financial services industry.
  • In 2002, as the full extent of the Enron scandal was emerging, The New York Times called Gramm “a demon for deregulation” as one of the chief engineers of the stealthy approval of a bill that exempted energy commodity trading from government regulation and public disclosure. Meanwhile, Gramm’s wife Wendy was paid over $1 million in salary, stock options, dividends and other goodies from 1993 to 2001 as an Enron board member, but of course was deaf, dumb and blind to the energy company’s rampant cooking its books with the acquiescence of the late unlamented Arthur Andersen accounting company.
  • The Washington Post in 2008 named Gramm one of seven "key players" responsible for winning a 1998-1999 fight against regulation of derivatives trading.[12] Gramm's support was later critical in the passage of the Commodity Futures Modernization Act of 2000, which kept derivatives transactions, including those involving credit default swaps, free of government regulation.
  • 2008 Nobel Laureate in Economics Paul Krugman, a supporter of Barack Obama, described Gramm during the 2008 presidential race as "the high priest of deregulation," and has listed him as the number two person responsible for the economic crisis of 2008 behind only Alan Greenspan.[14][15] On October 14, 2008, CNN ranked Gramm number seven in its list of the 10 individuals most responsible for the current economic crisis.[16] In January 2009 Guardian City editor Julia Finch identified him as one of twenty-five people who were at the heart of the financial meltdown. [17] An Internet poll currently ranks Gramm #1 among 25 people selected by Time as candidates to blame for the economic crisis.
It is amazing how much damage one man could do... (his wife did an excellent job of creating loopholes for Enron on the commodity side, and weeks after leaving her post moving to its Board of Directors) But enough about business as usual in Reverse Robin Hood nation. (steal from the many to give to the upper 0.2%)

As for George Soros, he definitely has political leanings but while I believe "smart" regulation is a good thing; I also would argue against the tenet we ever had a free market. If we did, there would never have been a Fannie or Freddie and failure would be allowed to happen - and risk assessment of corporations would of taken onto a totally different flavor. There would not be a Federal Reserve to make sure the nanny state was always there in case the big boys run their companies into the ground... nor would there be a small group of people arbitrarily setting interest rates to try to move the economy "where it should go". Instead of a free market, we had a Cramerica market - for the corporation, by the corporation - almost all regulations to benefit of those who pay for political campaigns - that is very different than a "free market".

Remember, even Alan Greenspan himself admitted he was wrong and that he overestimated the guiding hand of self regulation/"free markets" to police itself - I'd argue that compensation is so excessive in the U.S. that it simply "pays" to "shoot for the moon" even if it brings down the company - you still "get yours" as a CEO. And what regulators we do have have proven to be toothless... we don't even need "new" regulation - we just need some adults who actually enforce the current ones.

Via Bloomberg
  • Billionaire investor George Soros said the current economic crisis has its roots in the financial deregulation of the 1980s and marks the end of a free-market model that has since dominated capitalist countries.
  • Liberalization of the financial industry begun by the Reagan administration has led to a series of breakdowns forcing government intervention, Soros told economists and bankers last night at a private dinner at Columbia University in New York. The global recession, triggered by the collapse of the U.S. housing market, has “damaged the financial system itself,” he said.
  • Regulators are in part to blame because they “abrogated” their responsibilities, Soros, 78, said. The philosophy of “market-fundamentalism” was now under question as financial markets have proved to be inefficient and affected by biases rather than driven by all the available information, he said.
  • “We’re in a crisis I think that’s really the most serious since the 1930s and is different from all the other crises we have experienced in our lifetime,” Soros said.
So should we expect a recovery in 6 months George? err I mean "2nd half 2009" (which starts in almost 4 months)
  • ...the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.
  • Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.
Ok, I'll take that as a "maybe". After all, I'm an aspiring pundit... always a bull market "right around the corner".

Roubini pitches in on a similar vein
  • [W]hile this crisis does not imply the end of market economy capitalism it has shown the failure of a particular model of capitalism: the laissez faire unregulated (or aggressively deregulated) wild-west model of free market capitalism with lack of prudential regulation and supervision of financial markets and with the lack of proper provision of public goods by governments.

[Feb 18, 2009: Soros Increases Stakes in Potash, Petrobras; Culls Walmart, Research in Motion]
[Nov 26, 2008: Soros and Citadel Building up Coal Stakes]
[Apr 9, 2008: Soros Believes Global Subprime Costs to Reach $1 Trillion]
[Jan 22, 2008: Soros Says World Faces Worst Financial Crisis Since World War II]

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