GEORGE SOROS WITH CHARLIE ROSE (1998)
VIa HEDGE FUND CONVERSATIONS
0:00George Soros is alleged in the world investment management when he moves
0:03money the markets react when he speaks the world listens
0:06is also made an impact on network abound asians dedicated the global economic and
0:10political improvements
0:12he is the chairman of source fund management and the author of the crisis
0:15of global capitalism
0:17open society endangered I am pleased admonish program
0:21for a continuation of a series of conferences we’ve had since I’ve been
0:24doing this program
0:25about the nature of the economy capitalism and how he sees the future
0:29welcome back
0:30likely to be here tell me about how I mean that the Argent love the book
0:35because you have
0:36before laid out for me and others
0:39your own philosophical base in an open society
0:42ride start with me by talking about the Open Society
0:47in a sense as a foundation and where you have gone
0:50in your concerns about the economic crisis
0:54we face as we speak well I started out with a framework that I have really
1:00developed as a student when I was influenced by Karl Popper
1:03open society and its enemies the
1:07totalitarian systems that impose themselves on the people
1:11a by force in order to
1:14get that ideology the accepted and
1:17he pound opposed to that at the concept of the
1:22of an open society wait where
1:25the it is recognized that nobody has a monopoly
1:29up to to that fear that the
1:32all a views are
1:36that he may be wrong and therefore we need a government
1:39that the that we are ready to replace a democratic government
1:44market economy and
1:47critical thinking so that was my concept of open and closed society
1:53and of course I coming from hungary
1:56where I lived through the Nazi regime and the communist regime
2:01I was
2:03for obviously in paper %uh volpert society and I set up a foundation
2:08to foster to open societies are
2:11are goal was to help open up a close societies
2:15make open societies more viable because
2:19open societies have deficiencies as well
2:22and foster critical mode of thinking then
2:26we and as the communist regime
2:30the started to collapse I got sucked into a revolutionary
2:35transition and i ended up setting up foundations in some
2:4030 countries and they did a a lot of good I think
2:45in the just by and
2:48allowing empowering people who had the concept of
2:52as the or to
2:55of an open society and to move towards it
2:59me the I don’t have a definition of what an open societies
3:04open society has to define itself try that the people in the country’s
3:09defined themselves a and
3:13then this fame but didn’t really
3:17work quite as as I expected because
3:20the collapse of a closed society did not lead
3:23to the creation up an open society there was something
3:27missing and their began to realize
3:32at that that open society is threatened
3:36not only by totalitarian regime about
3:39also by an excessive reliance on
3:43on on market values
3:46that that has to be something else to hold
3:49a society together what caused you to come to the conclusion
3:53are that there was serious danger I mean in
3:57quote runaway capitalist was it the economic crisis that you saw spring out
4:01a pager and then spread
4:03to russia and then threaten Latin America no not because it because I
4:07started
4:08writing about it I wrote an article in the Atlantic Monthly
4:12in beginning of 97 and I started writing the book
4:16when I got lot of reaction
4:19to that article and a lot of and the article has actually
4:23widely misunderstood because of the title capitalist that
4:27as so I’m about I’m not opposed to capitalism
4:31I want to improve it to make it more a viable so
4:35I’ll open societies or over a
4:38a middle ground which beach is not
4:41neither the this but I called market fundamentalism
4:48nor the let’s say
4:51communism or socialism or nationalism
4:54its it’s a recognition that all our systems
4:59are are flawed all our concept of law
5:02then we must remain open to improvement so
5:06the there is an excessive believe
5:09now in them the role of markets
5:13and this it’s been carried as
5:16to an extreme which I think endangers our society
5:19it endangers it because for supermarkets
5:23particulate financial markets are unstable
5:26at buttons the central core above what you fear about market is the its
5:31instability
5:32other financial market right and that is something that I know about and I want
5:36pity
5:37firm ground why so there I have a I think get the latest on you to your
5:41advantage
5:41yes that the me that’s my profession except
5:45so it so I think their I feel on firm grounds
5:49then I but I’m also concerned about
5:53relationship between market values and
5:56this human values are intrinsic values and
6:00there’s something I think wrong
6:03if you allow market values
6:07to enter into spheres of our society but it doesn’t properly belong
6:11what you want said you’d rather be known as certain somebody’s contributed
6:15something to philosophy than someone who contributed
6:18got nothing but the making of a lot of money
6:21like that in a purely economic resources with up
6:24staying with this idea of where you began to realize
6:28that capitalism had para within it
6:32yes I’ll in-state unstable markets and the like
6:35that came before the global economic crisis that we should deal with
6:40a very much so yes wide then don’t know what was it about
6:44said to you before everybody else thought things could go wrong
6:48because I have a theory of markets which is
6:51that’s it different from the prevailing wisdom
6:55is debating the wisdom is that markets tend toward sector Librium
6:59which is true when markets deal with known
7:02quantities but financial markets
7:05deal with it not only unknown quantities but actually
7:09unknowable quantities because the quantities that the deal said
7:14namely the future values deep and
7:17on how financial markets please them
7:21at at present so a but financial markets due today
7:26has an impact on the economy tomorrow
7:30so so the concept the vector Librium is really not appropriate
7:35you I I use the concept of left Lake City
7:39which recognizes that there is this two-way connection
7:42that marcus don’t just reflect they also affect
7:47and that doesn’t necessarily lead to equilibrium intact it can
7:51the you quite far from equilibrium
7:54let me talk about the ideas that you raised here and you begin to think about
7:58before the economic crisis book but move ahead to the economic crisis
8:03what how did capitalism and unstable markets
8:06contribute to play a part in
8:09the economic crisis that we’ve seen sweep as I said from a generation to
8:14Latin America well you had than a variety of factors at play
8:19and different factors affected different countries
8:23but none of the factors was present in all
8:27two countries what was present it was the free flow of
8:31above capital which is
8:34inherently unstable and
8:37tends towards boom bust is so that the
8:41the bust was preceded by a
8:44tremendous bull and the
8:48the scenes markets are unstable be do have
8:52and monetary authorities at that try to preserve stability and we have
8:59you know central banks in each country and so on we also have been
9:02International Monetary fund and the
9:05regulatory system that the that applies
9:09actually exacerbated that the
9:12the problem the regulatory system that the
9:16the intervention by the International Monetary Fund and the monetary
9:19authorities
9:21what does this crisis say to you
9:24needs to be done what does the threat that you saw
9:27from capitalism cause to be done
9:31other words said better what’s which should we do and what’s your solution
9:35a we need to the
9:39to recognize how the system works and
9:42and the the shape at the
9:46mechanism for controlling the excesses
9:49I think that the mission the I’ll the International Monetary Fund
9:53has to be considered we need something like a
9:57a new Bretton Woods no for a word
10:01which is characterized by the free flow of capital because
10:04the Bretton Woods was designed for a very different
10:07world now before we have such a new Bretton Woods
10:11be actually have to come to terms and and and
10:16with the situation and develop
10:20a some concept as to what
10:23new system should work should look like and that’s what I try to do
10:29in the book but the I will be the first one to admit
10:33that the that the I would say that I’m stronger and the analysis
10:38and then I am on the solution okay but I need dampen the flow of capital
10:42that rushes crazily torch economic opportunity
10:45to well and what I have in mind is
10:49with that when the flow of capital is
10:52turned off and there is not enough if you then
10:55provided some of some official
10:59guarantees each allow the countries in need
11:03do to access to market then by be drawing
11:07that support you give a signal to the market
11:11that it is getting overheated so its by
11:14injecting money when when it’s not available
11:18then you can yet something to be drawer which then gives a signal
11:22that the things are getting overheated
11:27and then when if there is a a bus
11:31you then demand
11:35the or or allowed the countries concerned
11:38to impose conditions on lenders
11:41as well as the having to
11:45undergo some severe restrictions themselves
11:48so you you you spread the
11:51the burden up the adjustment between lenders and borrowers
11:56this is the this is incidently what
11:59should really should have been done in this crisis
12:03because it some countries have over borrowed a hat too much debt
12:08and not enough equity princes Korea for Thailand
12:12now I believe lending them more money
12:16a it can get you out of the trouble
12:19you need do the you need to a change to the relationship of equity and debt
12:25so you daily would have had to have
12:28as some kind of a moratorium and some the
12:31the dead equity reorganization it is happening now
12:35that’s a Korea and is just moved in that direction
12:39but it’s one year after the at the
12:43crisis and so the in the meantime the economy has
12:47plunge into and CB recession
12:51I think an earlier move would have abated this
12:55problem World Bank has been critical of the IMF
12:58share their quizzes E yes
13:01I i think but I I also have love
13:05has a lot of respect for the IMF and a lot of understanding
13:09for their position because de mission
13:12his for deaf first ask is to preserve
13:16the financial system so they want to make sure
13:20that the a debtor countries a
13:24can and meet their obligations because the date defaulted
13:28as the as in the end Russia did it can disrupt the whole
13:33system so day it seems that is there concern
13:36they want to stabilize the currency because if the currency force too much
13:40then the debt did on a denominated in dollars
13:44becomes overwhelming and they want to
13:47actually have the country go into recession
13:50so that it gets a it has a trade surplus
13:54which allows it to debated so
13:57it they are the confined by their mission
14:01today do the right thing but the effect is they raise interest rates to punitive
14:05level
14:06beach then have a negative effect on the economy
14:10whereas what for instance the Federal Reserve has done
14:13when the crisis looked like it was
14:16beginning to impinge an arm a lower interest rate immediately lowered
14:20interest rates
14:21and lo and behold we seem to be
14:24breeding easier do you believe that today as we speak
14:27I before christmas nineteen ninety-eight
14:31that the crisis is under control and the worst
14:34is behind us I think that the penny faces behind
14:38cinemas the this wrecking ball at that
14:41traveled around the world the notion that it would somehow
14:44overwhelm us like a tidal wave right to that has been call
14:48that I think has definitely been calm what we are now
14:51suffering from is the after effects
14:55the the effect of the financial markets
14:58on the DL economies so you have
15:01the a third of the world in
15:04and CVR review session you probably
15:08have some more because Brazil
15:11has yet to enter into recession
15:15but is certain to Brazil it is likely to
15:18it’s the its best interest because
15:21the program calls for right the program call me I’m a program called
15:27I mean the even the government gone because this is actually
15:30a a program designed by the government a
15:33the Brazilian government a so
15:36you have already there and you have a
15:40generally a deflationary environment in the world
15:43today because there is overcapacity
15:46demand is of course at at the low
15:49level a and companies
15:53have to sell in order to generate
15:57positive cash flow in order to pay that debt
16:01so now there’s very little pricing power
16:05profits are under pressure
16:08the investment demand
16:12is liable to decline since there is overcapacity
16:16as so a the
16:20it is it is possible although less likely today
16:24than it was two months ago that the whole world
16:27economy slips into recession me come to the the issue where
16:32is is a recession coming to the united states. in your judgment a
16:35I its its its
16:39me there will be as a slowdown in the growth whether it be
16:42go into recession I think depends a great deal on what the market does
16:46actually a if you had a and
16:50significant decline in the market submarket do you
16:53its moral is likely to create a recession because
16:57the our consumption now has become
17:00very much dependent on the capital gains
17:04that people make in the stock market so instead of markets reflecting
17:10you know economic conditions they are causing it
17:14so hey having lowered interest rates
17:17a maybe the market won’t go down very much
17:21in which case we may have a slowdown the dow to research
17:25can you have a slowdown in the economic growth of the country
17:29and at the same time have its markets
17:32resigning keep going up yes I think I think because it is something healthy
17:36about
17:37can keep in the economic growth under control a
17:40are within our our innocence well is
17:43menu have less less demand for money for investment
17:47but you have a and then easing of
17:50the supply of money then there a lot of that money finds its way
17:54into the stock market rich kid which leads to
17:57do in peace and in
18:01I the value are stocks might be
18:04excessive speculation in certain areas which then
18:08you have to pay for later but in the meantime
18:11i think is more likely to push prices up than down so you think the market’s
18:15going to do what
18:16well I personally think that is but this is really just a
18:19injure a.m. a survey a balanced judgment which
18:24he which the
18:28ready to the prize as it as events
18:32unfold I i think we are in a bear market actually
18:36because of the pressure on on
18:39on margins a and
18:42and say
18:45the the decline in investments
18:49that I expect to come so therefore if you are an investor largest mall you eat
18:53you are to either so short a girl the market
18:56and find other avenues to investor my I wouldn’t I wouldn’t
18:59I would like to a would like to go that far because
19:03actually in the final phase is over bull market sometimes the biggest profits are
19:08made
19:09final has a mobile marketing and two people who leave too early
19:12by themselves no in great remorse later
19:16like have you final question had you yet
19:19done what you most want to be remembered
19:23for apart from family
19:27have you done with your personal why
19:31have you achieved yet what you most want to be
19:34remembered for I think so and I think and I think the book
19:38has a lot to do with it because I actually want that this is the book I
19:42always wanted to write
19:43and and and and have have it
19:47actually read so I I think
19:51I got there now it’s not the end of the road
19:54because as I said I I think I’m better on the analysis and I am on the solution
20:00so I think have to keep on working
20:03on on trying to refine
20:06the solution the crisis a global capitalism George source it’s a pleasure
