Love or hate his politics, there is no doubt George Soros is one of the brightest investment minds of the past few generations. Hence when you have Soros on one side saying we have only begun the 2nd stage of the financial crisis, and on the other hand you have Unicorns and Butterflies Bernanke telling us all is well (kumbaya!) [and coming off one of the worst economic forecasting records the past half decade you could put together], you can guess which side one might be better off listening to.
“The collapse of the financial system as we know it is real, and the crisis is far from over,” Mr. Soros said at a conference in Vienna. “Indeed, we have just entered Act II of the drama.”
NYTimes DealBook has a full transcript of the speech Soros gave at the Institute of International Finance in Vienna here. Remember, you can choose to accept the red pill or the blue pill; if you choose the blue pill Ben Bernanke has solved all your ills... if you choose the red, please read on for some excerpts.
- Soros, 79, said the current situation in the world economy is “eerily” reminiscent of the 1930s with governments under pressure to narrow their budget deficits at a time when the economic recovery is weak.
- “We find ourselves in a situation eerily reminiscent of the 1930s. Keynes has taught us budget deficits are essential for counter-cyclical policies, yet many governments have to reduce them under pressure from financial markets. This is liable to push the global economy into a double-dip.”
- Europe’s debt-ridden nations have to raise almost 2 trillion euros ($2.4 trillion) within the next three years to refinance, according to Bank of America Corp.
- “When the financial markets started losing confidence in the credibility of sovereign debt, Greece and the euro have taken center stage, but the effects are liable to be felt worldwide,” Soros said.
Obviously the big fear here is what Nassim Taleb described yesterday; one day we wake up to a failed bond auction. I mean how *much* money is there in the world? China only has $2 Trillion in reserves and can't buy everyone's debt. And for all we know central banks are already doing bidding behind the primary dealers to make everything appear rosy. Without audits we know nothing.
He also shares our thoughts on the use of credit default swaps by those who have no interest in the underlying debt - which was just rehashed on the blog Wednesday in terms of BP. But bless their hearts our investment bank oligarchy and their top hedgie customers say all is well, they are self policing, and just trust them.
- Credit default swaps, which aim to protect bondholders against the risk of a default, are dangerous and a “license to kill,” Soros said. CDSs should only be allowed if there is an insurable interest, he said.
Please note the above words are coming from one of the largest hedge fund managers in the world.
- “Regulators ignored systemic risks. The positions of all market participants – hedge funds and sovereign wealth funds – need to be monitored.”