GEORGE SOROS INTERVIEW - Wednesday 21st May, 2008
Coming
off the back of Mark Maley's piece on the US origins of the subprime
loan scam, you really know that the global economy is in crisis when
one of the wealthiest men on earth tells you he came out of financial
retirement because the subprime credit crunch was hurting even his
bottom line. It's almost comforting to discover that George Soros -
billionaire hedge market player and philanthropic political activist -
isn't immune to the fallout from dodgy American home loans. On his
recent trip to Norway, George Negus caught up with the normally elusive
Mr Soros for the second time in just over a year.
GEORGE NEGUS: Mr Soros, it is good to see you again. It is just over a
year since we spoke last. Would you have imagined this time last year
that now we would be talking about a global credit crisis the way we
are?
GEORGE SOROS, BILLIONAIRE PHILANTHROPIST: Well, yes, because
actually
in my last book in '06 I predicted that the housing bubble in America
has to burst.
GEORGE NEGUS: Right.
GEORGE SOROS: And it actually happened later than I expected.
However,
the extent of the let's say, disarray in the banking system has
actually surprised me.
GEORGE NEGUS: When in fact you have described this current
crisis - and
it is a crisis, you'd agree with that?
GEORGE SOROS: Yes.
GEORGE NEGUS: The worst you have seen in your lifetime and the
worst
probably since the '30s.
GEORGE SOROS: That's right.
GEORGE NEGUS: That is almost an apocalyptic view of things,
isn't it?
GEORGE SOROS: Well, there is what I call a super bubble which
has been
growing very, very slowly and then in a more accelerating way since
1980. If you think of an atomic bomb, you've got a little bomb going
off and that sets off the big one. And you have the housing crisis as
the trigger and then you have the super bubble exploding in a way.
GEORGE NEGUS: A lot of this problem is because the banks had
been
lending money willy-nilly, ad hoc, to people in many cases and
corporations and others that they know cannot repay the debt. Is that
at the crux of it?
GEORGE SOROS: No, it's part of it. Basically the whole system
has been
built on a false premises and that is that, basically, financial
markets are self-correcting.
GEORGE NEGUS: Not so, as you say.
GEORGE SOROS: That is not so. I think regulators have
abandoned their
duty because they left it to the financial institutions to regulate
themselves. Ever since the end of the Second World War credit has grown
much faster than economic activity. And that was the, let's say, the
basis in reality.
GEORGE NEGUS: So 'credit' is the dirty word?
GEORGE SOROS: No, credit is dangerous and you have to realise
the
dangers that are connected with credit. And that is what we failed to
take into account in shaping the global financial situation.
GEORGE NEGUS: Do you see the current situation getting worse
and
impacting on more and more people - not just potential homeowners. Is
that going to get worse before a correction happens?
GEORGE SOROS: Well, I think the acute phase of the financial
crisis is
probably behind us. That is to say, this liquidity crisis, but the
fallout, its impact on the real economy is only beginning to be felt.
The American consumers, which have been the motors of the world
economy, can no longer play that role because they are over indebted.
And for the last five years or so they have had no savings at all,
because the house values went up. Now the house values are going down,
so suddenly they are poor. Now you are in a period of credit
contraction and that is connected with wealth destruction. So you now
have this period of wealth destruction, and that has got to have an
effect on the real economy.
GEORGE NEGUS: As I understand it, you have come out of almost
financial
retirement because you became personally concerned about your wealth
creation.
GEORGE SOROS: That's correct.
GEORGE NEGUS: But in the process you managed to make another
$4
billion, I heard.
GEORGE SOROS: Well, no, that may be, as usual, exaggerated.
GEORGE NEGUS: Right, but you have made money out of this
situation.
GEORGE SOROS: Well, we had a very good year last year. This
year we are
barely breaking even, and it is very, very difficult to preserve your
capital in a period of wealth destruction.
GEORGE NEGUS: But even with your wealth, X billions as it is,
you were
concerned that was in danger because of this crisis.
GEORGE SOROS: Yes, yes.
GEORGE NEGUS: So if you're in trouble the rest of us should
watch out,
I guess is what we should say.
GEORGE SOROS: Well, I think that is correct. And I think you
have to be
either very, very cautious or you have to be very, very nimble. And now
how uncertain things are is also uncertain and right now we're in a
period of heightened uncertainty.
GEORGE NEGUS: How do you answer your critics who say it is all
very
well for George Soros. Isn't there a double standard almost a
hypocrisy, a moral contradiction in a man making money and staying
afloat even in the situation that is harming so many others? It's easy
for you to
GEORGE SOROS: No, there's absolutely - sorry, but there is
absolutely
no foundation to that, because I make money playing, like everybody
else, according to the prevailing rules. And on top of it, since I know
something about it, I also point out that the rules are false.
GEORGE NEGUS: You would change the rules?
GEORGE SOROS: And you need to improve it. So actually, to that
extent
I'm trying to be a good guy. As a market participant, I am let's say,
honest, and therefore it's not - I'm not trying to help the world by
investing. I'm trying to make a profit. And to the extent that I try to
help the world it's by using the profits that I have made.
GEORGE NEGUS: Last time we talked, we talked about the
American
political situation where you put a lot of money - $25 million, $27
million - in the previous election and I think you told me about a year
ago that this time you were backing Barack Obama. Are you worried that
Hillary Clinton and Barack Obama might end up destroying the Democrats'
chances of election?
GEORGE SOROS: Yes, yes, I think this has gone on too long and
I hope it
will be resolved, but I am hopeful that after it is resolved they will
embrace and they will support each other. However, their followers will
have a more difficult time because they are geared up for the battle.
GEORGE NEGUS: To we outsiders watching American politics from
a
distance, we can't understand why they're busily bashing each other up,
Hillary and Barack Obama, when in fact we thought they were supposed to
be bashing John McCain.
GEORGE SOROS: I think this is typical of politics, and I
happen to be
actually an admirer of Hillary Clinton as a policy person, but I think
that she is carrying this will to win a little too far.
GEORGE NEGUS: Right, do you think it matters in terms of
things like
the war on terror, the war on poverty, climate change and now this
credit problem? Do you think there is anybody who could be in the White
House who could get on top of those problems or are they too big?
GEORGE SOROS: Actually, I think that either Obama or Clinton -
and I
think it's going to be Obama - will bring a breath of fresh air, and I
think that there has been a significant change in Australia, and I
think there will be an even more significant change in America. And I
think the world very much needs a different kind of American
leadership. And I think that is what you are going to get, hopefully,
after the elections.
GEORGE NEGUS: So that's an optimistic note to end on.
GEORGE SOROS: Yes.
GEORGE NEGUS: Anyhow, thanks again. Always good to see you.
GEORGE SOROS: Good, good.