Negus Media InternationalNMICopyright © Mark Rogers Photography
photos

Interviews

Conference Facilitator

Back to Interview Archive


Negus Media International
FURTHER INFORMATION:

Kirsty Cockburn
kirsty@negusmedia.com.au
Sydney Office:
Ph: (61) 2 9818 3537
Fax: (61) 2 9818 3854
Mobile: 0427 122396

Regional Office:
989 Promised Land Road
via Bellingen NSW 2454

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.