Posted on 02/21/2009 11:37:14 PM PST by TigerLikesRooster
George Soros finally gets it
February 21, 2009 – 1:56 pm
Three weeks ago, the positively schizophrenic Op-Ed page for the WSJ published yet another piece by a big financial brain proposing a “solution” to the financial crisis. While the editorial page itself is so rigidly ideological as to be useless, the op-ed page publishes stuff all over the map. The only common attribute seems to be a big-name byline. Once in a while you’ll get a thoughtful, nuanced and hard-hitting piece by Shelby Steele or Judy Shelton, for instance; occasionally, one of the big names will actually say something intelligent AND non-conventional (Dick Armey). More often, however, it publishes tripe masquerading as erudition. Glenn Hubbard claiming low-interest mortgages will solve the housing crisis; Martin Feldstein—the Republican’s answer to Paul Krugman—saying “defense spending would be great stimulus;” and Soros talking up his “side pocket” solution:
The trick [to solving the bank crisis] is not to remove the toxic assets from the banks’ balance sheets but instead put them into a “side pocket,” as hedge funds are doing with their illiquid assets. The appropriate amount of capital — equity and unsecured debentures — would be sequestered in the side pocket.
This would cleanse bank balance sheets and transform them into good banks but leave them undercapitalized. The same $1 trillion that is now destined to fund the bad bank could then be used to infuse capital into the good banks.
Though he says it isn’t an off-balance sheet solution, Soros’s “side-pocket” gimmick sounds an awful lot like similar plans (mostly failures) dating back to 2007. Remember Hank Paulson’s Master Liquidity Enhancement Conduit (the “Super-SIV”). That one never got off the ground. And neither did TARP 1.0, which was supposed to use taxpayer funds to buy bad assets. Instead TARP money was diverted into purchases of preferred equity. Soros might object to my comparing his solution to these other failures. Okay. How about Lehman’s plan to carve out bad assets into a new real estate entity? The company was bankrupt inside of a week.
Soros, who published the above on February 4th, is a veritable financial genius, so I have to assume he’s just not paying attention: the reason all of these off-balance sheet gimmicks are non-starters is because the losses are just too big. The “appropriate amount of capital” is so high it simply doesn’t exist. With the whole economy up to its eyeballs in debt, and suffering from a classic debt-deflationary spiral, the value of “toxic assets” is already in the trillions and continues to grow.
Soros appears to be suffering the illiquidity delusion. He seems to be in the camp that says if we can just “unclog” bank balance sheets then we’ll get credit “flowing again.” But the problem isn’t a lack of liquidity, it’s insolvency. A gangrenous leg can’t be “fixed” with blood transfusions. The only “solution” is amputation.
Anyway, only three weeks after arguing “side-pockets” were the magic bullet, Soros now sounds downright despondent. Reuters:
Renowned investor George Soros said on Friday 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.
He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.
“We witnessed the collapse of the financial system,” Soros said at a Columbia University dinner. “It was placed on life support, and it’s still on life support. There’s no sign that we are anywhere near a bottom.”
Three weeks ago George thought all we needed was a little financial engineering. Now he sees “no prospect” of resolution and says we’re falling like the Soviet Union. What changed? My guess is that George finally started to think outside the box; he put his big brain to work thinking about the very foundation of our economic system and realized it’s broken.
Why highlight this particular flip-flop with a blog post? I think it’s emblematic, and not in a good way.
I continue to be struck by the level of ignorance among our captains of industry, our leading politicians, our financial elite and, most ominously, our economic “experts.” Few appear to recognize the depth of the crisis we face. Most still aren’t prepared to ask the hard, fundamental questions about our economic system. Anyone who mentions the gold standard, for instance, is treated as a novelty. Nevermind that fractional reserve banking—or perhaps our central bankers’ management of it—is the most important contributing factor to the crisis..
The problem, I think, is that so many of our leaders are tied immovably to legacy ways of doing business. A man will make himself believe most anything if his salary depends on it. Lots of salaries are at risk, so lots of heels are digging themselves in.
Anyway, as I’ve argued for awhile, the only way to “solve” the crisis is to let asset prices fall. And that means the balance sheets on which those assets currently reside need to recognize substantial losses. Call it the “Fight Club” solution*—everyone goes back to $0. This would be highly painful for ALL Americans. But it would be most painful for those with the most to lose…
It will make it so much easier to stomach when we see them on meathooks.
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I have some rope, but there are no trees out here in the desert.
Treat Soros like that guy in Silence of the Lambs, Soros is far more destructive.
Financial Genius, shit, he got lucky...Social philsopher, he REALLY sucks.
His depression makes the following point: THERE ARE TWO BANKING WORLDS: INTERNATIONAL AND DOMESTIC. IN AMERICA, DOMESTIC BANKS ARE IN FAR BETTER SHAPE THAN THE BIG INTERNATIONAL BANKS. START THERE, SOROS. BUT, NO, YOU ARE SO BLINDED BY THE INTERNATIONAL CRAP AND FOCUSED ON THE NEGATIVE, YOU DON’T WANT TO LOOK AT WHAT IS IN GOOD SHAPE.
Well, there's always this solution.
Cheers!
Americans agree.
Bingo
Absolutely.
George Soros is evil to the core. His position is to support BO and destroy the Nation...should have been run out of the country long ago.
Losses need to be taken, values need to fall, with fractional banking I’m not actually sure who takes the losses but I think it is mostly the banks, the money changers.
The ledger needs to be reset.
Can someone post the picture of Soros getting nailed with a cream pie...
I’m waiting for him to really get it .... what’s coming to him for ruining this country. Gehenna.
It would take Ian Fleming and Ayn Rand working together to create a character as irredeemably evil and as utterly banal as George Soros. The man has collaborated with two of the most evil forces that the 20th century had to offer, and seems undeterred by their defeat.
ping.
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