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The New Paradigm for Financial Markets, by George Soros

By an everyday book reader
October 11, 2008

In explaining why we had the tremendous rise in housing prices and then the plummeting of housing prices, George Soros, the respected economist, puts the responsibility on the financial industry for the bubble, both the rise and fall of prices. He explains, "Banks give you credit based on the value of the houses. But they don't seem to somehow understand that the value of the houses can be affected by the amount of credit they are willing to give."

George doesn't believe that economies will self-adjust. Nor does he think the financial industry should police itself. He points out that "...this belief that everybody pursuing his self-interests will maximize the common interests or will take care of the common interests is a false idea. It's a suitable idea for those who are rich, who are successful, who are powerful. It suits them to justify you know, enjoying the fruits without paying taxes."

Most commentators agree that the freezing of credit, tied to a lack of confidence in the economy — among banks, investors and consumers alike — are key problems threatening to push the world into a recession. The near-daily, sweeping interventions improvised by governments in the United States and across the globe are attempts to halt the break-down of the financial system and restore the faith needed for credit to start moving again.

In this book, George Soros explains the credit crisis through the lens of his conception of financial markets and human affairs.

The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means
by George SorosBook Picture

Softcover: 208 pages
ISBN: 978-1586486990, 1586486837
May 2008

This book provides a helpful and easy to understand theory that the author calls "reflexivity." What we are seeing, according to Soros, is not just the deflation of the housing bubble, but that of a much bigger "super-bubble" twenty-five years in the making. Based on too much credit and too little regulation, the super-bubble has supported an unsustainable world order, where the United States consumes more than it produces. Many of us know that we are consuming too much but few of us really know how we became that type of society.

George Soros takes the mystery out of what has happened and shows how the reshifting of priorities and consequences was not an accident. Many knew - and approved years ago - of the direction the deregulation was taking us in.

And what about solutions? In his interview with Bill Moyers, Soros lays out several short-term prescriptions for dealing with the crisis, one of which — directly injecting cash into banks in exchange for a share of the company — was authorized in the $700 billion bailout, and is being considered by the US Treasury.

In the midst of the most serious financial upheaval since the Great Depression, legendary financier George Soros explores the origins of the crisis and its implications for the future. Soros, whose breadth of experience in financial markets is unrivaled, places the current crisis in the context of decades of study of how individuals and institutions handle the boom and bust cycles that now dominate global economic activity.

“This is the worst financial crisis since the 1930s,” writes Soros in characterizing the scale of financial distress spreading across Wall Street and other financial centers around the world.

"In short, the standard economic assumption that supply and demand drive prices is only a starting point for understanding financial markets. In boom-bust cycles, the textbook theory is not just slightly inaccurate but totally wrong. This is the main argument made by George Soros in his fascinating book on the credit crunch, The New Paradigm for Financial Markets, launched at an LSE lecture last night.” - The London Times

In a concise essay that combines practical insight with philosophical depth, Soros makes an invaluable contribution to our understanding of the great credit crisis and its implications for our nation and the world.

“Brilliant…examines a complex problem with both insight and philosophical depth….A much-needed contribution that should help many of us better understand the great credit crisis and what it means, not just for the United States but the entire world.” - Tucson Citizen

Soros was born in Budapest, Hungary, in 1930. His father was taken prisoner during World War I and eventually fled from captivity in Russia to reunite with his family in Budapest. Soros was thirteen years old when Hitler's Wehrmacht seized Hungary and began deporting the country's Jews to extermination camps. In 1946, as the Soviet Union was taking control of the country, Soros attended a conference in the West and defected. He emigrated in 1947 to England, supported himself by working as a railroad porter and a restaurant waiter, graduated in 1952 from the London School of Economics, and obtained an entry-level position with an investment bank.

In 1956, Soros immigrated to the United States, working as a trader and analyst until 1963. During that time, he developed his own theory of markets called 'reflexivity', which he has laid out in his recent books THE ALCHEMY OF FINANCE and THE CREDIT CRISIS OF 2008 AND WHAT IT MEANS. In 1967 he helped establish an offshore investment fund; and in 1973 he set up a private investment firm that eventually evolved into the Quantum Fund, one of the first hedge funds, through which he accumulated a vast fortune.

Soros is a self-described student of Karl Popper, and strong opponent of totalitarianism. He has devoted much time to philanthropy — among other projects, founding the Open Society Institute in 1993 — and, after 2001, to US domestic politics, donating millions of dollars to Democratic candidates and liberal 527 organizations and earning political enmity in the process.

Soros has published numerous books. His essays on politics, society, and economics appear frequently in major periodicals around the world.

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