George soros brings in an unbiased perspective of impact of current events in capital markets and shifting paradigms of dominance from US to other countries A must read for global citizens

Soros, the master manipulator, takes the reader on a journey through market machinations that have landed us in our current predicament, himself no doubt a shrewd but willing participant in the wild ride. However, he fails to give sufficient weight to the outright fraud that has riddled the mortgage market over the last five years. Every single excess in the financial markets over the last 30 years can be traced to corruption, fraud and outright theft. Our current meltdown? Lies on the mortgage applications, lies on the financial statements, lies on the appraisals, lies and misrepresentations in the rating agencies, etc. etc.

I was surprised how poor a writer Mr. Soros is. He should have had someone ghost write it for him His concepts were not fully developed in an understandable way. The conclusion I came to is that his success comes more from his "back pains" than in definalble concepts.

This 208 page book might be thought of as Cliff Notes for his previous 367 page book, The Alchemy of Finance, and will appeal to the same audience. During the 21 years between the books, Soros has mellowed somewhat and now describes his extreme Popperian position as radical falsification. I think he fears being called a skeptic. We know what happened to Socrates.

Soros continues to refine and advocate his philosophy of Reflexivity. For this book Soros acknowledges the editorial help from philosopher Colin McGinn. A career in academic philosophy begins with critical appraisal of prior work, followed by the creation of a new paradigm with a unique language and definitions. The philosophic basis for his market insights deserves its own book which might be called The Epistemological Roots of Reflexivity.

Soros defines Reflexivity as a fuzzy connection between knowledge and reality, belief and action, individual action and group behavior. We perceive reality within a context of prior knowledge. Our knowledge leads to actions which influence reality and produce new knowledge which leads to new actions. In engineering this is called a feedback loop and when the feedback gain is positive it produces an unstable system. In financial markets a positive feedback loop produces increased volatility, a boom and a bust.

Reflexivity is not unique to finance and appears in many walks of life including warfare and medicine. In warfare an officer makes decisions based on incomplete and perhaps false information, knowing that any action will change reality and demand new knowledge, decisions and actions. In medicine there is an unresolved problem of patient informed consent. The physician explains the diagnosis and treatment to the patient. The patient relates this new knowledge to his reality, hopes and fears, perhaps missing some important nuances and facts. The patient's imperfect knowledge impacts a series of choices as additional information and treatment are provided by the physician.

Soros dislikes the concepts of market equilibrium and probably does not support the strong and the weak form of the Efficient Market Hypothesis. His world view is more like the recursive loops described by philosopher Douglas R. Hofstadter.

Soros ends his book with an entry dated March 23, 2008. The financial markets continue to unravel. He admits that his Foundation portfolio has a slight year-to-date loss. Although he discusses oil, housing, currency, Europe and Asia, he omits other commodities and countries. Perhaps Soros has a unique problem with Reflexivity. Soros has such world fame that any prognostication will surely affect financial markets.

This 162 page book might be thought of as Cliff Notes for his previous 416 page book, The Alchemy of Finance, and will appeal to the same audience. Over the 14 years between the books, Soros has mellowed somewhat and now describes his extreme Popperian position as radical falsification. I think he fears being called a skeptic. We know what happened to Socrates.

Soros continues to refine and advocate his philosophy of Reflexivity. For this book Soros acknowledges the editorial help from philosopher Colin McGinn. A career in academic philosophy begins with critical appraisal of prior work, followed by the creation of a new paradigm with a unique language and definitions. The philosophic basis for his market insights deserves its own book which might be called The Epistemological Roots of Reflexivity.

Soros defines Reflexivity as a fuzzy connection between knowledge and reality, belief and action. We observe reality within a context of prior knowledge. Our knowledge leads to actions which influence reality and produce new knowledge which leads to new actions. In engineering this is called a feedback loop and when the value is positive it produces an unstable system. In financial markets a positive feedback loop produces a boom and a bust.

Reflexivity is not unique to finance and appears in many walks of life including warfare and medicine. In warfare an officer makes decisions based on incomplete and perhaps false information, knowing that any action will change reality and demand new knowledge, decisions and actions. In medicine there is an unresolved problem of patient informed consent. The physician explains the diagnosis and treatment to the patient. The patient relates this new knowledge to his reality, hopes and fears, perhaps missing some important nuances and facts. The patient's imperfect knowledge impacts a series of choices as additional information and treatment are provided by the physician.

Soros dislikes the concepts of market equilibrium and probably does not support the strong and the weak form of the Efficient Market Hypothesis. His world is more like the recursive loops described by philosopher Douglas R. Hofstadter.

Soros ends his book with an entry dated March 23, 2008. The equity markets continue to unravel. He admits that his Foundation portfolio has a slight year-to-date loss. Although he discusses oil, housing, currency, Europe and Asia, he omits other commodities and countries. Perhaps Soros has a unique problem with Reflexivity. Soros has such world fame that any prognostication will surely affect markets.

The "bad news" about George Soros is that he wants to be known as a philosopher, and fills "The New Paradigm for Financial Markets" with arcane language in that pursuit. The "good news" is that the book is worth plowing through.

Soros opens with "This is the worst crisis since the Great Depression," and goes on to explore its origins and implications. Soros sees the housing bubble as not merely another bubble bursting, but also the end of a "super-bubble" that has covered the last 25 years or so. This super-bubble is caused by a prevailing credit expansion, accompanied by the Fed bailing out investors one crisis after another (creating a moral hazard), along with an increasingly laissez-faire market environment. Globalization further encouraged the super-bubble as the U.S. (via IMF and World Bank positions) forced developing nations to adhere to cyclical policies while bending the rules for itself - thus creating a higher-yielding haven in the U.S. for investors in those nations. Reagan-era deficits also served as a source of credit expansion. Still another was the new financial instruments and greater use of leverage by banks and hedge funds.

The housing bubble had its origins in the late 2000 bursting of the Internet bubble, followed by 9/11. The Federal funds rate went from 6.5% to 1% (7/03); for 31 consecutive months the base short-term rate was negative. The bubble was also fueled by new vehicles to keep positions off balance sheets and shift risks to eg. pension and mutual funds. Meanwhile, rising home values boosted asset values on banks' balance sheets, prompting them to loan more. Prices rose still further, etc., etc.

Half of GDP growth in the first half of 2005 was housing related (includes indirect effect of spending cash from refinanced mortgages). Forty percent of homes purchased in 2005 were investments or 2nd homes. Since income growth during that period was anemic, loans required increasingly strained ingenuity to qualify those involved. Complex mortgage-protection deals reached $43 trillion (1.5% margin requirements), vs. a U.S. stock market capitalization of $18.5 trillion, U.S. treasuries only $4.5 trillion; obviously the "protection" was superficial at best. Collapse of the housing bubble is now leading to an increasingly unwillingness of other nations to continue holding dollars.

Why the repetitive bubbles? Soros contends that financial markets are not perfect - in fact, they are usually wrong. The problems began in the '70s when defense conglomerates saw their earnings falling with the end of the Vietnam War, so they used their then still high-multiples to acquire other firms, creating the ILLUSION of sustainable earnings growth. Eventually the acquisitions required to sustain the growth were too large to pass even a limited perception of reality; at the same time, accounting shenanigans began coming to light, a recession loomed, and it all collapsed. Basically the same thing with REITs - accompanied by ever relaxation of lending and regulatory standards, and expansion of loan-to-value ratios, LTCM, international markets (Russian Ruble, Mexican Peso, etc.).

Soros confuses his discourse with an extended discussion of "reflexivity" - a term he never well defines, though I sense he means the trend-following habits of speculators. Alternatively, the "bigger fool" theory is a much simpler and similar explanation, though not as inclusive.

A brief review of Soros' investments over the years suggests he has made billions investing on the front-end of over-shooting bubbles, and shorting their similarly over-reacting down-sides.

Where do we go from here? Soros believes that credit conditions have been relaxed so far it is difficult to see how they could continue as such. (However, he also admits being wrong in the past, and also sees printing more money as an option. The latter, however, is somewhat inhibited by existing popular outcries against rising oil prices and other commodities - especially food.) He also believes regulatory authorities need to prohibit financing mechanisms that are beyond basic comprehension. The 2008 market will go below 2007's low. About 40% of subprime loans and ARMs will default over the next 2+ years - housing prices will need to decline over 20% to clear the market, and government intervention is essential. Unfortunately, Soros does not comment on what would happen if Asian and Arab states stop holding dollars.

What's Soros doing now? He's short on U.S. and European stocks, U.S. ten-year government bonds, and the dollar; long on Chinese, Indian and Gulf States stocks (even though he sees them as overvalued) and non-US currencies (China's in particular seems guaranteed to rise).

The "bad news" about George Soros is that he wants to be known as a philosopher, and fills "The New Paradigm for Financial Markets" with arcane language in that pursuit. The "good news" is that the book is worth plowing through.

Soros opens with "This is the worst crisis since the Great Depression," and goes on to explore its origins and implications. Soros sees the housing bubble as not merely another bubble bursting, but also the end of a "super-bubble" that has covered the last 25 years or so. This super-bubble is caused by a prevailing credit expansion, accompanied by the Fed bailing out investors one crisis after another (creating a moral hazard), along with an increasingly laissez-faire market environment. Globalization further encouraged the super-bubble as the U.S. (via IMF and World Bank positions) forced developing nations to adhere to cyclical policies while bending the rules for itself - thus creating a higher-yielding haven in the U.S. for investors in those nations. Reagan-era deficits also served as a source of credit expansion. Still another was the new financial instruments and greater use of leverage by banks and hedge funds.

The housing bubble had its origins in the late 2000 bursting of the Internet bubble, followed by 9/11. The Federal funds rate went from 6.5% to 1% (7/03); for 31 consecutive months the base short-term rate was negative. The bubble was also fueled by new vehicles to keep positions off balance sheets and shift risks to eg. pension and mutual funds. Meanwhile, rising home values boosted asset values on banks' balance sheets, prompting them to loan more. Prices rose still further, etc., etc.

Half of GDP growth in the first half of 2005 was housing related (includes indirect effect of spending cash from refinanced mortgages). Forty percent of homes purchased in 2005 were investments or 2nd homes. Since income growth during that period was anemic, loans required increasingly strained ingenuity to qualify those involved. Complex mortgage-protection deals reached $43 trillion (1.5% margin requirements), vs. a U.S. stock market capitalization of $18.5 trillion, U.S. treasuries only $4.5 trillion; obviously the "protection" was superficial at best. Collapse of the housing bubble is now leading to an increasingly unwillingness of other nations to continue holding dollars.

Why the repetitive bubbles? Soros contends that financial markets are not perfect - in fact, they are usually wrong. The problems began in the '70s when defense conglomerates saw their earnings falling with the end of the Vietnam War, so they used their then still high-multiples to acquire other firms, creating the ILLUSION of sustainable earnings growth. Eventually the acquisitions required to sustain the growth were too large to pass even a limited perception of reality; at the same time, accounting shenanigans began coming to light, a recession loomed, and it all collapsed. Basically the same thing with REITs - accompanied by ever relaxation of lending and regulatory standards, and expansion of loan-to-value ratios, LTCM, international markets (Russian Ruble, Mexican Peso, etc.).

Soros confuses his discourse with an extended discussion of "reflexivity" - a term he never well defines, though I sense he means the trend-following habits of speculators. Alternatively, the "bigger fool" theory is a much simpler and similar explanation, though not as inclusive.

A brief review of Soros' investments over the years suggests he has made billions investing on the front-end of over-shooting bubbles, and shorting their similarly over-reacting down-sides.

Where do we go from here? Soros believes that credit conditions have been relaxed so far it is difficult to see how they could continue as such. (However, he also admits being wrong in the past, and also sees printing more money as an option. The latter, however, is somewhat inhibited by existing popular outcries against rising oil prices and other commodities.) He also believes regulatory authorities need to prohibit financing mechanisms that are beyond basic comprehension. The 2008 market will go below 2007's low. About 40% of subprime loans and ARMs will default over the next 2+ years - housing prices will need to decline over 20% to clear the market, and government intervention is essential. Unfortunately, Soros does not comment on what would happen if Asian and Arab states stop holding dollars.

What's Soros doing now? He's short on U.S. and European stocks, U.S. ten-year government bonds, and the dollar; long on Chinese, Indian and Gulf States stocks (even though he sees them as overvalued) and non-US currencies (China's in particular seems guaranteed to rise).

The "bad news" about George Soros is that he wants to be known as a philosopher, and fills "The New Paradigm for Financial Markets" with arcane language in that pursuit. The "good news" is that the book is worth plowing through.

Soros opens with "This is the worst crisis since the Great Depression," and goes on to explore its origins and implications. Soros sees the housing bubble as not merely another bubble bursting, but also the end of a "super-bubble" that has covered the last 25 years or so. This super-bubble is a prevailing credit expansion, accompanied by the Fed bailing out investors on crisis after another (creating a moral hazard), along with an increasingly laissez-faire market environment. Globalization further encouraged the super-bubble as the U.S. (via IMF and World Bank positions) forced developing nations to adhere to cyclical policies while bending the rules for itself - thus creating a higher-yielding haven in the U.S. for investors in those nations. Reagan-era deficits also served as a source of credit expansion. Still another was the new financial instruments and greater use of leverage by banks and hedge funds.

The housing bubble had its origins in the late 2000 bursting of the Internet bubble, followed by 9/11. The Federal funds rate went from 6.5% to 1% (7/03); for 31 consecutive months the base short-term rate was negative. The bubble was also fueled by new vehicles to keep positions off balance sheets and shift risks to eg. pension and mutual funds. Meanwhile, rising home values boosted asset values on banks' balance sheets, prompting them to loan more. Prices rose still further, etc., etc.

Half of GDP growth in the first half of 2005 was housing related (includes indirect spending of cash from refinancing mortgages). Forty percent of homes purchased in 2005 were investments or 2nd homes. Since income growth during that period was anemic, loans required increasingly strained ingenuity to qualify those involved. Complex mortgage-protection deals reached $43 trillion (1.5% margin requirements), vs. a U.S. stock market capitalization of $18.5 trillion, U.S. treasuries only $4.5 trillion. Collapse of the housing bubble is now leading to an increasingly unwillingness of other nations to continue holding dollars.

Why the repetitive bubbles? Soros contends that financial markets are not perfect - in fact, they are usually wrong. The problems began in the '70s when defense conglomerates saw their earnings falling with the Vietnam War end, so used their then still high-multiples to acquire other firms, creating the ILLUSION of sustainable earnings growth. Eventually the acquisitions required to sustain the growth were too large to pass even a limited perception of reality; at the same time, accounting shenanigans began coming to light, a recession loomed, and it all collapsed. Basically the same thing with REITs - accompanied by ever relaxation of lending and regulatory standards, expansion of loan-to-value ratios), LTCM, international markets (Russian Ruble, Mexican Peso, etc.). (Soros confuses the issue with an extended discussion of "reflexivity" - a term he never well defines, though I sense he means the trend-following habits of speculators; alternatively, the "bigger fool" theory is much simpler, though not as inclusive. A brief review of Soros' investments over the years suggests he has made billions investing on the front-end of over-shooting bubbles, and shorting on their similarly over-reacting down-side.)

Where do we go from here? Soros believes that credit conditions have been relaxed so far it is difficult to see how they could continue as such. (However, he also admits being wrong in the past, and also sees printing more money as an option. The latter, however, is somewhat inhibited by existing popular outcries against rising oil prices and other commodities.) He also believes regulatory authorities need to prohibit financing mechanisms that are beyond basic comprehension. About 40% of subprime loans and ARMs will default over the next 2+ years - housing prices will need to decline over 20% to clear the market, and government intervention is essential. Unfortunately, Soros does not comment on what would happen if Asian and Arab states stop holding dollars.

What is Soros doing himself? He's short U.S. and European stocks, U.S. ten-year government bonds, and the dollar; long Chinese, Indian and Gulf States stocks (even though he sees them as overvalued) and non-US currencies (China's in particular seems guaranteed to rise).

Mr. Soros' philosophical rumblings are unbearable. His understanding of economics does not go beyond economics 101, yet he pontificates about the shortcomings of economics and all other financial market theories.

His own theory of reflexivity (what economists call endogeneity) does not provide any actionable insights and really is not a theory but intellectual diarrhea.

His analysis of recent financial events is rather pedestrian.

Do not buy this book.

I saw Mr. Soros testify before Washington State (home state of my favorite soccer goal keeper) Sen. Maria Cantwell's committee the other day (on TV, of course) concerning possible oil futures speculation. I was impressed with Senator Cantwell (although we'd agree on little, policy-wise) and with Mr. Soros (despite myself). So I picked up this book to see what he had to say on the central economic issue of the day.

I won't bash the book, exactly, but it was pretty rambling, pretty repetitive, and spent a considerably longer time trying to defend/explain his theory of "reflectivity" and bashing Republican politics than discussing the credit crisis. Still it offered some useful points and observations. It's personal account of worlwide historical financial events that Mr. Soros himself not only lived through but participated in as well as a concise account of the events that comprise the subprime mortgage meltdown were themselves worth, in my view, the price of admission.

In the end, though, the central theme of the book, it's overarching structure, is Mr. Soro's longstanding theorem about "reflectivity" in financial markets. He maintains that both the factual "reality" and the participants' resort to emotional facilities as a result of imperfect informational access interact with each other in a kind of feedback loop. As a result of this "reflectivity" serious degrees of uncertainty are injected into the marketplace that are not predicted by "classical" economic theories of "rationality" or "equilibrium". This, he says, invalidates market models based on those classic concepts. What to do about that, of course, he's not quite so clear about, except, perhaps, you should vote Democratic (his advice, not mine).

Unfortunately by his own analysis, this theorem is unsatisfactory as anything other than a cautionary alarm bell. By it's own definition and assertion it is untestable and (in the terms of one of Mr. Soros's own favorite philosophers, Karl Popper) incapable of falsification. Since it's prime tenent is that it's unpredictable and not even of consistent relevance in any given situation, it is roughly akin to the statement of Cretan philosopher, Epimenides, (quoted by Soros himself) that "all Cretans always lie". If, claiming unpredictablility, "reflectivity" yields accurate predictions, it is false.

Nassim Nicholas Taleb has called these same kind of events as said to be caused by "reflectivity" black swans. Inductive reasoning in financial markets has led to some frightening financial meltdowns. Having seen only white swans (even in their hundred thousands) and therefore betting the ranch there ARE only white ones is a sound foundation for disaster. Mr. Taleb helpfully also points out that somewhere downunder there are, in fact, black swans.

Benoit Mandelbrot has suggested that his fractile geometry, rather than bell curves, is a better financial model and, in fact, perhaps allows for better predictability. Don't know about that. The intersection between regulators and markets that Mr. Soros rather convincingly argues must be, at least in part, responsible for the subprime mortgage meltdown, doesn't strike me as a geometric intersection, fractile or otherwise. And besides, Herr Doktor Mandelbrot's math is WAY beyond my (or I'd postulate any other non genius math brain's) comprehension.

For me though, the persuasiveness of Mr. Soros's point about unpredictablity and odd shaped (non bell) curves can be found in the seminal work of William James, who demonstrated 100 years ago what every good salesman has always known (at least by instinct, if not overtly): that human beings ACT on feelings and use their intellectual reasoning to rationalize the result. I would accept, a priori, that no single individual actor in today's complex financial markets in our globally interwoven world can possibly know all the relevant facts about any one proposed action therein. Thus he must have imperfect information. And even as among the myriad of facts he does "know", he will use his experience, his intuition based on it and on the recounted experiences of those he has learned to trust, to value those various factual inputs.

I would submit (and I don't think Mr. Soros would raise too strenous an objection) that gernerally speaking, in a broad enough marketplace, all those individual "emotional" decisions ought to cancel each other out to a degree that would render them indistinguishable for practical purposes from randomness. Perhaps not perfect bell curves (some fat tails and modified kurtosis), but within acceptable (and perhaps hedgeable) limits.

But humans are also herd animals (we, however, call them tribes), and that instinct is a survival trait and still strong. One need only contemplate the blowing of a single car horn on a gridlocked highway that is inevitably followed in nanoseconds by hundreds more, to understand it's continued pervasive presence. When that happens in financial affairs, when smart guys get afraid of being left behind the "easy" money, when they can't stand the other tribe harvesting all that golden fleese or bear the thought of some young ambitious upstart taking over their hard won desk by merely following sombody else's playbook (what have you done for me lately says the boss), then homework vanishes. Smart guy follows smart guy in a kind of stampede. Risk of loss no longer matters or is outweighed by the risk of being stranded alone. Each of us (no I'm not a trader, but empathy demands the collective pronoun) falls all over ourselves to steal candy from the blind confectioner, never mind that we know that the poison pill is there in one of those jars on one of those shelves. It won't happen to me, we say. I'm too smart, I'll see it coming, I'll get away. This time it'll be different. We rationalize the emotional decision to chase after the leaders, to blow our horn, too.

This is far too long, let me try to wind up. In this crisis surely whole truckloads of the "smartest guys in the room" demonstrated levels of greed, arrogance, and impaired judgment that, despite being all too human (to borrow a phrase from Nietzsche, who seems particularly apt in this context) are still, in retrospect, shocking. Still, "free markets" provide efficiencies and multiplicities of choice that cannot be duplicated (or even approached) by any central planner or micromanaging regulator. But when these herd markets fail as spectacularly as they have here, the individualist free marketer along with the "reflectivist" (if I may be so bold as to lable Mr. Soros) are both left wanting a better way, a better regulatory system, for keeping these rampaging smart guys from trampling in their passing our own hard won little (in my case) or not so little (in Mr. Soros's) net eggs. This is a thoughtful book. Even just trying to "deconstruct" it may lead you down interesting thoughtways.

this book is not about the credit crunch and what it means...i think the publisher has to use that title to attract buyers....mr. soros just writes whatever that interests him. this book is about either himself or philosophy, not much about the credit crisis itself...it isn't really a finance book..i enjoy philosophy a lot, so it was okay for me. the title is indeed very misleading

All the discussion about the "crash" by a billionaire of dubious motives...misses the obvious. The "crash" was created in the first 4 months of Bernanke's 14 year New Term as Head of the Fed. He raised rates 2 percentage points over these first 4 months of his term (Sept 2006 to Jan 2007). Then was boasting in January 2007 he would raise them yet again. Now keep in mind that millions of people were "SOLD" creative financing of all types since 2001 by the very banks that crashed. All of these creative loans revolved around Adjustable rates that would only benefit the banks when rates went up. Sounds like everyone got a little greedy to me. They got their payback. Unfortunately, it hurt the average home buyer, who bought in believing in the High prices created by the Lowered rates since 2001 by Greenspan would continue and they would be out in the cold without a home. Please note that homes in the Bay Area of CA went up from an average price of $250,000 in 2001 to $650,000 in 2006. Most thought that this price hike was due to increased demand. It was created by low rates of Greenspan. Please note that the government indexes stated inflation during this period was 2% when it was really 300%
It is only too obvious. Benanke's group wanted to become part of the "Billionaire Club". It backfired on them; and all of us. The Adjustable rates which benefit the lenders only..backfired on the world.

Soros correctly shows that uncertain,indeterminate, changing expectations of the future ,based on incomplete,limited,and ambiguous knowledge and information,lead to multiple equilibria( and not a unique,single ,stationary ,stable equilibrium around which plus and minus standard deviations of prices cancel themselves out.However,this has already been done.It was done by J M Keynes in 1936 in his General Theory.Keynes's technical analysis was done in chapters 20 and 21 of the GT.Keynes analyzed the interaction and feedback effects of his expected aggregate demand(D) and supply(Z) curves in these chapters in his D-Z model.Unfortunately,no economist in the 20th or 21st century has been able to figure out what it was that Keynes did in these chapters.The main problem for economists is that they are unable to integrate the derivatives,either on pp.283-284 of the GT or in footnote 2 on pp.55-56 of the GT,in order to derive Keynes's Z function,which incorporated profit expectations based on his chapter 26 presentation in his A Treatise on Probability.Keynes's D function incorporates price expectations.The actual results are determined by the chapter 10 Y-multiplier model.Only in the very special case where the expected prices from the D-Z model are equal to the actual prices from the Y-multiplier model, which must then be equal to the optimal prices embedded in the boundary of the Production Possiblities Frontier curve(PPF),will the neoclassical result,under the assumption of perfect and complete knowledge or the assumption that all prices changes in all markets are normally distributed(an assumption rejected by Keynes and proven to be false by Benoit Mandelbrot for over 50 years) actually occur.Soros needs to at least read Keynes's statements on p.xi and pp.293-294 of the GT in order to realize that Keynes is dealing with shifting equilibia and not static,stable ,unique equilibriums.Soros will then realize why his very similar theory has been rejected by ,and will continue to be rejected by,the economics profession in the same way that Keynes's theory was rejected.Soros is correct that the demand and supply curves(agregate demand and aggregate supply curves) are not independent of each other This is due to the fact that "The shape of the supply and demand curves cannot be taken as independently given because both of them incorporate the participants' expectations about events that are shaped by their own expectations.Nowhere is the role of expectations more clearly visible than in financial markets.Buy and sell decisions are based on expectations about future prices'and future prices,in turn,are contigent on present buy and sell prices"(Soros,p. 55).This leads one to conclude that "...how can we act with any degree of confidence when we may be wrong and our actions may have unintended adverse consequences ?"(Soros,p.46).This ,of course,leads to the desire to hold money in order to engage in purely speculative ,short run activities that allow one to avoid the unintended adverse consequences of investing in fixed capital goods in the face of constant financial and technological change over time.This is the conclusion of Keynes's theory of liquidity preference.It REQUIRES that(a) expectations be uncertain and indeterminate over time and (b)incorporates questions about the degree of confidence one has in existing estimates,as well as the disposition of the decision maker(his optimism and/or pessimism,ie.his "animal spirits").

Soros summarizes in the following manner:"I assert that there is a two-way connection between thinking and reality,when it operates simultaneously,introducing an element of uncertainty into the participants' thinking and an element of indeterminacy into the course of events.I call this two way connection reflexivity,and I assert that reflexivity distinguishes unique,historical developments from humdrum,everyday events."( Soros,p.51).Keynes would agree completely.


Soros needs to carefully read the GT(chapters 5,12,19,20,21,and 22) and the A Treatise on Probability( TP;1921-chapters 3,5,6,15,17,20,22,26,29,and 33) in order to show what in his theory is different from Keynes's theory of decision making under conditions of risk,ignorance, and uncertainty(Ellsberg's ambiguity) based on interval estimates of probabilities that are indeterminate.It can then be judged to what degree Soros has improved upon Keynes's approach.


However,Soros should expect that he will receive NO consideration from ANY economist,especially any economist who has been trained to analyze all consumer,producer,and pricing behavior as if it could be modeled as some sort of Normal probability distribution.(joint,bivariate,multivariate,log).

There are three books that should be read in order to begin to understand where we stand financially in the world today. Second and third are Soros' present book and Morris''The Trillion Dollar Meltdown'. The first and most basic is the one that I reviewed last year: Eichengreen's 'Globalizing Capital' by Eichengreen, but which amazon refused to post (see, however, amazon.de).

Eichengreen presents the history of the Dollar from the gold standard until convertibility was cancelled in 1971, and from early deregulation years through 1995. Specific details of recent financial history under deregulation, which we can and should date from 1971, are also usefully provided in Lewis' `Liars Poker' and Dunbar's `Inventing Money'. We can date the use of the Dollar as international default reserve currency since 1945, while the inflation of the worldwide credit bubble dates exactly from 1971 when the Dollar wa cut loose from gold, was 'deregulated'. Soros summarizes the necessary background history in highly capsulized but interesting form, and focus on the onset of deregulation to the present era of worldwide financial instability.

Soros covers the Reagan era of easy credit and big spending, and the systematic deletion of financial rules that had been set up under FDR as a result of the depression. Eichengreen correctly presents the Great Depression as a liquidity crisis that could have been avoided, we've had no depression since that time because central banks have provided adequate liquidity in financial crises. This money creation trick will not likely work now any longer now that shadow banking is the primary source of Dollars in the world. Soros' book tells the same story of the crimes committed in the name of market fundamentalism' (laissez faire) since 1971, but with some different emphasis and also with even more useful numbers provided for the readers' orientation than does Morris. He states, e.g., that CDSs (collateralized debt swaps), a synthetic option invented in Europe in the early 1990s, amounts to about $43 trillion, which is over three times M3. M3 includes all 'Dollars' (credit, etc) in the world that can be found on balance sheets, so 'shadow banking' now dominates everything. In stark contrast, U.S. household wealth is about the same number, the capitalization of the U.S. stock market is $18 trillion, and the U.S. treasuries market is about $5 trillion. Again, compare the numbers with M3 and you'll understand why the oil price in Dollars has exploded, and is still exploding.

The U.S. is now in a worse position financially than in the 19th century before printing money by commercial banks was outlawed. The U.S. can only hope to regain control of the Dollar if derivatives are regulated and shadow banking is outlawed, otherwise expect the oil price to continue to rise in the flood of dollars in the world.

Shadow banking, combined with the U.S. trade deficit, is the real reason that the Dollar is weak. The high price of oil in Dollars reflects not only the new demand for oil in Asia, epecially China, but moreseo because too many Dollars in the form of credit are circulating in the world. Under free trade rules, the U.S. trade deficit has exploded due to loss of manufacturing capacity to Asia, and is recycled back to Washington to finance the budget deficit (U.S. taxes are far too low) to the tune of half a trillion Dollars in interest paid largely to Beijing and Tokyo each year. It's quite clear that the U.S. taxpayer has not yet contributed to the cost of the Iraq war, that war is largely financed by loans from Beijing and Tokyo in recycled Dollars. Soros did not mention this directly, but he should have. Low taxes combined with deregulation are the reason for the fall of America to its present severely weakened state.

Soros is not less critical of deregulation and the prevailing belief in "market equilibrium" than is Morris, George began criticizing those ideas in his first book published in 1994. Included in his new book is the autobiography of both his early years and his life as a trader, this makes for very interesting reading! A quote from his son is hilarious. In an earlier interview, the son was asked by a reporter what he thought of his father's theory (of reflexivity). The son replied that he knew as a kid that it's at least half B.S., his father trades when his back hurts!

George Soros has a twenty year history warning against the prevailing belief in 'market fundamentalism' and the effects of extreme deregulation. Because of excessive Dollar creation under those illusions, the chickens have come home to roost, it's George's day now. I would only hope that the Democratic presidential candidate in the U.S. would have enough understanding and insight to appoint him, or someone with understanding of the instability of unregulated financial markets and unregulated free trade, as his top economic advisor.

Shadow banking, due to the totally unregulated derivatives market, amounts to at least three times M3. We face either depression (unlikely) or a Dollar plunging even deeper (likely) because more Dollars must be `printed' as credit to avoid a worldwide financial collapse worse (as Soros points out) than that of the Great Depression. Soros' idea of reflexitivity is qualitatively correct, the financial system is not inherently stable, it's inherently unstable. Free markets are not a stable self-regulating dynamical system! It can only be stabilized by adding regulations like those of the 1930s. Because of the inventiveness with which 'rocket sciences' can invent derivatives to avoid regulations, derivatives creation and trading must be strongly limited. Either that, or continue as we are now (consider $20/gallon of gasoline, and higher). Both Soros and Morris point out that Alan Greenspan, an ideological follower of the free market extremism of Ayn Rand ('Atlas Shrugged', 'The Fountainhead') absolutely refused to consider regulating derivatives and preventing the mortgage bubble.

It is never redundant to re-visit the basics, as they are the foundation.

This book is a great and succinct re- iteration of both theory of reflexivity and George Soros, the speculator.
Very enjoyable and intellectually stimulating. Hard to argue with.

This book was pretty short, so whether you end up liking it or not, it's not like you will have wasted much time in reading it.

Basically, George Soros is just explaining his perception of the economy as a linear, historical process rather than a series of cycles. I think he is trying to say that history does not repeat itself. My explanation may not be the greatest, but that's what I got out of it...

I think if you really want to know what is going to happen in the next year, don't expect too much from this particular book. On the other hand, if you are interested in gaining some perspective, understanding a different viewpoint, and maybe learning a few basics about the elements of finance and economics relevant to the credit crisis, it is a good book to read. It doesn't matter if you are a staunch Republican and can't stand George Soros' politics (I am most definitely not a Liberal, by the way). It will still provide some food for thought, and it would be a shame for political alignment to prevent any intelligent readers out there from reading a different point of view without getting upset.

Conclusion: read it to learn and gain perspective, not for economic forecasting.

I give 3 stars because it was pretty interesting, but not life-altering.

If you're looking for specifics on where to invest in 2008/2009, this isn't a book for you.

Book is short. Reflexivity is a nice idea/theorie, but he never shows a mathematical example. He does mention that the market participants can reinforce a trend and so on, explaining that markets don't go to equilibrium. He fails to mention natural disasters, drought, or market manipulation as other real world reasons that economic models don't work.

First half of the book gives you an idea of how he thinks, the past that has influenced his ideas, and good examples of the basis for the current credit crisis. There is a section on history of the markets, boom in 60s, stagflation 70s, reagan 80s, and so on...

Second half of the book is the meat. (Take note of the charts, very timely, and more informative than anything you'll see on the news) Lots of info and a timeline on the spread of the crisis. The pearl in all this, is that the economy runs on credit, and with credit lending damaged, basically even if the crisis is averted, limited credit will hamstring the economy for the next 3-7 years. (he does not draw any comparissons to Japan, which was a combo corporate and consumer credit bubble with a similar but worse fate. Lack of credit and slow growth occured in Japan in the 10 years afterwards... read "The bubble economy" for more on that.)

He busts on the current administration, lack of leadership etc. Well a real estate bubble and booming oil bubble while most other industries fall behind is nothing to be proud of... If he's right, and all we've done for the last eight years is create paper wealth and run a deficit, then we're going to pay for it over the next 8 years and it's gonna bite.

One thing I don't buy in what he writes... He talks about a super bubble, and it being based on US finance, since Bretton woods agreement etc... Historically economies expand during periods where scientific discoveries can be applied to industry or our everyday lives. Booms created by autos, railroads, electricity, computing, plastics/chemicals... Then we hit a bust. The Feds job is to offset the busts and the govt basically spends on infrastructure during the busts to keep everything going. Now that inovation, with a huge economy, and a sound military, is what gives the dollar, our goods, dominance on the world stage, not some piece of paper signed 50 years ago.

He is right in that the US is sucking in value right now, as wealth funds save the banks, and the Fed gives out credit to save the system. Basically anyone holding US Bonds overseas is taking a bath to keep our system going. I think it's this short term Dollar/Bank moves, that has him upset, but he's blaming Reagan for it... Eh... I think it's more a banking problem with the current administration turning a blind eye.

Look at it this way. If it wasn't for the housing bubble... adding 4% to GDP or more each year... We'd still be stuck in recession since 2000... Bushes big problem is that it just popped on his watch. Now they're mailing checks worth 1% GDP just to keep us "Technically" out of a recession... Buying time until someone else comes into office and then it's "Their problem"... LOL

No mention of the new financial markets in Dubai or oil trading there.

Does mention the Gulf Arab states now reinvesting in their own countries and industries... Which is really happening.

Say's he's bullish on China and India, that the china bubble is in there early stages... (I think it's late) and he looses money when their markets tank this year... At least he's honest and admits it.

Definately worth buying (used) but skip the first half of the book. Flip to page 79 and start there. Read ALL of the rest of it.

Soros has lost touch with the markets, is just about all I can add to "Read and Think"`s excellent review.

Just excellent!!! Soros puts into updated context his original concepts on International Reflecivity and a clear/understandable narrative on the impact of it. A must have book.

what reader's will gain

* a clear, concise explanation of the scope and causes of the subprime crisis.
* an introduction to soros's philosophy and worldview. he addresses reflexivity, fallibility, human uncertainty, the boom-bust model, and the open society.
* a few financial predictions. soros is at times cagey, but there are just enough predictions on currencies, asset classes and countries to satisfy the investor. nevertheless, specific financial forecasts are not the focus of this book.
* insight into human behavior, society, and politics. for example: soros foregrounds the need for inhabitants of an open society to value and reward truth over demagoguery. this is the ethos of science. somewhat conversely, politics values power over truth. the book also contains an excellent example of reflexivity at work: one person stating to another "you are my enemy."

new paradigm repeats some material from the alchemy of finance. nevertheless, the concision of the book, plus the plausible claim that it contains the author's best-yet exposition of his philosophy, make the repetition tolerable. i no longer feel any compulsion to finish alchemy, which i left in medias res to read new paradigm.


the book's flaws

some of the old, low-resolution diagrams from alchemy have found their way into new paradigm. these diagrams are difficult to read, especially in an e-book. i expected high-resolution, zoomable images. (by the way, there's a spelling error on p. 124, "sbome".)

soros is, at times, alternatively self-indulgent and self-nullifying. he occasionally reminds the reader that he is launching a philosophy career with his new book. he then proceeds to obliquely apologize for this self-indulgence. the book might have been better without such self-referential chatter. that said, it is somewhat comforting to see a self-nullifying billionaire who is willing to admit that he is "always wrong" and repeatedly corrects his perceptions to match reality (see his google talk).

readers will have to think carefully about reflexivity, human uncertainty and other elements of soros's philosophy. whether soros is right or wrong is secondary because, in your analysis of his work, you'll learn.


philosophical foibles

* soros builds reflexivity and the human uncertainty principle on the following foundations: strong epistemological skepticism (especially with regard to the possibility of knowledge about the future); a specific interpretation of the correspondence theory of truth; some of karl popper's conclusions. as a result, many of soros's arguments are susceptible to the same objections that can be raised against their foundations. (i won't get into those objections in this review. they are better tackled as problems of epistemology and philosophy.)
* soros waffles on market equilibrium. although he berates the efficient markets hypothesis, he nevertheless contends that markets are mean-reverting and easy to predict so long as they are not under the influence of reflexivity, which is relatively rare. soros then argues that, in reflexive situations, equilibrium becomes the exception rather than the rule. if reflexive situations are exceptional, doesn't that leave markets near equilibrium most of the time? in the long run, perhaps even boom-bust cycles are a form of self-regulation. the devastating effects of each bust engender a new generation of market cognoscenti. (soros himself may be living testimony to this idea. how much of his financial acumen derives from the nazi "bust" that marked his youth?) note that reflexive situations are the unruly ones that, in soros's eyes, necessitate market regulation. this brings us to the next point.
* why regulate? as soros himself admits--in alchemy, i believe--it is in reflexive situations that the greatest opportunity for profit lies. and yet these are precisely the unruly situations that he wishes to mitigate? that's an easy position for an already-made man. moreover, the human uncertainty principle seems to imply that more humans amounts to more uncertainty. so why should soros expect that adding human regulators to the market would tame its uncertainties? the solution is simple, but soros never produces it. i propose that regulators, if they are to act at all, should only work to limit the quantity of leverage available to market participants. regulators must never interfere in the direction of the market. or perhaps markets are best left completely unregulated. who or what can regulate with the efficiency of pain and euphoria?
* soros never explicitly addresses the relationship between size, reflexivity and human uncertainty. in physics, for instance, the uncertainty principle is significant at the quantum level, an infinitesimal scale. uncertainty has little bearing on macro events, such as dropping a 1kg rock from your hand. in somewhat inverted fashion, the broader market is scarcely influenced by the individual trader. since the typical trader cannot move the market, he can safely assume that his cognition of the market is independent from his participation. he can, in this particular instance, safely ignore reflexivity. on the flip side, and somewhat ironically, reflexivity emerges as a market-wide force once a critical number of market participants adopt the same bias. therefore reflexivity is applicable in some instances and not in others. those instances can be sorted along dimensions such as scale. to be fair, soros implicitly addresses some of the criticisms in this paragraph, but he would do better to treat them explicitly.


new directions

soros's philosophy would benefit from cross-pollination with a few ideas from computer science. namely the 'no free lunch' theorems (NFL theorems), chaitin randomness, and inductive bias. (this cross-pollination is somewhat perverse since soros criticizes economics and the social sciences for emulating the hard sciences. in soros's own mind, his theories are beyond the scope of the latter.)

soros writes about a peter principle of ideas: over-popular theories will one day be out of their own water. compare this to wolpert and macready (1997) on NFL in optimization: "for any algorithm, any elevated performance over one class of problems is exactly paid for in performance over another class."

in like fashion, the doctrine of fallibility, which holds that humans can never know the truth [about external reality], can be cast in terms of information theory. perhaps the world at large is too information-rich, or too "random"--these conditions are not mutually exclusive--to be contained in our smaller-than-world brains. perhaps the world and its markets contain chaitin-random-like information that is strictly larger than the brain's capacity. (a chaitin-random string of symbols cannot be compressed beneath its original size.)

lastly, note that soros bases his epistemological skepticism on the following reasoning:

insofar as a market participant confines his thinking to the facts, his thinking is insufficient to make decisions. insofar as a market participant's thinking is sufficient for decision making, it is not confined to the facts and therefore does not qualify as knowledge.

the above argument beautifully parallels the concept of inductive bias in machine learning. inductive bias is a necessary property of any classifier that is capable of creating a generalized hypothesis to classify instances in a problem space (e.g. a classifier might create a hypothesis to separate the class of blood results that are likely to indicate cancer from those that do not). a classifier with no inductive bias is confined to rote memorization. it can merely record all of the problem instances that it observes, but it cannot generalize about the problem space from which those instances are drawn. it cannot classify unseen problem instances. in machine learning inductive bias is baked into the pie of generalization in much the same way that transcending the facts is baked into the pie of market participation.

Most of what is written in this book is a repetition of "The Alchemy of Finance". The title is "the new paradigm for financial markets" but there is hardly any substantial discussion of this beyond the obvious. The reflexivity idea is pretty interesting and I think Mr. Soros should fund some scientists/engineers to put the idea on a more solid ground.

Soros is great.

Markets do not seek equilibrium. They tend towards boom and bust.

Government regulators have to gently keep markets in check. De-regulation is why we are in such a mess right now.

In August 2006 the risk manager of the home equity division of one of the largest banks in the United States collected his staff together and told them that the portfolio they manage had begun to exhibit dramatic losses. All the other banking institutions were beginning to exhibit similar losses he said, but that policies to be put in place will mitigate these losses and therefore "not to worry." He resigned his position only six months later, and at the time the mortgage losses throughout the nation were accelerating dramatically, forcing layoffs, resignations, panic in the financial markets, and aggressive action from the Federal Reserve.

Theories abound on why this turmoil is occurring, one of these being discussed in this book, which is written by one of most well-known financial speculators of all time. The tone of the book is general and philosophical, and the author refrains from indulging in mathematical considerations, but there are many concepts in the book that are interesting and merit further investigation. The author's intellectual honesty is refreshing, in that he admits the job he has taken on is a formidable one. Describing the workings of the financial markets is challenging, and has occupied the time of countless researchers and financial analysts.

The author wants to get rid of the "market equilibrium" paradigm in traditional economics and replace it with one that he has called "reflexivity". This concept is similar to a few that have been discussed in recent months, one holding that investor analysis and modeling activities actually serve to change the markets, rather than just "mirror" them. The author's idea is that humans have both a cognitive function and a "manipulative" one when they approach the financial markets. This has the implication that social phenomena cannot be described or studied in the same way as natural phenomena. They are separate areas of study, he argues, and he attempts to justify their separation on the pages of this very short book.

His analysis is interesting and provocative, and certainly worthy of attention, but to put it on a firm quantitative foundation would require a large amount of work. The theory of reflexivity is not the only proposal to be put forward that differs from the classical one. There have been many in recent years due to the increasing importance of financial engineering, the latter of which has been applied on a massive scale. But the author proposed this theory almost two decades ago, when derivatives trading and financial modeling were beginning to ramp up. He therefore foresaw the need for alternative points of view when dealing with financial instruments and market activities that cannot be captured by the classical paradigm.

The book is part autobiographical and could probably be better appreciated if the reader was familiar with the author's earlier works. But anyone interested in making sense out of the current news reports will find an interesting read here, even though at times the author's political affiliation comes out a bit heavy-handed. In addition, his attitude about free markets and "laissez faire" is somewhat puzzling since a purely "laissez faire" economy has not been realized historically. Any arguments against its efficacy are therefore misplaced. Those who still believe in "laissez faire" may therefore object strongly to many of the author's assertions and his recommendations at the end of the book for fixing the current "credit crisis." Whatever your world view though it is perhaps fair to say that the increasing complexity of the financial markets demands new ideas and approaches.If anything a good understanding of financial dynamics is a matter of survival. The financial markets of the twenty-first century take no prisoners.

In August 2006 the risk manager of the home equity division of one of the largest banks in the United States collected his staff together and told them that the portfolio they manage had begun to exhibit dramatic losses. All the other banking institutions were beginning to exhibit similar losses he said, but that policies to be put in place will mitigate these losses and therefore "not to worry." He resigned his position only six months later, and at the time the mortgage losses throughout the nation were accelerating dramatically, forcing layoffs, resignations, panic in the financial markets, and aggressive action from the Federal Reserve.

Theories abound on why this turmoil is occurring, one of these being discussed in this book, which is written by one of most well-known financial speculators of all time. The tone of the book is general and philosophical, and the author refrains from indulging in mathematical considerations, but there are many concepts in the book that are interesting and merit further investigation. The author's intellectual honesty is refreshing, in that he admits the job he has taken on is a formidable one. Describing the workings of the financial markets is challenging, and has occupied the time of countless researchers and financial analysts.

The author wants to get rid of the "market equilibrium" paradigm in traditional economics and replace it with one that he has called "reflexivity". This concept is similar to a few that have been discussed in recent months, one holding that investor analysis and modeling activities actually serve to change the markets, rather than just "mirror" them. The author's idea is that humans have both a cognitive function and a "manipulative" one when they approach the financial markets. This has the implication that social phenomena cannot be described or studied in the same way as natural phenomena. They are separate areas of study, he argues, and he attempts to justify their separation on the pages of this very short book.

His analysis is interesting and provocative, and certainly worthy of attention, but to put it on a firm quantitative foundation would require a large amount of work. The theory of reflexivity is not the only proposal to be put forward that differs from the classical one. There have been many in recent years due to the increasing importance of financial engineering, the latter of which has been applied on a massive scale. But the author proposed this theory almost two decades ago, when derivatives trading and financial modeling was beginning to ramp up. He therefore foresaw the need for alternative points of view when dealing with financial instruments and market activities that cannot be captured by the classical paradigm.

The book is part autobiographical and could probably be better appreciated if the reader was familiar with the author's earlier works. But anyone interested in making sense out of the current news reports will find an interesting read here, even though at times the author's political affiliation comes out a bit heavy-handed. In addition, his attitude about free markets and "laissez faire" is somewhat puzzling since a purely "laissez faire" economy has not been realized historically. Any arguments against its efficacy are therefore misplaced. Those who still believe in "laissez faire" may therefore object strongly to many of the author's assertions and his recommendations at the end of the book for fixing the current "credit crisis." Whatever your world view though it is perhaps fair to say that the increasing complexity of the financial markets demands new ideas and approaches. The financial markets of the twenty-first century take no prisoners.

First, Soros is a very savvy financial genius. I'm always amazed when people try to take shots at him. It's like saying Bill Gates doesn't understand technology. When Soros talks, listen. If you don't understand, listen some more.

Reflexivity is Soros's pet theory. He outlined it in the Alchemy of Finance. Basically the idea is that events can become self reinforcing. How does that relate to the mortgage collapse?

The mortgage bubble and collapse was just like any other. Banks and other institutions noticed that lending money was profitable when the economy was expanding. All the loans seemed to be turning out well. The banks were printing money and decided to loan more and more. As more credit became available, the economy continued to perform strongly (the easy availability of money spurs on the economy) causing existing loans to perform even better. Banks were enticed to lend even more. All the while, institutions of all stripes continued to pile on leverage as their investments blossomed. Eventually someone decided to take their chips off the table. All of a sudden, credit came into question. Institutions started to de-lever, worried that they wouldn't be able to get their money off the table fast enough. No one would extend more credit. Money became scarce. Loans defaulted. The housing market crashed.

So, a long slow benevolent cycle followed by a sharp a nasty malevolent unwinding. Pretty common in the financial markets. Predicting where one starts and another ends, however, is very, very, very difficult (an inevitbly a lot of very smart, very experienced people will be very wrong).

An additional problem with mortgages was just how perverse the incentives were. Mortgage originators were paid by volume, not quality. They were encouraged not to check credit and to come up with creative ways to write loans to anyone. Homeowners were getting a tremendous deal - basically a call on the housing market and / or free credit to buy stuff. Investment funds (they should have been smarter) were lured into participating by the continued good returns - remember, until the dam breaks, anyone taking in the higher interest payment (and bearing the greater risk) looks pretty smart. Even the government gets to play along by pushing originators to make high risk loans in the name of "fairness".

A simple solution is just to mandate fixed rate loans, either 15 or 30 years, and a minimum down payment of 25%. Eliminate leverage and the problem is solved. Of course then the same politicians that call the banks who lost billions evil for taking advantage of the home owners (uh, how's that again??) will call the banks evil for cheating main street by not letting it use the same tools as wall street. Populist business bashing is always fun until businesses start to die off.

Some other points were on target, i.e. the effect of a large debt / inflation. Bush gets blamed for a lot of things, but he was actually good for the economy short term. Lower taxes and higher spending => stronger economy. Unfortunately, he's been dangerously reckless long term. Lower taxes is good, but it needs to be accompianied by lower spending. Instead we get irresponsible budgeting, a foreign adventure in Iraq, squandered international good will, no attempt made to curb the entitlement programs (medicare, medicaid and social security) that will destroy our country. So waht happens? People start to lose confidence in the $ and exchange it for other things. Losing 50% against the Euro may seem bad but it's nothing compared to how the $ has fallen against oil, metals and grains. Want a stronger $? Cut taxes and spending. The economy and the $ will go through the roof.

Soros leans a little to the left politically, but anything he writes is worth reading. If you feel the need, just add a little red and take a little blue away from the picture and you'll find some very valuable insights.

Soros seems to think that if he yells "reflexivity" enough, it'll gain currency and him praise. Unfortunately for the billionaire and aspiring great-thinker, reflexivity is nothing new or novel.

Soros' seems to have a deep antipathy for free markets. But of course, he is not alone. Many economists and investors are quasi-socialists, including Stiglitz, Krugman and the great Buffet. It does make one wonder...

Truth be told, the U.S. doesn't practice free market capitalism, which Soros and others deride. The notion that we have a free market is a great myth in itself. We have a regulated market: some parts relatively free, some parts not free at all. Consequently, their criticisms are moot: they are railing against something that doesn't exist.

The regulation begins with the Central Bank system, which sets the price of money. From there to Congress and various gov't institutions that regulate commerce and business.

The ultimate cause behind our current financial debacle and every other monstrous "capitalist" debacle can be laid at the feet of gov't, regulation and gov't controlled fiat money. How? Gov't regulations subvert the free-market's natural inclination to investigate and self-protect against harm, deception and lies by the counterparty. Gov't regulations leads to the public trust in gov't and the businesses they are supposed to regulate, but ultimately fail to do. Gov't regulations give businesses the excuse to say, "we followed the law, don't blame us, blame the politicians."

To be sure, gov't has a role in capitalism: enforcement of contracts, self-defence, public infrastructure, and taking account of "economic externalities". That's pretty much it that comes to mind at the moment.

Bubbles really cannot form in a truly "free market economy". Bubbles are symptoms of gov't regulation and gov't controlled fiat money (too much of it that feeds the bubble).

Contrary to Soros' opinion, free markets do correct themselves -- but not very efficiently when gov't meddles in it.

If you read and liked the previous books he wrote - you will definitely find this one helpful!

A book review from my blog:

George Soros has written a new book called The New Paradigm for Financial Markets:

The Credit Crash of 2008 and What It Means. It is currently available as an E-Book, but
will be published on paper in May, 2008. It is his best and most informative book in
terms of information and content. It avoids the difficulties inherit in the Alchemy of
Finance with regards to his obscure syntax- there is none of that. It avoids the political
criticism that you find in his books on Globalization and the Open Society initiatives.

The book is useful for finding blindspots inherent in the economic system. For traders,
he is criticizing the nature of Credit Default Swaps in that there really is no absolute
guarantee that someone will pay you in the event of a default. He argues this because
the margins are so low that systematic risk and exogenous risks can culminate into a
disaster situation. This is similar to the one we have been having, but worse. This is why
Soros rushed out his book early before printing it, because he is sick with worry about
the whole credit mess and suggests that it will be the worst economic event in his life
(which is scary given that he is almost 80, and has survived World War II).

A recent newspaper article in the Toronto Star on Sunday, April 13th noted that Soros
funds had managed to return 32% in 2007. A very significant return. We understand he
was short US stocks and US Financials and long emerging Markets. It doesnt sound like
he used CDS to short subprime as he apparently was unfamiliar with their use before
the Credit Crisis.


Remember that Soros did, in 1998, write the Crisis of Global Capitalism, a critique of
the Financial Markets, which if you acted on the suggestion and went ahead shorting
the Markets would have caused almost 3 years of serious pain. What it led to was a
break off between Stanley Druckenmiller and Soros in 2000.

Beyond all this issue with the current financial situation, the deepest and most
provocative argument by Soros is from his criticism of classical economics.
A simple explanation is his criticism of supply and demand curves.

Have you ever physically seen a supply or demand curve of copper, potash, rice, or RIM
stock? It doesnt exist. Unfortunately, economists see this as a given, which it is not.
The price of something in a stock or commodity is a picture of relationships, but it does
not rely on a predetermined supply and demand curve.
Soros takes this particular argument very far. It is worth paying attention to, because he
uses it to explain further exactly what reflexivity is (Reflexivity is Soros theory about
how humans can affect the outcome of things). Soros has always been somewhat vague
about reflexivity, but it is clear as day in this new book. For that reason, you should read
the book. Soros new book is probably going to be one of the top investment books of
2008.

I suggest the open minded reader start at about pg. 80 to read and understand that reflexity is the most important concept in finance. The concept of reflexity has clearly been hidden from view in the classical economic models.

Anyone who has taken a basic course in economics will immediately see the ultimate validity in what Soros is saying (he uses the idea of supply and demand curves as a starting point for a larger critique of economics).

This is by far his best book, having read Alchemy of Finance many times, and all of his books that were political in nature as well - It is probably best to say that he is going for the jugular now with regards to exposing the worlds of politics and finance for what they are.

Soros provides a no holds barred intellectual assessment of the political and economic situation in the US.

His view of the global economy is still positive and healthy. Only the housing bubble economies are at risk.
This should relax those who merely want to assess Soros' work as paranoid or delusional (one of the first reviews seemed to suggest that if not in word, than in tone).

The book clearly presents all of its ideas in an honest, forthright tone, and it is clear that Soros has the interests of the public at large in mind.

The only downside - is reading the book online is somewhat difficult on the eyes, I would have prefered to be able to print it (bought the adobe secure version).