Book Update – George Soros – Crash of 2008
Read a book last week by Soros, Crash of 2008. His style has become more plain, his past books I read were quite lean on philosophy.
Main argument put forth by Soros is that textbook theories that rest on demand and supply model, equilibrium theory, market fundamentalism are not only incorrect but completely wrong.
Soros explains parallels between Heisenbergs uncertainity principle and social sciences. I can relate to boom bust theory and reflexivity theory that he has been an advocate of. Think of this statement, “Price of a residential property is not independent of willingness of lending authority”. As willingness is affected, underlying value is also affected. In human matters precise calculations cannot be made, its two way feedback mechanism between cognitive and manipulative function. Stock market prices do not only reflect the underlying fundamentals of company and economy, but also affect underlying fundamentals.
This book reminds one of Alan Greenspan’s statement who admitted that his policies were principal cause of housing bubble. His assumption that “markets are self regulating” was wrong. Second assumption, that “corporations can take of their own survival” also proved wrong.
Financial engineering has gone out of hand, too much money is paid to investment managers for sloshing money to and fro, without any value addition, some thoughs I too concur with Soros’.