In a recent Business Week interview George Soros explained the financial collapse:
Basically, this whole financial system collapsed because regulators failed to regulate. There was a belief that markets are self-correcting. That turned out to be wrong.
Well, markets are self-correcting.
As we know the correction can be pretty dramatic when a government created system blows a massive bubble.
The market will pop it. Violently.
Unfortunately, folks didn’t like the medicine this time so we have additional massive intervention. Let’s hope the market can deal with it and things don’t get drastically worse.
Soros recommends some additional prescriptions:
So it’s not enough to regulate the money supply. You have to regulate credit. And you have to recognize that markets are prone to create asset bubbles and accept the responsibility of preventing those bubbles from becoming too big and self-reinforcing, because that’s what a bubble is—a self-reinforcing process.
Except that all the really cool bubbles over time have been driven by government enabled rent seeking. Even the tulip bubble likely would never have occurred without the wealth derived from a government created monopoly, the Dutch East India Company.
Next Soros starts talking in circles:
You also have to recognize that if the markets don’t know what equilibrium is, then regulators can’t possibly know either. So you have to accept that regulators will be wrong. But with the benefit of feedback from the market, you can judge whether you’ve done too much or too little.
Where to start? If everything were to stay at equilibrium nothing happens and Soros makes no money. That might not be a bad thing but it isn’t at all clear that anyone will be very happy in that state.
Let’s look at George’s wisdom again and assume that equilibrium is a meaningful goal. What is George telling us: markets don’t know where the goal is; regulators can’t know where the goal is; therefore regulators will be wrong; but the market knows something that can guide the regulators; therefore we can figure out whether you have deviated an unknown amount from an unknowable goal. QED, we need more regulators.
Give me a break.
Here’s a shorter George Soros: let’s have lots of regulators because I know they will screw up the market and over the long run I can make money off their mistakes.
Let’s just not go there, please.