The end of an era... Soros on financial crisis

Friday night on the PBS weekly program, Bill Moyers Journal, Bill's guest was billionaire George Soros. Soros made his billions as a speculator and withdrew from the market quite a while back. (See former Federal Reserve Chairman Paul Volcker on that at the link highlighted above.) Republicans and others from the right don't like Soros, partly because he does not believe the free market, if left alone, will always work efficiently and partly because he funds liberal (a dirty word in rightist lexicons) causes and organizations. Move.on.org is one of them. He is also among those who believe global warming is the most urgent issue facing mankind.

Soros is 78 and his demeanor during the program was grave and at times quite emotional though reserved. When Moyers asked him if he thought the American Dream was dead, he shook his head and said, "Oh, no," softly and his eyes lit up slightly. But he did say that the Bush Administration was still "behind the curve" with solutions, adding that Treasury Secretary Henry Paulson was not up to the job. He criticized Paulson who came to Treasury from the Wall Street firm Goldman Sachs for being too enmeshed in the complex mathematical manipulations that had become standard among financial firms and that had led, in part, to the current breakdown.

Moyers also asked Soros, "Is this the end of capitalism?" Soros laughed gently and said something like, 'I hope not.' He did say that free market idealogues had been proven wrong, in that unregulated by government, the free market has fallen prey to its inherent weaknesses.
He added that the U.S. and the world were facing an end to an era of a certain phase of capitalism in which the global economy was based on unlimited spending by American consumers financed by cheap credit and soaring trade inbalances. Soros said this trend which has been going on for the past 25 years could not go on forever and had to come to and end.
He referred to this as the "big bubble" underlying the smaller "housing bubble." The current chaos in world markets is a result of the big bubble exploding which was "detonated" by the collapse of the housing market.

According to Soros, three things must happen to stabilize the world economy:

1. Banks must be recapitalized either privately or through government assistance.

2. Housing prices must be stabilized. Foreclosures slowed down as much as possible.
Homeowners with negative equity must me helped.

3. A new economic engine must be found to replace the endlessly expanding consumer spending by Americans which has driven the world economy over the last 25 years. Americans must learn to save and conserve energy. Capital investment and job creation could focus on development of 'green' energy instead of endless consumer spending.

For Part II of this post click here.