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The Crash Of 2008 And What It Means: The New Paradigm For Financial Markets (2000)

by George Soros(Favorite Author)

3.32 of 5 Votes: 3

ISBN

1586487922 (ISBN13: 9781586487928)

languge

English

genre

History & Biography

review 1: I dont claim to understand the author completely. But it seems like a continuity from his first book The Alchemy of Finance where he proposed the concept of reflexivity. It basically talks about how market participants couldn't decide based on knowledge entirely since their understanding cannot be perfect and the biased perception comes from 2 interrelated functions (a) cognitive function - seek to understand current situation and (b) manipulative function - try to change the situation. He also talks about (1) postulate of radical fallibility and (2) fertile fallacies, 2 concepts which are related to reflexivity. Then he provided an outlook of what happened in 2008, from the housing bubble to the super bubble. Just read all his books anyway.
review 2: This is n... moreot good literature. Mr. Soros’s writes in a condescending tone throughout the whole thing and uses “I” waaaay to much. He doesn’t explain his theory of Reflexity in a clear, succinct manner. Really couldn’t tell you what it means, other than what you think affects what see and experience, kinda like self-actualizing.. but again, I could be off, b/c Soros does not explain things at a simple level.His bias permeates the whole book. He constantly impugns Bush administration, but give no further explanations as to why said action or policy was wrong...very weak arguments, which is sad b/c knowing he was a liberal going into this book, wanted to hear some cogent arguments. Not here. Some points on Reflexity:He makes the distinction that the study of economics cannot be observed like natural phenomena, like nature, and it not a true science. Is this a novel idea among liberals and/or economists? He seems to state this fact over and over again in the book like some profound statement, that humans behavior study at the macro level is not like the laws of nature and cannot be studied like a true science. This is somewhat baffling to me because I knew that for a long time, humans have a free will, emotions, psyche, etc. and this will play into financial markets and in the boarder course of history. Possibly it’s the liberal mindset to “know it all” and have answer for everything and force policy or regulation that makes this fact profound to someone like Soros. Just a thought. If I had to summarize his theory of Reflixity, it would be that human actions and though can affect reality (duh) and because of this, current economic theory cannot adequately be used in the field of economics for policy, regulation, etc. It’s more confusing and high-minded than that… I’d say its like a self fulfilling prophecy… or something. Mr. Soros states b/c of this fact, older models of economics, i.e. conservative or traditional, market equilibrium, are proven wrong by the recent crash. Oh should probably have wrote that earlier, the crash of 2008 was the reason for him writing this book, and in his mind a test to “prove” his theory. He criticizes the Wall Street and the creation of CDO, CDS, and various other financial products that were heavily involved in the crash of 2008… but I think he misses that a lot of these tools where a result of government policy, i.e. the dream of affordable house, i.e. the extension of credit, i.e. the massive expansion of subprime loans, that where the foundation of the derivatives.Here’s a walkthrough of how his theory is applied with short selling:1. Typical risk in short selling stocks is asymetirical with long positions; when going long, the risk is limited when said stock loses all value (most you can lose is the initial capital), the potential upside is unlimited. With short selling, the risk is theoretically unlimited, a stock could up to infinity. Thus short positions are closed very quickly when the market moves against them. This asymmetry discourages shorts.2. The CDS offers a much better risk/reward scenario for a bear wanting to short a bond. In this situation, the asymetircal relationship is reversed that of stocks. Selling the insurance offers very little reward but much risk; buying the insurance offers little risk with much potential.3. Reflexity. Mispricing of the CDS contracts on bonds can affect the market price of the bond the CDS was supposed to insure. B/C the CDS where mispriced, market will assume the bonds are worth much less. Bear raids on the institutions become self-validating..Soros’ then prescribes an economic recovery program. Critical of Paulson letting Leaham fail, then asking for 700 billion from congress…this needs further studying…Soros does recommend getting rid of the twins, and moving to the dutch mortgage system; of all his ideas this one appears to be good one. All of his other points are a elaborate redistribution scheme; at one point he prescribes inject massive capital into the banks (stimulus) but didn’t specify where this money would come from. less

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