Fareed Zakaria interviews Quantum Fund manager George Soros on CNN to hear his take on the ongoing financial crisis.
Soros, promoted the term “Reflexivity” especially as it applies to economics: which describes the tendency for market trends to become self-fulfilling and propagate itself until it eventually becomes unstable and collapses on itself. He is also a staunch critic of “Market Fundamentalism” which is the belief that markets self-regulate and tend to equilibrium, which is far from what is observed in real life: markets bubble and crash. In this interview he shares some of his insight regarding bubbles and crashes, and how the present political and financial system allows these phenomena to occur with regularity.
He describes bubbles as resulting from misconceptions, which can continue longer than people expect, but eventually misconceptions are reversed dramatically. The misconception in today’s crisis is over-leverage of the housing bubble which eventually gave way to the present economic crisis.
Unlike other critics such as Peter Schiff and Jim Rogers, Soros supports government intervention to regulate markets, since he believes that the notion that markets “self-regulate to equilibrium” is a fallacy. However, similar to skeptics like Nassim Taleb, Soros rejects any notion that markets and the future can be predicted with any accuracy since the future is always in flux depending on the actions of the present.
Soros’ distinguished track record in his successful Quantum Fund has been largely due to his uncanny ability to anticipate market bubbles and resulting panics.