One of the first books on a developing crisis
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Soros has written extensively in the past on capitalism and markets and his words are closely followed, not least by investors who want to discover the philosophy behind his profitable trading strategies.
In this book he does outline again his philosophy, though leaves it up to others to discover how best to apply it. Soros argues for his theory of `reflexivity'. This states that markets do not just reflect changing reality (eg a share price falls if a company looks set to make a loss) but that they change reality too. Recent financial events would seem to demonstrate this. Soros argues that the economic theory that markets tend towards equilibrium (based on perfect information) does not hold in reality even though the financial system is set up as if it does. This is why so many unexpected events occur, surprising investors. Regulators had come to believe the market was essentially self-regulating but this belief has been falsified. Soros believes that reflexivity explains how trends can develop which are self-reinforcing because people make decisions based on an interpretation of the facts and the trends they can perceive. Reality can be manipulated. Investor opinion shifts prices, which give out new signals about assets and the wider economy, which in turn affect investor behaviour. These feedback loops do occur. Soros argues that we must not ignore them. The phenomenon can be seen in other areas of life such as politics, he argues.
Though Soros reproduces some of his diary entries outlining his thoughts as the credit crunch developed, I wanted him to explore this more. However, the events of the past few months give us cause to think through our view on markets and economics afresh, and Soros is one of the voices to which we should listen.
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Rushed, and not much new
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As a previous reviewer states, this book seems as if it has been rushed into print. In addition to the poor quality of the graphs (they look like they have been photocopied) the short section where Soros provides a chronology of his recent trading decisions just read like a few pages of his diary have been added to the book to fill it out.
In addition, if you have read any of Soros' other books prepare to go over some familiar ground. As he fairly explicitly acknowledges a large motivation for him to write is to promote his conception of relexivity. If you are expecting and wanting to read this and discover trading tips, or very specific economic predictions you might as well save your money. Almost by its nature the concept of reflexivity does not lend itself to precision.
Having said that, the concept itself is an interesting one and can be applied widely, not just in markets, if only as a way to understand how views can affect the reality they seek to explain. One could argue for example that the War on Terror legitimised and reinforced the very thing it sought to oppose, and then in turn in doing so gave more strength to the argument that terrorism needed to be fought. On this point there is an excellent quote included in the book (can't remember if it is from Rummy or Rove) arguing that the US administration creates its own reality, which its critics are constantly struggling to catch up with an understand.
So personally I enjoyed the book more as a sort of scrapbook of what Soros is thinking right now, built around his concept of relexivity, rather than as anything particularly specific to the credit crisis.
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An Insightful Analysis of Financial Markets and the Current Crisis
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This slim volume of 160 pages and small format was written and published in haste something the author readily acknowledges and attributes to his desire to release the book during the current crisis in order to make an impact. It shows: the book lacks not only bibliography but also an index and contains only footnotes, headings in charts are barely legible, there are lose statements, his prose is dyspeptic while the coined and key word in the book namely reflexivity is awkward.
On the other hand the author presents concisely significant insights on the nature of financial markets, the causes of boom and bust cycles and the causes and nature of the present crisis which he characterizes as super-bubble, the most serious since the great depression and discusses its likely consequences.
The core postulates of the author are:our understanding of the world in general and of financial markets in particular is inherently imperfect because we are part of the system we seek to understand. People with imperfect understanding interact with reality in two ways. On the one hand they seek to understand the financial markets which he calls the cognitive function. On the other, they seek to make an impact and change the situation to to their advantage which he calls the manipulative function. The interaction of the two functions which compounds the uncertainty and indeterminacy, the author calls reflexivity (uncertainty relates to the participants' thinking, indeterminacy to the course of events).
The author contents that the prevailing paradigm that financial markets are self-correcting and tend towards equilibrium is fallacious.
Financial markets under ordinary conditions seemingly are in equilibrium with small random variations. But on rare occasions because of misconceptions which initially are self-reinforcing financial markets lead to boom but ultimately they are self-defeating and lead to bust.
The present crisis, the author characterizes as super-bubble and the worst since the great depression. And this because it does not relate to a specific sector of the Economy i.e the subprime mortgages but permeates the whole Economy.
The current crisis which the author believes that it has evolved over the last 25 years attributes to the following factors:the long-term and ever increasing credit expansion, globalisation, the accelerating pace of financial innovations and the progressive removal of financial regulations.
Finally the author contents that the present crisis marks the end of a long period of relative stability based on the United States as the dominant power and the dollar as the main international reserve currency. He foresees a long period of political and financial instability hopefully followed by the emergence of a new world order.
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Intellectually engaging
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Not sure what the previous reviewer was looking for.
George Soros brings an interesting and quite realistic perspective to how financial markets work and why the current financial downturn has come about. His writing style does not lend itself to light reading and can be heavy going at times. And reading this book requires a degree of inmersion into elements of philosophy as well as financial markets. This does not in itself disqualify the subject matter in it. Soros offers an interesting and timely analysis which I have found worth understanding.
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Waste of money and time
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Nothing of interest in this book. Just old boring stuff and platitudes.
A waste of money and time.
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