George Soros: "The worst market crisis in 60 years" [View All]

The worst market crisis in 60 years
- by George Soros - pub 22 Jan 2008 - in The Financial Times of London

http://www.ft.com/cms/s/0/24f73610-c91e-11dc-9807-000077b07658.html

In some ways it resembles other crises that have occurred since the end of WW2 at intervals ranging from four to 10 years ... However, there is a profound difference: ... The current crisis is the culmination of a super-boom that has lasted for more than 60 years.

{There has been a} ... failure to recognise a ... connection between the willingness to lend and the value of the collateral...

... Every time the credit expansion ran into trouble the financial authorities intervened, injecting liquidity ... That created a system of ... moral hazard, which encouraged ever greater credit expansion. The system was so successful that people came to believe in ... the magic of the marketplace ...

... The financial markets encouraged consumers to borrow by introducing ever more sophisticated instruments and more generous terms. The authorities aided and abetted the process by intervening whenever the global financial system was at risk. Since 1980, regulations have been progressively relaxed until they have practically disappeared ...

... Everything that could go wrong did. ... That made the crisis more severe than any since the second world war ...

... The Fed may no longer be in a position to {avoid a recession}. With oil, food and other commodities firm ... the Fed also has to worry about inflation. If federal funds were lowered beyond a certain point, the dollar would come under renewed pressure and long-term bonds would actually go up in yield. {I'm not sure what this means, but it sounds like something horribly backwards and unprecedented. I think it means that the Fed's ability to "print" money is no longer relevant - because there's already too much 'funny money' out there?} Where that point is, is impossible to determine. When it is reached, the ability of the Fed to stimulate the economy comes to an end ...

... a radical realignment of the global economy, with a relative decline of the US ...

via http://www.nakedcapitalism.com/2008/01/some-very-blunt-warnings-from-soros-el.html