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Practical solutions to the Credit Crisis.,
This review is from: Financial Turmoil in Europe and the United States: Essays (Hardcover)
This excellent book is a collection of newspaper and magazine articles written by George Soros between 2008 and 2011. He covers the stock market crash of 2008, financial reform, the worldwide credit crisis and the Eurozone crisis of 2011.
There are now plenty of books about the credit crisis but they mostly explain what happened without giving much of an indication of how to find a way out. As of this writing (Feb. 2012) we are still in the thick of it and Soros' articles are usefully light on apportioning blame (we already know who did it) with the majority of space being dedicated to finding realistic solutions.
He sees the root of the problem in assets that were previously seen as riskless, but which are now, on the contrary, perceived as full of risk or maybe even worthless (e.g. AAA Sub Prime or Greek government bonds) and he goes directly to the point in suggesting that banks should keep their non-performing assets (it was their mistake after all) and receive large equity injections to keep them afloat and in the business of lending.
He accepts that this would be costly and he also sees a very important role for government in a) stopping the inflation of bubbles by controlling leverage and insisting on transparency b) banning outright credit default swaps that he sees as only serving to allow the completely dangerous unlimited shorting of bonds.
The sovereign debt/ Euro crisis is presented as needing serious and effective central financial control in the form of a European Treasury with the right to tax and control spending, although he recognizes the many political hurdles that need to be crossed to reach the finishing line of a safe Euro and responsible government budgets.
Soros bases his analysis throughout on a "reflexive" view of economic affairs in which positive or negative feedback cycles frequently distort supposedly "efficient " markets. He notes that investment/ speculation in new technology often shows reflexive distortions in the use of capital but he doesn't consider that reflexivity itself could be a natural mechanism that has evolved to ensure that every new niche is fully exploited. For example, in the relatively recent computing/internet boom, a great deal of capital was wasted but no one would dispute that it aided the eventual winners (e.g. Intel, Microsoft, Amazon or Google) to raise capital when they needed it.