George Soros interview (1995)

george soros is the world's most famous investor and speculator it was his fund that earned in excess of one billion dollars when he bet against british pound in 1992 but he is more than just a money manager with one of the best track records in history he's also a noted philanthropist whose gifts include a fund to prevent russian nuclear scientists from selling their knowledge to a donation to help the children of war-torn bosnia through his open society fund he has set up foundations throughout eastern europe with the hope of assisting those countries towards more free and democratic societies it is a pleasure to have him back at this table for more conversation because there's a new book called soros on soros staying ahead of the curve which is a reflection of his philosophy about business his philosophy about philanthropy and his philosophy about an open society on the basis of some interviews done with him by byron wayne morgan stanley welcome back um let me first talk about the the eastern europe give me your report card on what you think both your own foundations have been able to accomplish and how the political and economic situation is there in terms of poland and hungary and czechoslovakia but it's very mixed i think that a great opportunity to move that whole region towards what i call open societies has been missed and there's now in many places a tendency to develop some new form of totalitarian regimes well total italian is too strong a word but authoritarian regimes uh based on nationalist ideology in combination with newly emerging business interests and that is the sort of classic recipe for fascism now you know i don't want to overstate the case because there are many countries like exactly poland hungary the czech republic that are sort of really moving towards europe but and and the case in russia of course is is up for grabs uh it's very much a struggle which way it's going to go but there are other countries like for instance between democratic forces and how would you characterize the oldest well it's sort of a a a new um authoritarian regime based on nationalism right uh this is the uranovsky and others who you think are right right but maybe leavitt is rising right but whoever wants to win the elections will have to take a somewhat xenophobic uh anti-western point of view because people have been very disappointed by the changes which have occurred well in fact uh bill saffer in a column today in the new york times pointed out that boris yeltsin in order to win re-election may become very strongly uh anti-western both the convention both nato as well as uh the conventional arms agreement when when when yeltsin went to to poland the first time he quite agreed to uh poland joining the nato and then his advisor said no no you can't let that go and of course the the um the objections on the uh on bosnia are very largely you know playing to the uh domestic audience to the ethnic community who's a domestic force and right although frankly people in in russia don't give a damn about bosnia i mean this is just grandstanding it's not a real issue in in in in russia they care about chechnya people deeply care about what happened in chechnya bosnia is not an issue that is discussed outside uh parliament and they care about chechnya to the detriment of boris yeltsin and blame him for what happened people are very upset about that that horrible incident but does he win re-election you think uh well it's too too early to say first you've got the parliamentary elections and uh there is a hope of uh uh you know sort of a democratic center uh with this uh chernobyl party and and uh uh javlinsky is doing well in the polls but i'm afraid that the the anti-reform elements may predominate kevlinski is someone you admire very much for his economic ideas well all together i i i have great respect for him because he's one man who actually stands by his ideas he's really remained let's say clean in a society where very few people have been able to if someone came to you and said have your foundation investments the amount of money that you have through foundation creating the university of central is it central european university creating the university and other things you have done to promote the notion of an open society have those seed seeds been worth the effort yes would you say yes or would you say no question about it i mean i think that that when you look at the entirety of what the foundations have done it's been very worthwhile and and very effective yet if you look at individual programs many have failed we have had many difficulties in russia we have had about three pushes where where the foundation had to be cleaned up so it's been one long struggle uh with lots of difficulties but when you look at the results uh very rewarding philanthropy for you is more rewarding than anything you do well i've got great reservations about philanthropy i actually uh i really think that uh charity is a very corrupting activity and it is so in even in my own foundations and i'm struggling against it all the time where does the corruption come from well first of all you know you you you corrupt the people that you give money to because you don't you don't teach them self-reliance but you teach them to depend on you you depend on that you teach them dependence rather than interdependence that's right so you make them they become objects of charity yes which i mean we avoid uh but then it's very corrupting to the giver because people suck up to him people will tell him what the people when they go to a foundation they they tell the foundation what the foundation wants to hear and then when they get the money they do with it what they want to do and the two are not the same does it cause you to want to pull back from philanthropy because you believe that it might not be no but i've got i must say that i got sucked into something that i knew uh was full of paradoxes and contradictions did you do it in the beginning because you had made so much money that you wanted to to carry forward a philosophy you believed in well uh it had to do with that in the sense that when i made more money than what what i needed for my own good i thought what you know how can i serve the the public good uh but uh until quite recently the foundations have not been driven by money you know as it wasn't that we had to give away a certain amount of money unfortunately it hadn't also been that we didn't have a money to give in case there was a good cause so it was really the the merit of the particular project that mattered let me talk about the business and come back to the philosophical end for a second uh there has been much talk about your comeback during the bad times of of certainly the beginning of 95 i guess when did the comeback begin when you began to to once again connect i don't know it's i think this shouldn't be taken out of context uh we have had you know several patches we we have an average performance of something like 35 percent over the last century 20 20 odd years 26 years but it's made up of years which are five percent or eight percent and years that are 60 or 100 percent that's how you get the average and we have we had four wonderful years 90 to 93 inclusive and 94 we was we were only up four percent which was the second worst year and in the first half of this year we were actually down when the market was not referred to and that was that was a sort of a bad patch but you have said you're quoted as saying that somehow you began to feel somewhat that the forces were against you in a sense i mean did you well we just didn't get it right we had the the opportunities were there and we got caught it we just it's sort of uh it didn't hang together but we got it together now all right but stay with me though let me explore this because there is something i think for people to say what happened when you won such a role that you began to hit the rough patch what did it do to you and and what did it cause you to question and how did you come out first of all i'm immune because i've now got a young people i know they do all the work you know and i'm very uh supportive and and and and i worry for them but i don't really worry well stanley and people like that have got all the credit well but they they took all the pain because you know managing money the way we do is extremely painful a very responsible job and and very stressful and i don't actually feel the stress if i did i probably wouldn't be able to sit here and talk to you so so that's that's number one you don't feel the stress anymore because because it's not your judgments that are on the line i'm not on the line they are on the line and i'm just standing behind them i am coach right and they are performing it's you know stan as a quarterback isn't that so i i i uh of course i i'm involved uh and uh you know you you constantly re-examine what's what you're doing wrong and you slowly you you you tentatively get things right but you can't really get the dynamic going until you have a little profit under your belt because it's very different when you're risking your principle then when you're risking your profit so that's how you get these runs when you you're you know you get it right and then you can risk more and make more money when you when you have lost it when you are doing poorly you've got to retrench and even as you get it right you you you don't get the performance until you can do it on a larger scale because risking your profit you see is much better is is is much easier it's less terrifying than renting than risking your principal yeah i mean the reason we have such a good record is because they never lose our principle once we once we get we are in the uh we are in a bad position we retrench so we might lose a little bit but we'll never endanger the the because you leverage well that's right we don't we de-leverage when we are not making it you you stop leveraging i assume that's what they're leveraging yeah yeah but in the sterling coup which would not coup in the investment there where you captured the attention of the world and certainly the bank of england right did you put 10 billion dollars at risk or not yes and was that all profit or was that principle well that was it was it was uh it was our principle but it was not all at risk because the most we could have lost would have been let's say two three percent because there was no it was a you know a high reward low risk bet right university had gone wrong we would have at the transaction cost of undoing it whereas if we got it right we made something like that 15 20 so so we did put all our equity at risk but uh it wasn't uh you know it wasn't really a very you weren't surprised 10 billion you were risking it's a billionaire or less even even less substantially less we made a billion but we we we made more than a billion actually but but uh we we we would could have lost a few hundred million which would have been perfectly acceptable 1995 i want to move past business but stay with me for a second in 1995 the beginning of 95 when you began to uh it was a rough patch did you change your ideas about macro investing and looking at everything uh at that time did you call into question any part of your philosophy about investing or your practices over the previous 25 years not the philosophy not the approach but every one of our position was very much re-examined and actually one of the things we did was was to focus more on individual stocks and not just the macro because because macro is one bet whereas if you select particular stocks you have a thesis concerning an industry or or a company then you have let's say a division of risk so you can uh you can do a little more yeah your philosophy about equity investments when looking at a company has to do with management has to do with right now it does because because this is an era of high capitalism if you like where where the interests of the shareholders rule supreme and managements pay a lot of attention to the to the to the the interests of the shareholders and if you can there's nothing to change you find that i think it's more of a sensitivity to shareholders and return to shelter than been in the past that is correct and therefore if you can identify managements which are changing their attitude or where there's a change of management uh you can be very well rewarded you say this is a golden age of capitalism it continues yes uh what is it about where we are economically in the world looking at it globally that is makes you optimistic about capitalism well i'm don't i don't put words in your mouth no no please don't because i'm not so optimistic in fact i'm pretty sure that this golden age is not going to last forever because it's built on false foundations they've had a similar period let's say at the end of the last century and it didn't last you had global markets it money didn't move as fast as it's moving now but it moved just as much it was very similar to what we have today it had in fact it was more stable than what we have today because first of all you had the gold standard as opposed to the fluctuating currency system which is much more unstable that we have now and secondly you had an imperial power england that was the main beneficiary of this of of this global trading system you know the city of london and they were perfectly willing to send a gunboat or two to far away places in order to you know put down the nato keep the natives in place that's right we don't have that now because the united states is the sole remaining superpower but is not the main beneficiary of this global trading system and therefore you know we can't be the policeman of the world we can't afford it we don't want to be and therefore there is no policeman and there is no so there's no no no imperial power there is no balance of powers as you had during the cold war when you had these two superpowers sort of keeping each other in check uh as you have a vacuum a power vacuum you have instability and this is actually one of the main points that make in the book this cannot last like this we actually need an international security system and the trouble is that the united nations has failed just at the time when it would be most needed in bosnia being one but basically bosnia has been to the united nations as abyssinia was to the league of nations in 1935 it showed that the league of nations nations doesn't work proved its importance that's right and this is an issue for us particularly for the united states because we created the united nations it's our design we are the leading power but we say the united nations failed they failed it's us that have decided not to for a number of reasons including the fact that the rest of the world and certainly the western world japan and europe bosnia being one small example is looking to us for leadership yes is that just a failure of this administration or failure of a of a mindset in america about our role in the world i think it's a bipartisan issue right i think that the republicans have to make up their minds whether they want to support the united nations on or or not uh i think that and if they don't you know what role are we going to play in the world uh stay with me on that in terms of bosnia and what the clinton administration has done are you supportive because of the your your concern for what's happened to the children of sarajevo look i i think that we did finally you see when when actually the survival of nato became an issue because nato got involved and it lost its credibility and for us maintaining the credibility of nato is what really moved us and also uh to help clinton in his uh uh re-election campaign because he's strong in foreign policy yeah because because there was a great weakness there so he had to do something well it just you know once we took action it seems to have an effect i mean it has it has moved the situation uh uh dramatically now unfortunately it happened too late and while it is it is beneficial in the sense of bringing the the end much closer the damage that has been done it cannot be undone and we must really recognize this as a terrible failure and learn from it because basically what we have done has been to allow the ethnic principle the principle of ethnic cleansing to prevail and uh uh you know whether it's practiced by the serbs or the croatians well actually it's the real victor in this in this uh uh situation is croatia which has become a nation-state with less than two percent sub population and there's been 180 000 serbs that have been expelled uh from croatia now uh with a little problem from the world uh yes and i think that uh that that isn't that is an issue i think that uh it cannot be undone now it it i think it's it's a fact but what kind of croatia you're going to have is very important and this is what we we have to pay attention to but let me come back to the united states and what we might do the united states that you think began to say we have to do something different in order to rescue nato which was clearly ineffectual and being called into question and we're now talking about nato expansion yes what can be done now in a sense not with respect to bosnia but about the future of nato what has to happen and has the united states by these actions in a sense uh recreated it has saved a military arrangement that has no mission like it had right in the cold war you're putting your finger on it because i think it has saved nato but the mission of nato what is it supposed to do remains unclear is it directed at russia then it means we want to turn russia into an enemy uh so i think that the the the the mission of nato has to be redefined and what might it be uh i think that we that they ought to stand uh for to protect open societies basically uh and and uh are we ought to generally in this part of the world particularly care about what kind of regime prevails in a country it was our attitude to russia should be different depending what kind of regime it is is it a democratic regime or is it an authoritarian regime it's not you know russia in this geopolitical chess board you know that well but let me take that along so let's assume it shifts to a totalitarian regime right and moves away from any kind of democratic regime how should our posture towards that regime be different well i think that our posture should be different before it shifts there in other words in order to promote one area or the other one direction or the other that's right i mean we we had an a an incredible opportunity to help that part of the world to move towards democracy that opportunity is now greatly restricted because it's now we are five six years into the revolution so again you can't go back in time but still we could learn from the mistakes we made in the last five years and still work towards strengthening democracy in in that part of the world was it difficult for you because of your own experience in that area to over that period of years from from the fall of communism and the fall of the wall and the decline of those regimes to sit back and see opportunity and not watch because i don't think the administrations whether it was bush or clinton seemed to know exactly what to do and secondly to know that they had the will of the people to do it in terms of investment well you see i didn't sit i actually threw everything i had into it and and i'm very sort of satisfied having done it i would have liked to influence policy and i tried i tried to get to bush before he met gorbachev in malta which i thought was the last time really to change the direction from the outside i was unable to do that so i think that i've succeeded in everything not everything but in most of the things that i could do on my own and i failed in influencing uh the uh policy but today strobe talbot is the principal the deputy secretary of state is the principal architect of our policy towards russia yes yes yes you have he listens to you he does so you have influence yes on the part of the principle policymaker not only towards russia but towards eastern europe yes right no i do i do now have access uh no question we actually work together the the the country where i'm most engaged and we are really working together is ukraine yes uh because uh there was a chance to to change the direction the country was sinking it was disintegrating it was failing and the new president was elected and for the first time the west under american leadership had the wisdom to say we will invest four billion dollars if there is a reform program so that and now ukraine has changed now it's it's early days it's it's very tough i'm very engaged on working on it and and we have good working relations with with the with the um american government with the international uh uh institutions and i'm hopeful find finally in this one case we are doing the right thing as much as one can from the outside when asked is your opinion also that we ought to push forward with nato expansion regardless of what the russian government says i think it's the i think that the issue is the question is raised the wrong way let europe uh admit poland and hungary to the european union security will take care of itself let us have a constructive policy towards russia and russia will not object so your idea is just forget nato let them come into some other some other kind of economic arrangement or security arrangements rather than nato because it is nato that inflames the russians or causes at least there you see there's a there's paranoia yeah there's a saying that war is an extension of politics right i say let's concentrate on politics and not war i mean so it's a failure of politics when we come to war so let's let's deal with the political and economic situation in those countries that puts you at odds i think with henry kissinger who is one of the people who endorse your book we could have a very good debate because i we do have a difference of opinions all right uh let me come back to the world economic situation you believe that you're bearish on the economic future of france and germany bearish no i'm concerned i'm concerned about the trend towards european disintegration that is to say you have a disequilibrium situation after the reunification of germany and first there was an attempt to accelerate the integration it peaked in the maastricht treaty it failed in the process of of uh ratifying that treaty and now we are in a period of disintegration and that i think is very harmful because it puts us right back where we were in the interwar period uh you know nation states with different interests clashing even between world war one and world war ii yes right and and so this is now uh the uh disturbing disintegration of the european union but you have said you're bearish on the economies of france in germany i read that over the over the weekend no no i'm bearish on the french stock market uh because because germany has uh a a sort of set a very stringent question budget reductions on on you know insisted that that france has to meet the criteria of the maastricht treaty in order to have a common currency france is uh is lagging and and there is a now a a confrontation shaping up between the uh the independent central bank in france and the government uh and i think that there's going to be a government crisis and i don't think that uh jupiter might not survive what do you think of sharok so far uh i admired his stand on bosnia yes i think he showed some leadership um it's a new it's a new um and how about nuclear testing uh that i i think is was uh uh i think a mistake i think it should have been level i'm told he had some influence on clinton's thinking about bosnia he he i think that he it was one of the elements that moved this administration uh to action okay i'm coming to the u.s economy in a second let's go to japan you believe that they have dealt with their interest rate problems there but have not dealt with a significant structural issue they have there which is that the finance minister has enormous control right now you see if japan faces a a a problem of deflation right the likes of which we have not seen since the depression uh it's it is due to it you know prices are falling and uh economic activity is falling uh it's a very it was a very disturbing development the banking system is in deep trouble a lot of bad loans uh the the government is is now has taken steps to try to dig itself out of this hole one of the ways of doing it is actually to try to get the yen down in value this gives a little opportunity to people like me to make some money and they dig ourselves out yeah i know you've lost the money on the end did you not interest rates have have been reduced practically to zero uh one half percent right and finally the the uh yen is is falling in value and you know there's the problem of keynes mentioned this problem of pushing on the string but there are these holes in the banking system so you can push a lot of string into those holes so you will be able to do something so i think that that japan will probably dig itself out but it hasn't even started to deal with the with the structural issue which has gotten knitted into the whole because but people don't realize we sort of so admire the this fabulous industrial economic miracle the industrial machine where japan really has comparative advantage in practically every industry that it uh enters because they were modernized after the war and they had appropriate management yeah i think it's it's a lot it has a lot to do with uh with mentality right in a way you know sort of a feudal feudal mentality uh which is which is good for producing but not very good for for for trading not very good for playing financial markets for that you need a different mentality a commercial mentality and that they don't have and because of that they they have this a financial machine which is under the control of the minister of finance it's run by bureaucrats uh and and operated by bureaucrats and they have actually fitted away practically all the wealth all the profits of the industrial america that's right so there's there's there's this tremendous failure and next to the tremendous success we've been mesmerized by the success we haven't paid attention to the fact how about china what's your feeling about china and and uh all the talk about the potential of china both as a market because of a billion plus people well i have a little theory about china and that is that the the communist regime will be swapped out of power by an old-fashioned capitalist bust what do you mean well because basically the the the regime has lost the mandate of heaven so as they call it namely the trust of the people and is not tolerated because it delivers uh economic advance and it does it because it opened itself up to capitalist yeah it attracts foreign investment which is the engine driving the and if ever that engine goes into reverse then you're going to have you're going to have political trouble which will push the foreign investors further into reverse which will then create further political problems so you could have a a political and economic collapse together what might it happen when deng xiaoping dies in after all when he died the competition among i think he's essentially dead yeah he's i think is that so i think that i don't want to say that essentially dead i mean no i mean it's it's the whole intents and purposes so i don't know how i'm not sufficiently close to it to be able to have a more concrete sense of it but you that's an interesting idea that because that that if the economic force brought by capitalism should falter that's right then it's the only thing that's propping up this regime because they have no political viability they would say i suspect yeah we do we have an army and that's how we maintain our power and that's how we stay in power that is true that is true you know so we don't need any other kind of power yes but i think that i think as mayor as mal said you know power comes at the end of a gun barrel that that that may be true but that is that is irreconcilable with economic progress because the army is a drain on the economy and actually it is a c in in in china i think quite a severe drain when also i mean the notion is i mean someone said to me the other day you know the reason that they want to sell although they've canceled the contract of selling um uh to the iranians yes was because so many of the people in the there's so much corruption at the upper levels who have taken advantage of those economic profits right you know that yeah of course it's the same in russia the united states uh you think we have successfully managed a soft landing that's right you know i think i think i think that our economy is in very good shape inflation is under control if inflation is under control the economy is not going into any kind of a recession it's not overheating there's a lot of of increase in productivity i think that the this whole uh technological revolution the information revolution uh incidentally it means that our cost of living index is out of whack we have we have been overstating the the um cost of living and if we reduce it uh that would relieve the budget of the uh of that of the cola you know yes and that that that i think has great very bullish implications for them until i read you had said that i had no idea about this notion that inflation is one percent less yes you know is this widely discussed or thought about it it is an argument that you have no no no no no it is it is uh it has been a commission and it and and and it's it's uh it's very much in the works it's a question whether it is really as much as one percent or not but you have said it'll save us 160 billion dollars that's right you know that's right yes um that's not somehow it's not in the market yet why isn't this a ringing endorsement of president clinton actually it is i mean if that's the issue he's it is done well for the economy you know it's uh it ought to work for him in the elections i think he has a reasonable chance of getting re-elected actually yeah even though even though i am extremely critical on this failure uh uh on on the foreign policy do you believe he's coming around though i mean he's had recent foreign policy successes i mean people will look at haiti they'll look at ireland uh which is not entirely his but he began would play a role in that you've got the middle east where there's an additional now phase two uh on the west bank i mean there are a number of things that people are saying while you don't win elections on foreign policy what you do do is erase notions that you don't know what you're doing that's probably right that's probably right i find it rather hard to take that that's the only motivation that that seems to be driving the administration because i think that we have greater responsibilities in the world are you supporting him or not uh i i supported him last time but i can't at this point i can't because of because of uh because of our foreign policy failure but i i'm you know i may revise uh my view i haven't decided how do you happen you don't have a candidate then no i don't have a candidate and i don't intend to to mix in domestic politics i i think that i do have a foreign policy agenda but it's a a really a bipartisan agenda and i don't i think i can advance it by uh sort of taking sides you talk about you and your biography which we have talked about before on this program born in hungary uh when you were 14 years old your father taught you you say in a masterful way the art of survival yeah what did you mean well because you know this was the german occupation we would have been taken away and killed and he had enough sense uh because of his previous experiences to realize that the nobody made his previous experience well he was a prisoner of war in russia right and he escaped and he lived through the russian revolution and he came back from that a changed man because you know he he saw this turmoils you know fighting and i mean he went through a horrendous experience and that taught him a lesson which then came in very useful he in turn taught me a lesson which came in useful to me which is the art of survival which is well it's very basically basically that there are times when the normal rules don't apply you see the way you've looked at the world it's just not applicable because the world has changed it's a revolutionary situation when has it been applicable in your life and when has it been employed in your life well it was certainly had this experience with the nazi regime then the communist regime the beginnings of the communist regime and then actually i've kind of specialized on these far from equilibrium situations in the financial markets that's been my specialty yes but explain more you see you know the changes you see people generally play with this with a certain set of rules and i i am particularly interested in changes in the rules of the game and so i'm looking for the new game and the new rules how they are played so because i'm attuned to that i can sort of sometimes anticipate or understand these periods of regime change when something really new is happening let's say that's anything to do with the technology let's say internet is something really revolutionary it's something uh probably comparable to the invention of of printing and this happening currently now that changes a lot of things in technology stocks uh or or uh that was at the reason for the investors enthusiasm for for landscape that's right right now that may be of course an over sure exuberance but still that is a far from equilibrium that's a revolutionary change the just the internet in your judgment the world wide web yes is as important as as as yes i think it will change you know the way we do many things not not just i mean the way we do research the way we do our shopping the the way we communicate with people i uh you know it it's more it's it's really to a large extent i think it will replace television uh because it will replace the newspapers because we'll probably get the information sort of correlated for us yes so i mean the the the uh the uh it's too too difficult but do you have a clear vision no i don't have a clear vision i just have a vision that there's something you know that there's a moment of change i have a chaotic vision not a clear vision you have a moment but you know there's a moment of change here taking place because of the internet yes because it it it changes the way the world speaks to each other that's right the individuals in the world and gives people the capacity to go around institutions that they are have access to institutions in a different way it sort of democratizes that's right in a way yeah it will be it will change uh many things so that's one example but i mean you take let's say europe the the the the the integration and disintegration of europe those are you know what we talked about the makes me bearish on the french market so those are the changes that i look at now does that still mean you adhere to macro investing or is it oh yes and that basically is looking at sort of looking at a series of forces that you think yes uh whatever you can whatever the currency you're looking at whether it's bonds or stocks or or commodities or currency right well if it's a macroeconomic change then you've got sort of macro instruments like bonds which which which allow you to to play them yeah how have you changed after all of this money and all of this attention i mean what has it caused you to do with the way you live your life and choices you make for yourself well i think it it it it empowered me in many ways i mean it it it has given me freedom and it has also given me an ability to have much greater impact than than than otherwise and of course that with that goes the responsibility of what kind of impact do you want to to make right so it really makes you think so i've become let's say more effective person but now i've become also a more reflective person because my own life has changed and i need to think things through again and actually the book is an attempt to do so but this is thinking out loud in terms of questions about who you are and the philosophy you have suggested one role model for you was john maynard keynes and both because he was an investor and a theoretician because he had a keynesian philosophy about yeah the way the markets work yeah i mean it's just sort of i was asked so i mean you know i'm not suggesting you're comparing yourself to canes but you look at someone who had her life and you say he's a philosopher i think that's a full life you see to actually to participate and to think to interact uh i mean for me thinking and understanding is the most important thing but for many years in my youth you know i was deeply involved in profound philosophical questions and i went went on over and over the same questions until i was really spinning my wheels i wasn't getting anywhere then i entered the real world and moved forward you see my wheels grabbed on and that has enabled me to to bring my own thinking forward so let's say the conceptual framework which i outlined there i formed it in my student days but i've developed it a lot further you see so i think that i'm you know what did markets teach you about your philosophical framework well it was a laboratory where i could test yeah my ideas and the the it says it is a hard-headed very realistic laboratory yeah it's it's it's it's a hard task master yeah you see you know so there is such a thing as reality okay there's one one should realize and and funny thing to say that the market is reality because it seems to be so far removed from reality but that is actually a a very good example of what reality is because all the false ideas and misconceptions that we have and which play in the market is part of the reality that we have to think about so the role of misconceptions is tremendously important in forming reality yeah you see that the market is infused by your your your recognition of all the misassumptions that go into it you see one of the major misconceptions which we sort of started with the greek philosophers and then was reinforced by by science the the the success of science uh is that our thinking is here and reality is there and there's a correspondence between the two you know we try to understand what's out there but in effect uh our thinking is part of the reality that we are trying to understand you see so is instead of thinking of of um sort of uh two parallel things we have to realize that there is one big thing which is reality okay and it does it there really is such a thing and we are part of it and being part of it we can't possibly encompass it uh understand it fully and our conceptions about what that thing is usually misconceptions is part of it so it says it's an evolving reality it's a self-generating reality the more we understand the the better we can cope with it the the more sophisticated our civilization becomes the more complicated the more there is to understand what do you think is the best i want to come to the markets and how you feel about that the fact that the markets are not perfect uh well let me go to that first you think the markets are not perfect well i think you see i think one of the misconceptions prevailing is that that you know there's such a thing rational expectations efficient markets and so on uh i think that basically markets it's it's closer to the truth to say that markets are always wrong than to say that they're always right okay they're not always wrong but yeah it's closer to the truth you also think there should be some regulation of markets and while we have regulations from country to country to country there is no regulation in a sense a global regulation what i put forward is that uh financial markets are inherently unstable and uh to preserve stability it has to be the objective of policy to to introduce or to preserve stability and in fact we have the central banks whose job it is uh we have the sec that over oversees the securities market but we now have a global market and we don't have global institutions and we still need uh regulation and we really have to do something but i mean i should point out that the quantum fund isn't off short offshore fund yeah i know what i'm speaking about i tell you i don't mind regulation as long as as long as it doesn't single out our fund as long as it applies to everyone equal it's okay to regulate but don't regulate offshore funds no no it's all right to regulate offshore funds as long as as they are not feet not singled out you know and particularly okay for representatives okay uh you would like to see some regulation of derivatives yes yes i think that that uh clearly the uh instability in the yen showed that options can be very disruptive we they were very disruptive in the 87 crash you know that portfolio insurance was the use of a derivative and it was recognized and then so-called circuit breakers were introduced so i think that there is a need to recognize that derivatives can be destabilizing because they bring about trend following behavior automatic trend following behavior by the people who have sold the the the the options and when the market goes against them they have to engage what is called dynamic hedging do you worry when you look at the barons bank situation and the situation in japan uh that they're i think throughout the world that there are these rogue traders who can cover their mistakes without being detected for a period of time i don't think it's anything new i think they've been around since the since the 18th century or even in the in and so is there a volume is that what you knew the stakes the money even maybe the size of the of the of the defaults are because the size of the institutions is is different i don't i think we have always had those those little mishaps and we'll continue to have them and we have a lot of regulations and internal controls and it's only when they break down that you have these incidents you are what 60 something 65 65. um what do you want to do with the rest of your life what is it that you hope you can accomplish now whether you live 30 years or five yeah you know since i'm a believer in an open society i think this is an open-ended question you see you may change next tomorrow no what i mean is what i mean is that that i really don't know i mean i have a sense of direction uh uh how far i can go maybe this is it maybe i've just speaked right this minute yeah well but i mean but what's the opposite side of it i mean what is the open-endedness in terms of what you think you don't know the answer in terms of how whatever you can bring to bear yes well i i really you see having engaged in a a lot of action in the last five years i'm now really entering a period of reflection and i was focusing let's say on eastern europe i now realize that there's something fundamentally flawed of or missing in our open societies there's a a a like what well if there is a a crisis of values or and and a lack of cohesion uh a lack of a common purpose and people are grouping for it in different ways and i see the need for it but i don't know the answer you see i don't know for instance i see this tremendous need for a for a stable security system uh i really think that we we will have an awful lot of uh wars and and and and how about moral values and that the notion of a sense of of purpose yes that that is very much part of of of um question of liberty and freedom yes i mean the question is you see you live in an open society it means that it's a we live in a global society multicultural what is it that we really believe in you know we have our values the japanese have theirs singapore tells us that asian values are different from from from american values there has to be something you see that unites us something that we we we stand for and i have this rather difficult notion that what unites us is that there is the um recognition that our understanding of the world in which we live is imperfect and we have to have respect for each other's opinions that there is a reality but there is a a pluralism of values and that pluralism is a good thing now to make therefore pluralism has to be the common value right now how to get there you see we have it we have it in our enshrined in our constitution you know freedom and so on but it doesn't apply to on a global scale it only applies to our country and it's it's uh you know these things we hold self-evident well it isn't self-evident we somehow have to uh come to this uh conclusion you see that that uh freedom is worth preserving that and that it needs to be preserved that it won't survive without uh our willingness to to fight for it to make some sacrifices for it uh so there has to be let's say a a common ground for which we are willing to to to to stand to stand for soros on soros staying ahead of the curve is a conversation between george torres and byron wien of morgan stanley um i thank you in which it talks about philosophy and business uh and politics thank you for joining us for this this time it's been a pleasure to have you here again we thank you for joining us look forward to seeing you next

Channel: Manufacturing Intellect

Views: 128,429

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Id: A0WvKEbq8v0

Length: 54min 42sec (3282 seconds)

Published: Mon Aug 15 2016