George Soros Lectures: The Way Ahead Q&A

well thank you very much Jorge for another masterful performance I must say that I am honoured and delighted to have been invited to chair this fifth and last lecture in the series and maybe it's appropriate that the London School of Economics should come in at the end and as we came in at the beginning and in his first lecture George talked about his time at the LSE in the late 40s and some of the intellectual foundations of his current worldview which arose from his interactions with Karl Popper at that time now if you were an audience in London you could see George Soros and me performing on stage every night of the week indeed you could do so tonight I see some slightly baffled faces George knows what this means in that there is in fact a play about the financial crisis on at the National Theatre a very large play by a man called David hare in which both George and I are characters and we have only ourselves to blame for this because we talked to the author about the origins of the crisis and all our own words on the crisis are used but they are spoken by actors and this I think and I'm sure George would agree is a peculiar version of the problem he talked about in lecture four which is the principal agent problem in that we are the principal's but we have dramatic agents acting on our behalf as it happens I think George's agent is rather good while mine as my wife pointed out is too ample and well padded and all those hours I spend in the gym have gone to waste but you are not here invited me here I think as a drama critic but rather to respond to some of the recommendations that George has made in his last lecture first should I say that I think he's absolutely right to emphasize that this crisis is quite unlike others we have been through and that it does require a fundamental rethink of the way we oversee the world economy and regulate its financial markets I happen to think also that he's right that the recovery is fragile and may well Peter out in the next year or so but I'm sure that George would accept that our views on that can be little more than hunches at this point but I find it rather depressing that many commentators have now after a period in which people were more ready to think fundamentally about whether efficient markets were an appropriate way of thinking about things and whether financial regulation was probably designed that now many people have taken refuge in the positions they held before all this started so we know that politicians on the Left think it's all the prof act all the fault of too little regulation The Wall Street Journal leader writers are absolutely convinced that it was all a problem of too much regulation they French blame anglo-saxon capitalism the Germans blame hedge funds George Brown Gordon Brown in London says it was a crisis like Bruce Springsteen was born in the USA and nothing to do with us no doubt in this part of the world to the Austrians blame the Hungarians and the Hungarians blame the Austrians but I think we have to do better and I very much support Georgia's general proposition that we do need to rethink some of the fundamental premises on which we have built the International Monetary and regulatory system now on regulation and I used to be the financial regulator in the UK for six years and have therefore been a member of all of the International groups the Basel Committee and all of that he is right to point out that the system is national and not global and the fundamental point that global regulation as it is now conceived does not match the needs of global markets is correct I think George might have gone on to add that there's another respect in which regulation is out of date and that is that it's built on the three pillars eped that there is banking that there are securities and that there is insurance and never the three shall meet and we know that some of the most toxic and dangerous elements of this crisis were precisely where these three interactions say that AIG which was regulated as an insurance company was trading in the securities markets with banks and investment banks and no one was looking at that picture in the round so I agree with you George on that point but I think you need to also look at the structure of the regulatory networks that we currently have I also think it's important to distinguish the European problem from the broader global problem and here I would have put the points a little differently the key distinction in Europe and this applies technically to the European Economic Area not to the European Union is that if you are a financial institution in Europe authorized in one place whether it's Iceland or Latvia or London then you can do what you like across the whole economic area and there is no local purchase if you like by local regulators on those institutions and that was the fundamental problem with Icelandic banks in the UK and in Netherlands and indeed with banks in Western Europe operating in Eastern Europe who withdrew their liquidity when the crisis was at its peak and there was nothing that the local authorities could do about that that floor needs to be corrected you can either dismantle the single financial market if you wish but that would have other costs or you need to produce some central authority to oversee these pan-european institutions after Lisbon is agreed and it looks after yesterday that that may well happen it may be possible to make some progress in my view and this is perhaps a disloyal thing to say the problem will turn out to be the United Kingdom and not Germany because it's the UK that is currently resisting the establishment of central regulatory authorities in Europe there is also of course as George pointed out the broader issue of the structure of the eurozone and the absence of a central fiscal or perhaps resolution Authority which will take a bit longer but I think that it is possible to imagine a European resolution authority at least for failing institutions even if one can't get as far as a central fiscal authority with broader powers globally I think the issues are a little different some things have been done as George recognised we've had g20 summits and we have broadened the membership of the key international groupings it was absurd in the past that over the last decade the central organism that has been supposed to oversee global financial stability has been the financial stability forum as it then was it's now become the Financial Stability Board but that body excluded China it excluded India it excluded Brazil for example and so the big elephant in the room over the last decade of the emerging huge global imbalances which we now call them was one which could not be addressed in that forum the key participants were not in the room but there is I think in addition to the membership point which is being addressed a broader question which is why it is that in the financial area there is no world financial organization like the WTO in trade governments have recognized that it may be rational for them to concede some element of sovereignty to a global body on the basis that they all do gain by free trade and there needs to be some policeman to ensure that people don't break the rules with impunity it seems to me that we do all benefit from an interconnected global financial system as long as it is appropriately regulated but governments have not been prepared to make any concession to a global body in relation to the oversight of that system the US has been the main resistor the u.s. indeed refused even the modest steps that were put in place after the Asian crisis where the IMF was given the authority to assess people's regulatory systems and the u.s. was the one country that refused to allow an IMF inspection of its regulation on the basis that US financial regulation was obviously unimprovable now they may now I think take a slightly different view but the summit's have so far failed to engage with this fundamental question of whether it is rational to consider the session of some elements of financial sovereignty to a global body in the interests of ensuring that the system does not disintegrate as I think it is at risk of doing as George pointed out I hope that one of the summits or a grander Bretton Woods conference as George recommends will come to address that point but at the moment it's hard to be optimistic finally before I open up to the audience both in Hong Kong and here in Budapest just a word on what George said about the role of China I completely agree that one consequence of this crisis will be a further shift in the center of economic gravity to the east for the students here who like this kind of thing there are some French economists who have attempted to calculate precisely where the world's center of economic gravity is I'm sure George knows but I won't embarrass him by asking but actually it has moved this is a calculation done by at least squares method which is the point in the world which is least far away from where all the rest of economic activity is and fifteen years ago it was just near wreck of eccentric but if you think about it and think of North America and Western Europe and the China and you can see there's some rationality to that and it has moved in the last 15 years from Reykjavik to Spitsbergen so if you wish to be at the center of the world's economy Spitsbergen is the place for your next holiday but well seriously I think we do have to recognize that shift and we do have to engage and also the Chinese rightly have to recognize that they are more important and that they can't just be in world for a passive and be just price takers as it were which I think has been their attitude so far I'm privileged to be a member of the International Advisory Board of the Chinese banking regulator and the securities regulator as well and I think that the policymakers there do recognize the risks they run from unbalanced growth they recognize the risks they run from the way in which they have sought to stimulate their economy the fiscal stimulus has gone largely through the banking system and huge increases in bank lending have occurred some of them in directed bank lending and they do understand I think the risks that they run as George says the structure of their growth is intimately bound up with the nature of the political regime I think that lesson the Chinese have sort of learned although they don't say it quite explicitly is that excessive reliance on export-led growth can be a vulnerability can lead you into a position where your economy is vulnerable to events which you cannot control but escaping from that growth model is difficult and I think does involve integrating the Chinese much more closely into the world economic system so that they come fully to understand the true nature of their interdependence with the rest of us now I'm sure that Georgia speech will have generated many thoughts and questions in your minds and so what we're now going to do is first of all go to Hong Kong where I know there are two or three questions certainly that will be asked so I think we'll begin there after that we will come back and we will hear from Senator Burke a who is on the front row and then we will open it up to you but let's go first to Hong Kong where I believe someone is waiting yes indeed on the screen I can see to ask the first question thank you today my name is rusty Todd and I teach business journalism here the event at this end today was organized by the journalism and Media Studies Center and the School of Economics and finance as you can tell we've got a packed house there are many faculty members here but we're going to allow all three of our questions to come from our students whom we're very proud of and I will turn it over to them Darci first question thank you nice to meet you mr. Soros my name is Darcy I come from mainland China and I'm now in my year three majoring in economics and finance my question today is China you know on one hand China is growing as more and more influential economy in the world and many people say that Shanghai is going to be a new financial center in Asia but on the other hand the Chinese government's is imposing a tight control over its economy and its financial markets to ensure its economic stability and privileges in international trade and etc and this is I think it's certain to limit the growth of its financial markets and so my question is in your opinion how would the Chinese government try to resolve such a paradox and particularly for Shanghai do you think that it would really become an international financial center or just a regional or domestic one thank you thank you George I think your your question actually is more about Hong Kong than China and I think your analysis is basically accurate and I think that it means that Hong Kong will continue to play a very important role because of the international character of Hong Kong and the the rule of law that actually prevails in in Hong Kong and therefore facilitates international financial transactions while Shanghai will undoubtedly grow in in importance I think that Hong Kong Hong Kong's role in the world I think is pretty well assured provided the system hangs together thank you can we have the second question from Hong Kong yeah here at the University of Hong Kong mr. Soros do you think that the Copenhagen talks will produce a global plan for dealing with climate change and do you think the global financial system can come up with the huge amounts of money needed to pay for such a plan thank you a very good question I'm afraid the chances of an international agreement of substance in in Copenhagen are rather rather low because while most countries and now genuinely recognize that there is a very serious global problem and I think the the change in China's attitude is particularly impressive I was in China in 2005 and then again I returned just last year and the transformation in a Chinese attitude is really quite remarkable they realize that even though they are being pushed by the rest of the world that they have internalized the needs they have seen the pictures of the Himalayan glaciers melting and they already have a water problem in north china and they realized that they is liable to then also affect South China so China is definitely on board but the the approach taken in China is very different from the approach taken in Europe and again Europe is different from the United States and therefore while it may be possible to have some general global targets unfortunately it is I think almost impossible to have an international system that would establish a an international price on carbon which is I think really what is needed to bring the problem and under under control now I think there is an opportunity to create some international fund a very substantial international fund for dealing globally particularly in the field of forestry and agriculture where the the the savings the potential for savings is actually the the greatest I didn't go into it in my speech but actually the the issue of SD ARS provides that opportunity and since the rich countries don't need the extra reserves they could renounce the allocations and it could be used for a global fund for taking care of protecting the forests in the in in in Brazil and in Indonesia and other places and also to put up a fund for adaptation for those countries that are going to be most badly hurt and don't have the resources of their own like Bangladesh and and and and Africa now the SDR s because the very special kind of instrument which there is a cost to using it and that somebody has to pay that cost and the the gold reserves of the IMF have been designated to be used for the least developed benefit of the least developed countries so I think it could be used the gold reserves could be used to pay the cost of the use of STRs and that's how an international fund could be financed and I think this would be this is something that actually can be done it is already done the this has happened on a small scale and I think a fund of a hundred billion could at least be put together even in time for Copenhagen do you think there's a problem of American of lack of American leadership on this and just that Obama has had a recession to deal with he's had the health care to deal with he's got Afghanistan to deal with and it's simply the issue doesn't seem to be getting their political attention in Waterloo right then this actually and it isn't President Obama's interest in the subject that stops it stops America from taking the leadership there is a particular law in America that that specifically applies to the use of STRs the American STRs and so America it requires the government to go to the to Congress for authorization they would need legislation that is not the case in European countries so actually the European countries could do it without America it wouldn't cost them anything because the IMF would be paying for it and it would be a great opportunity for Europe to take leadership it's high time that Europe solution something some area of leadership and because America is handicapped sort of more or less tie hands tied this would be the the time for Europe to take the leadership and they are genuinely and of course America could come along it would take them longer so that might be a job for the new European president whoever that will turn out to be are you a candidate for that job I think you'd be it there'd be a lot of supporters let's have the third question from Hong Kong hi my name is yang and I'm also from the journalism and media studies Center I started journaling in the university of hong kong and as you have been talking about the necessity and importance of international cooperation and global regulation in your new era I would like to have your opinion on regional free trade agreements do you think they are helpful or do you think they just get in the pot getting the way of our global progress it's a very good question and there isn't really no simple simple answer to it because a regional agreements could be a a handicap or it could be a stepping stone and I think a proper international structure would involve regional cooperation agreements as well as an international one I think there is scope for both thank you we'll will leave Hong Kong we reserve the right to come back to you later if we have time to do that but I'm now going to ask senator worke from Brazil who is on the front row that's right bring up the lights and wait for the microphone who is going to maybe come up here sure I was asking to make an abstract of these five years lectures in five minutes and I hope Aldo the way musta put the whole lectures together choosing keywords I trust ten keywords of your speeches and they put them together in groups of two first is reflexive it reflexivity and manipulation I'm living here mr. Soros believing that there is an epidemiological problem to understand reality as you put and the reality is being manipulated by agencies and agents the second towards is bubbles in market fundamentalism I'm leaving believing that the bubbles this silent atomic bombs of this time they were created by the market fundamentalism and we need some careful regulations the third group of two words is private interests any common goods I'm living believing that private interests alone will not bring common goods we need a lot of others ideas proposition and even fill Entropia to put private interests together with the common good the fourth is open society and democracy I'm living with the idea that democracy is necessary but not enough to have an open society we think after the words of mr. Soros as I think I am NOT I'm not speaking for you this Maya abstraction my my my work I think that we need moral values / even the power of majorities the democracy Alanna will not work 50 today we have towards international corporation or national dependence American Chinese or even the g20 group against the whole other words we need to have international cooperation and not just submit one to three countries put in their power this is the abstract now I want to put I have enough I have here two minutes I want to put some questions not to answer today just to keep me think about that one is from the philosophical point of view not only to look for the Gemological problem of reflexivity but you also to the ontology of wealth what is worth how to define correctly wealth the other is how to put the national open societies in a planetary open civilization because the open society each one of them is national how to cope with immigration how to cope with ecology how to cope with international unemployment and all others planetary problems in the at least I cannot avoid to say mr. surah knows me one time were not for today mr. Soros what is the role of Education to change the of education to change the word I see no other way to substitute capitalism socialism but education is man and the mr. sir I just want to say to you any - director that personally I thank you very much for these days I hope you have energy to keep this kind of job you are doing now for many many years you have to take these speeches in lectures all of the words in the mr. rector please take the Central European University as the platform to put mr. Soros around the word thank you very much thank you not some some huge questions there George which could require five more lectures to answer I think the ontology of wealth for global open society and the role of education but do you want to pick up I think it would require actually three lectures there are very very good questions wealth is an interesting thing it reminds me of traveling in the Air France plane the stewardess so may look looking at some charts and and she looked at it and and she said something to the effect that that wealth is is somehow connected with death and that it's not alive that that life is something else I don't know it's pretty profound I thought at the time and for me I think a lecture to expand of course the the role of civil society I think is an international civil society it is very important I think it's going to be a driving force because after all democratic governments are generally speaking responsible responsive to the demands of their their population and in that in that sense I think you China but it's not a democratic country is also what distinguishes it that the leadership is responsive to the demands of the population they are very very sensitive to it so so I think that if there is a demand on the part of civil society for greater international cooperation it will drive the the the leaders the governments to towards that so I think it's a very very important factor it already is and it ought to be more so and that the 13 was education and of course I think that I mean this reflexivity while it's a very simple concept that's probably why it's hasn't been recognized it's too simple it's too common sense nevertheless it does make it more difficult to solve human problems to do because in trying to understand human affairs you are shooting at a moving target it's not something inert but it's it's interactive and your attempt to understand reality changes reality and that makes it much more difficult so I think - education has to play a very important role in enabling us to deal with these rather complex human and political and social problems more effectively thank you now the rest of you here have been all very patient so far but now is your turn yes I now see a hand here could you wait for the microphone to come to you because particularly the people in Hong Kong wait yeah and give your name that'll be helpful thank you my name is Patrick lon and well I'm just a regular Austrian making supervisor but still I would like to ask a provocative question to you because I know it's an Austrian I know exactly which problem you address do you think that the most powerful men and women have not enough honor to give up a little bit of power to sustain freedom in future that's my question and last but not least Austrians do not blame Hungarians Austrians blame Germans and we all know Thomas Bennett told us that sometimes they're not right well the question it's quite a philosophical question there was - whether one of the fundamental problems we have is that people with power unwilling to cede any of it even if that would be in the interests of generating a more yes entirely agree and this was sort of very much at the heart of the agency problem that I was talking about because the political leaders are supposed to be serving the interests of the people who elected them and yet they put their personal interests ahead of sometimes of the of the interests of the people whom they who elected them and and and they cling to power I mean in non democratic states that's a very big issue lifetime president presidency but in democratic countries to the personal the egos of the of the leaders very often send in the in the in in the way of the common interest somebody over there's caught my eye yes and if you could take a microphone down the man sitting on the aisle there thank you that's the one I'm gavel each an alumnus of the CEO Business School mr. George do you think that there is a need for a world reserve currency as put forward by mr. Robert Mundell which might be a better tool towards creating a level playing field between the countries of the center and those of the periphery as opposed to Special Drawing rights which are subject to scrutiny and and regulation yes I mean Keynes was the first one who proposed the bank or as the as the international currency but it was one step too far and I'm afraid the proposal of a a an international currency is is one step too far however the Special Drawing rights are a step in that direction because natural drawing rights are a combination of the national currencies which are adjusted according to the to the relative importance of the countries so it's a composite of national currencies and I think that is and then it is actually a desirable reform to move in that direction it's it's an extremely complex structure perhaps can be simplified but also it would be further complicated by the admission of additional currencies because I think right now it's composed of the dollar the euro sterling and the yen and I think it to be really representative it would certainly have to include the remember and the riad and maybe a few other currencies to make it really more appropriate but I'm very much in favor of that and I think it is also in in in in in the interest of the United States now to move in that direction when you your vie ideas for a Bretton Woods that would look at all of this I mean how how much political interest do you think there is in that in the US and in Europe you know when you when you meet political leaders do do you get a kind of complete rejection or do you think there is some interest well no I'm afraid I don't see the interest among the leaders so that's another area where I think a popular demand would be needed to get you there and I think in particular for the United States since we have had a great deal of benefit from it from the past in the past but some of that turned out to be illusory because basically it allowed us to the United States to build up a chronic current account deficit which reached six and a half percent of the GDP would be at its at at the end of a 25-year build-up and that made everybody it enabled America to spend six and a half percent more than it so it means it felt very good but now there is a very very heavy price to pay and that should be enough to tell us that we really ought to do without it that we would be better off not for the dollar not to play that role because it's built into the system that if you have if the dollar is the international currency and if the world economy grows you need more dollars and where can the guitars come from only from the issuing country so it builds the deficit interest into the system and it's not good so I think it would be in our interest to move away from it I think I saw another hand yeah just quite near where the last one was thank you hello mr. Soros I am my name is Paulo corpo I am French and I'm a faculty member this year Business School my question is the following in the past there has been a huge trade deficit of the US with East Asia so this deficit has not changed much it's just shifted from Hong Kong Taiwan to China now due to the labor change while this deficit in the past has not caused such huge trouble but will cause such huge change in the future thank you it's a question is that why the US has been running a large trade deficit with East Asia for a long time it used to be primarily with places like Taiwan and Hong Kong it then shifted to the mainland why is it that in the past it didn't cause such instability and trouble and more recently it has done well it took 25 years for it to build up it really started in the 80s with what I call Reagan's Imperial circle and it has it has just continued to build up and actually it as I said in my presentation it could have continued almost indefinitely because they were willing lender and willing borrower the United States was happy to to spend more than it turned and there were countries in in Asia that they're very happy to build up their wealth and and build up their savings that way so there was the symbiosis a symbiotic relationship it would have continued and actually it is still continuing now because of the big stimulus applied in the United States the the the deficit is still at very large and China is still building up its a surplus so actually we haven't yet started correcting it so it's it's really the housing bubble and what happened to the consumers and to the banking system that has brought this thing to an end the combination of the trade surplus and the domestic bubbles yeah it was the it was the domestic bubble at the the housing bubble that became unsustainable not not the deficit that could have continued as I say for indefinitely now I'm the LSC I get into huge trouble if I don't take as many women questions as I take men but I'm struggling because I can't see any women who want to ask a question so I saw them I still pick on one of you soon if you don't but there's some but there was somebody over here I think I couldn't I didn't I see a hand there yes there's one there yes sir that's the one thank you look mister sir yes the abated woman have not the lady but you're very nice enough mister first my name is arrow murder I'm coming from Israel and I'm student of the CEO in the CEO my question is more regarding your previous lectures you mentioned you mentioned terms such as seeking for the truth avoiding manipulation you also mentioned that regulator should be the one to put the regulation on markets but you also mentioned that investor our profit oriented and this was acceptable value after this crisis don't you think that investor especially the big players in the be in the markets should have an ethical responsibility rather than just going after the profit thank you shouldn't investors have more of an ethical responsibility rather than simply profit seeking reservation well as I said in my lecture and I maintain that position that as an investor in the in the in the financial markets you have and if the markets are truly efficient with many participants then the influence of an individual investor is minimal it's at a very margin and there and therefore you really are not responsible for the outcome now you can organize for instance investors to act as a group as was done in the case of South Africa and it was actually quite successful in being in pressure on Africa so there are areas where investors could act as a group and form a group and and have an influence on legislation actually some of the legislation with regard to extractive industries is is relying on this kind of pressure but in the normal course of events the the this is not where the investors individual investors can influence the outcome and it's where they can influence it which is in legislation and in making of the rules that's where they ought to put ethical considerations ahead of their personal interests thank you now I do have a woman question over here second row and then I see someone behind as well so that yeah no woman on the second row that there first yes and then you I've got you okay okay yeah you got the woman and from a very exchange country with a different economic pattern as Argentina that has not been mentioned much here but I would like to hear more my question about I'm a PhD student in see you first my question goes more to towards the summary of what has been discussed in here and lately this concept of social responsibility I mean I would like to know how how this concept fits into the theory of reflexivity that mr. Schurz has been exposed here and if there is such certain kind of a scope in this concept for for generating this change is that he's looking for in agency and Asian's I think that might be a chance in there but we would like to know which is opinion thank you student from Argentina which hasn't been mentioned interested in how the concept of social responsibility can be built into reflexivity and whether that can help resolve some of the problems if people market participants had more sense of social responsibility I guess it's a cousin of the question and we've just had yeah I don't immediately respond to the question I don't I don't know how it could be used and if you have any suggestions that would be interested it doesn't I don't connect immediately this mean are you are you suggesting that I mean one of the things people sometimes argue is that if you impose duties on corporations on corporate social responsibility et cetera you could do the same thing with investors is that the kind of argument that you're suggesting yeah well it's a sort of combination of everything because senator Varkey was very concerned with this education and we we address also any question in in this discussion I think the third session the answer of mr. Schurz was that one solution to the lack of answers we have solving crisis and the commitment of these agents in the international market let's say is connecting people through education and spreading this reflexivity theory of my education so I was thinking that the social responsibility can be a tool for solving the problem of agency and Asian's he's founding in his evaluation of how the market is operating and moreover I think that this education goal he has also can be a spread but this concept of social responsibility so I always thought that there is a need of discuss and the discussion that we are having here not with this target of people but those who actually are active participants of the market so I always went back home let's say saying okay but they shouldn't be the one I am a tree I've been addressed but someone else here needs to be addressed so and I think that the concept of social responsibility can be a good nexus thank you yes the notion is that I mean it's partly linked to what senator working was saying about the need for education and to educate people to understand the way they are acting and your reflexivity but that in and her observation is that we shouldn't really be talking to students at the CU we should be talking to financial market participants and how do you therefore you get your ideas across to them and make financial market participants understand the broad framework within which they are operating and their social responsibility look I think the same thing applies to financial market participants as to other citizens namely when it comes to the making of the rules and clearly you are in great need of financial reform they should not be lobbying for their private interests their special interests and it is happening right now in the United States and wherefores is the legislation and reform is running into very serious opposition from from the local banks because they are quite a few abuses in the use of credit cards it's really quite a I think quite a shocking situation how credit cards have been used to exploit I would say in a way the Honourable segment of the population vulnerable in the sense that they became in indebted to you they became uses of credit cards and that made them vulnerable and and if you look at the kind of charges that are that are laughing they are really quite excessive but the banks are defending it and and and refusing to allow a consumer protection agency that would that would deal with that and that is I think reprehensible but I think the same applies to other industries as well okay now I've got one more question over there and then but I will take a question from Hong Kong after that if you have one and since I've just had a woman it doesn't have to be a woman nor does it have to be a man with a beard it could be anybody so next one over here my name is Laszlo Rivera and let me ask you here from the very background of this nice hole mr. surage pronouncing your name in Budapest I would have two questions the question number one is the topic you lecture yesterday and before yesterday and I would like to ask you whether in your reflexive open society in your mind is it a deterministic world or a kind of stochastic world the question is reasonable because totally different vehicles and methods are necessary in order to avoid contradictions and I suppose that you as a as an inventor of a new system let's say you try to achieve a contradiction free system or at least the system where the number of contradictions are as less as possible so in your mind is it a deterministic or stochastic world and question number two is your world of reflexivity a deterministic world or a stochastic world it's it's it's it's a world of trial and error definitely not deterministic look I think so your second one okay so the second question is about the regulation you mentioned in your today lecture after the big crash in 1929 the US House of Representative is a so-called glass-steagall Act which tried to make a significant difference between very risky and restless key products in the financial sector in your mind is your proposition something very similar to it because so far I know this Act the glass-steagall Act had been ignored at the end of the second period of the Clinton administration thank you it's a question about glass-steagall I mean is what you're proposing effectively a reinstatement of the glass-steagall division this is an open question whether you need to go back there I I would look for a solution short of a return to the glass-steagall I think it's first of all it had its also its own shortcomings for instance the fact that that the banking system was strictly confined to individual states it actually increased the risks of banks concentration areas particularly dependent on agriculture sources and so on so it wasn't an ideal system at all so but I do think that you have to have internal separations of capital not only between commercial banking and the investment banking but but investment banking participation in specific markets because you need to break or reduce Khan ajun going from one market to another the the abolition of these these segmentation resulted in contagion both internationally and within markets and you know the collapse of the subprime market then cascaded in remarkably fast to to all kinds of other markets some of whose existence I wasn't even aware of like like municipal bonds generate security auction rate that's when I discovered ooh there are markets we didn't know about that collapse and so you do need to come from a compartmentalized and and I used the analogy to oil tankers which are very built buffers so that the oil can't slosh around because otherwise yeah and I had the pleasure of flying an airplane Russian tupolev carrying gas pipes to to to Bosnia to Sarajevo and the crew had to constantly readjust the target so that we didn't roll over that's a good example acknowledged of now I know it's getting late in Hong Kong but do we have another question from Hong Kong yes good investors mid sentiment and in reality but Australia has recovered China has recovered and and America has also you know seems to have recovered so where do you identified as the gap between the mood and the reality and there's a widespread fear of inflation because of the huge injection of government money into the economy but do you think this is a misconception myself because the the money will eventually be withdrawn from the market thank you he points out that a number of countries are already recovering including now the United States and so he's really asking where you see the the areas of concerns to are but also secondly the second question is whether all this liquidity that's been injected in the system is likely to result in a resurgence of inflation yeah well the two are connected in a way because the recovery has been brought about by the unprecedented use of financial and fiscal stimulus and the the the problem is that certainly in the United States I think you will continue to need additional injections of stimulus to keep the economy going because the recovery is very much the result of that stimulus being applied and you haven't yet reduced the percentage of consumption as a percentage of the GNP in in the United States it was up to 70% which is too high and it's got to drop to low 60s and it has dropped of course but at least part of the half the drop is due to transfer payments which came out of the syllabus so that's the problem that's confronting the world which may not be fully recognized then of course the other side is that with all this injection of liquidity as the the the private lending or gamble bank lending is restarted the from deflation you could flip over into inflation and so because you are facing this very complicated two-step maneuver I mean the the global economy at particularly the American economy was very far from equilibrium and when you have this kind of far from equilibrium situation to correct it first you have to when you are skidding you have to turn the wheel the same way as the car is skidding and then you have to correct it so it's a it's a two-step maneuver and and of course how to execute the second step is the big problem ahead of us yeah I've got another one there man in a blue shed thanks for coming mr. Soros my name is Chris Nicholson I'm an American student in the one year MBA program and we're talking about a lot of increased responsibilities in a way for our political leaders and maybe our corporate board members and so I'm curious whether you think we have the incentives in place right now to attract the top people that we want to occupy those roles you know in light of the burdens and risks that they that they take in pursuing them at the same time both politicians and board members you're correct yeah yeah the person is whether we have given all of the burdens and responsibilities on both politicians trying to manage the system but also board members whether the incentives and rewards are right to attract people into those key jobs where there's political oversight or as Board of Directors oversight I think it is actually very largely an ethical problem incentives alone will you I presume that you're referring to the to the extra responsibility that now affects board members on the new legislation I think that it is actually very largely an ethical problem that the the people in charge have to act in a way that they don't transgress the law it's purely incentives then you it was not enough to stop from companies doing things that they they they ought not to be doing like not not disclosing information correctly and I think that it would also involve involve that people who take on the responsibility would also have more respect for the work that they are doing it now I think we're running quite up against time I saw two more and I'm gonna take them together yes these these two and then we'll make those the last questions man in black first and then you okay don't thank you I'm just a bunch of young PhD candidate at Central University my question refers to ordinary people you've mentioned today the importance of civil society and at the end of the lecture yesterday you mentioned that people are the most important in the system however most of the discussion centered rather on governments markets and elites so I was wondering first of all what is the role of ordinary people in in this framework second of all you mentioned the increasing manipulation that we have in the relations between governments and ordinary people citizens let's say now if this manipulation has increased and it affects somehow the basis of the system it's it means that we are somehow in problem because the base of the system is no longer capable of performing its role so my question here would be how can the ordinary people regain their significance their meaning in the system that we have thank you thank you and then we'll take this other one yeah man in there if you can get the microphone by red shirt right that's it in fact I have no question I'd like just to speak for a lady I'm not a lady but I'd like to speak for my daughter my name is Jamar Oceano or Georgia fish and proud to have a similar name I am a professor of mathematics at the Central European University well first I'd like to thank George for for your great lectures second maybe you may remember two years ago I offered you one of my books in fact that book was dedicated to you George because I consider well you're a great supporter of mathematics are many other things and now I would like to offer another book don't worry it's not my book in fact it's you it is Romanian translation now if your book about one fully fallibility the translation well it turns out that the translation belongs to my daughter Laura she is not not in Budapest at the moment she's in Bristol in England just me to offer you this book in fact in fact this is a strong evidence that your ideas are very much appreciated everywhere in including many thank you thank you very much there's a that is one of your books translated into Romanian by his daughter who is currently in Bristol bit here it comes very well good and then the previous question was really what happened to the people you you talk about the problem of democracy and particularly the problem of manipulation of people with well I mean your reflexivity theory being based on the notion that some of what people are doing is deliberately manipulative how what should people be doing ordinary people be doing in the light of the fact that they are being manipulated if you see it I mean what is the role for the people no I think it's the ordinary people have a very big role they must actually punish those who lie to them particularly if it's deliberate deception they and they they have the vote and they should exercise it in that way and that would discourage that kind of deliberate manipulation I think they are they are the ultimate judge and if they exercise good judgement we will have a well-functioning democracy thank you I think we've bought we've run where we ran past our scheduled time but we're an hour two hours so on my behalf could i I know that John's going to deliver a final thanks but could I thank the audience both here and in Hong Kong for making my job easy we had lots of good questions and I'll then and I just what one personal comment is that all my life I've been trying to find the secret of how to chat up Air France air hostesses and it's a bit late but I now have discovered I need a few charts and graphs and that's the secret and that may be very useful to some of the men out there thank you well I think Howard Davies has summed it up very well you can see how many tips have been acquired during the course of this week all kinds in the market in the air France all sorts of things we have really had an extraordinary week I'm sure you would all agree we've been inspired provoked and challenged by our masterful and eloquent lecturer and he in turn has been prodded and pushed and praised by our global audience in Budapest in London and Cambridge in New York and Shanghai and Hong Kong today and I think we'd all agree that we've come through far wiser perhaps and we were on Monday morning there are many subjects that have been covered Howard Davies even took us into the theatre today which I found rather an interesting diversion when he told us that he and George Soros are not only starring here on the stage and the Hungarian Academy of Sciences but also on the London stage and I would only add the obvious which is that George Soros Soros is is starring on the world stage and these lectures are the latest and in many ways the greatest of his many performances and let me respond to Senator blockades challenge and say that we at CTU regard George Soros as our most distinguished lecturer and invite you George to continue to be our global superstar I want to thank our overflow audience of students in Hong Kong a wonderful visual image that many of you have seen and thank you for your questions and our lively audience here and Budapest's our distinguished moderator Howard Davies are thoughtful commentator Chris Tavano our K and above wall let me ask you to join me in saluting our superstar for his extraordinary performance throughout this week thank you

Channel: Open Society Foundations

Views: 11,922

Rating: 3.8318584 out of 5

Keywords: george, soros, financial crisis, open society, lecture, central european university

Id: 1ndNIgfyU2U

Length: 72min 45sec (4365 seconds)

Published: Mon Oct 11 2010