Send to Friend

If you want to read a sobering and accessible explanation of the financial crisis, go immediately to John Cassidy's piece in the current issue of the NY Review of Books. It's called He Foresaw the End of an Era. The "he" Cassidy is referring to is George Soros, who has just published a book with a very long title: The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means.

If the author had been Warren Buffet, the book would already be a bestseller, and the pundits would be echoing its words all over the place. But this strange European named Soros doesn't quite command the same kind of trust with his brand, and in any case his pronouncements are too inconvenient to the conduct of business as usual. Too bad.

Here's what he wrote well before the recent financial meltdown:

Eventually the US government will have to use taxpayer's money to arrest the decline in house prices. Until it does, the decline will be self-reinforcing, with people walking away from homes in which they have negative equity, and more and more financial institutions becoming insolvent, thus reinforcing both the recession and the flight from the dollar.

The Bush administration and most economic forecasters do not understand that markets can be self-reinforcing on the downside, as well as on the upside. They are waiting for the housing market to find a bottom on its own, but it is further away than they think.

Apparently, we haven't reached the bottom yet. Might be worth listening to what else Soros has to say.