Soros blames Thatcher for credit crisis

From Times Online
Angela Jameson

George Soros, the billionaire investor, has called the current financial crisis the worst since the Great Depression and predicted that markets will fall further this year after a brief rebound. He has also blamed the present global credit crunch on the climate fostered during the 1980s reigns of Margaret Thatcher and President Ronald Reagan - who he says adopted a laissez-faire attitude that created the current housing bubble, which in turn led to the seizing up of credit markets and the rescue of Bear Stearns. It was during the 1980s that borrowing ballooned and regulation of banks and financial markets became less stringent. These leaders, Mr Soros told Bloomberg News, believed that markets were self-correcting, meaning that if prices get out of line, they will eventually revert to historical norms. "We had a good bottom," Mr Soros said yesterday, referring to the rally in stocks and the dollar after JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. on March 17. "This will probably not prove to be the final bottom,'' he said, adding the rebound may last six weeks to three months as the US moves closer to a recession.
Mr Soros, 77, has returned to a more active role in managing the $17 billion Quantum Endowment Fund, whose profits pay for his philanthropic projects, because of his concerns about the state of money markets. "There is an increasing unwillingness to hold dollars, though there's a lack of suitable alternatives,'' Mr Soros told Bloomberg News. "It's a period of heightened uncertainty." Quantum returned an average of 30 per cent a year before Soros started using outside managers in 2000 for much of his money. Mr Soros's latest book, his 10th, was also released today. Called The New Paradigm for Financial Markets, the book explains the causes of the current meltdown, a crisis Mr Soros says has been in the making since 1980. It also lifts the lid on the trades he put in place this year to protect his wealth, much of it in Quantum. Mr Soros has bet on declines in the dollar, 10-year Treasuries and US and European stocks. He correctly anticipated that foreign currencies would rise, as well as Chinese and Indian equities. The latter bet helped Quantum return 32 per cent in 2007. Quantum's returns this year have ranged from up 3 per cent to down 3 per cent. The euro has climbed 7.5 per cent against the dollar this year and the Japanese yen has gained 9.1 per cent. These and other currencies may continue to strengthen, Mr Soros said. Federal Reserve officials dropped their benchmark interest rate 2 percentage points this year to 2.25 per cent, and Mr Soros does not expect the interest rate to go much lower, given the weak dollar. "We are close to the limit," he said. As for his wagers on developing markets, Mr Soros has not abandoned his holdings in India, even with the 22 per cent drop in the benchmark Indian index this year. "The fundamentals remain good,'' he said. He is less certain about what will happen to Chinese H shares, which trade in Hong Kong. The veteran investor has also predicted that credit default swaps - a way to bet on the creditworthiness of a company - could become the source of the next crisis because the market is unregulated. The credit default swaps market has a notional value of about $45 trillion - or about half the total wealth of US households. Mr Soros recommends the creation of an exchange with a sound capital structure and strict margin requirements, where current and future contracts could be traded. To avoid a super-bubble in the future, Mr Soros said banks must control their own borrowing. They must also curtail lending to clients such as hedge funds by demanding greater collateral and margin requirements on loans.