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The Crash of 2008 and What it Means: The New Paradigm for Financial Markets Paperback – March 30, 2009


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Product Details

  • Paperback: 288 pages
  • Publisher: PublicAffairs; Revised edition (March 30, 2009)
  • Language: English
  • ISBN-10: 1586486993
  • ISBN-13: 978-1586486990
  • Product Dimensions: 5.1 x 0.6 x 7.6 inches
  • Shipping Weight: 12 ounces (View shipping rates and policies)
  • Average Customer Review: 3.4 out of 5 stars  See all reviews (28 customer reviews)
  • Amazon Best Sellers Rank: #265,051 in Books (See Top 100 in Books)

Editorial Reviews

Review

"Totally compelling." BBC Business editor Robert Peston "They're wrong about oil, by George. In short, the standard economic assumption that supply and demand drive prices is only a starting point for understanding financial markets. In boom-bust cycles, the textbook theory is not just slightly inaccurate but totally wrong. This is the main argument made by George Soros in his fascinating book on the credit crunch, The New Paradigm for Financial Markets, launched at an LSE lecture last night." The Times "The next generation of economists will have to understand financial bubbles rather than ignore them, as Greenspan and his fellow central bankers have done. They would be well advised to give Soros's theory of reflexivity serious consideration." Sunday Times "(Soros) present(s) a very interesting and disturbing view of how free markets behave, and the nature and extent of the crisis we're in." Sunday Business Post "This was a book that George Soros badly wanted to write. It is probably not what many of its readers expect to read. But it shows that in his deeper thinking about the way markets operate, Soros was several decades ahead of his time... His insights are clear and concisely expressed. They are worth reading for anyone interested in the topic." Financial Times "The runners in the race for the White House should stop and listen to Soros." Independent on Sunday"

About the Author

George Soros is chairman of Soros Fund Management and is the founder of a global network of foundations dedicated to supporting open societies. He is the author of several best-selling books including The Bubble of American Supremacy, Underwriting Democracy, and The Age of Fallibility. He was born in Budapest and lives in New York City.

More About the Author

George Soros was born in Budapest, Hungary on August 12, 1930. He survived the occupation of Budapest and left communist Hungary in 1947 for England, where he graduated from the London School of Economics. While a student at LSE, Mr. Soros became familiar with the work of the philosopher Karl Popper, who had a profound influence on his thinking and later on his professional and philanthropic activities. The financier. In 1956 Mr. Soros moved to the United States, where he began to accumulate a large fortune through an international investment fund he founded and managed. Today he is Chairman of Soros Fund Management LLC.

Customer Reviews

Maybe he just got lucky.
Jean E. Pouliot
Actually, I read the earlier version, and found the book helpful and illuminating.
Slade
Still, and interesting perspective, and worth the read.
Michael L. Sternad

Most Helpful Customer Reviews

47 of 53 people found the following review helpful By Loyd E. Eskildson HALL OF FAME on April 14, 2009
Format: Paperback
This book is a reissue of one Soros published in 2008 ("The New Paradigm for Financial Markets)," with a new section added in which Soros confesses to making some investment errors last year (but still coming out ahead), and underestimating the extent of the current market crash. (See my prior review of his prior book.)

Most of what Soros added is beyond my level of comprehension, possibly explaining why he's rich and I'm not. One point, however, did come out quite clear. Soros points out that buying CDS contracts is the same as going short on those same bonds, while carrying limited risk and unlimited potential profit potential. (Shorting the bonds instead offers unlimited risk and limited profit potential.) This encourages speculating on the short side, and (per Soros) exerts a downward pressure on the underlying bonds.

Soros goes on to claim that Lehman Brothers, AIG, etc. were destroyed by bear raids via shorting stocks and buying CDS. (I see a simpler explanation for AIG's fall - selling too many CDS on different bonds, thinking they would disperse risk and forgetting that they were all highly positively correlated.)

Unlimited shorting of stocks was made possible by abolition of the uptick rule (allowed short sales only when prices were rising), and facilitated by the CDS market.

Soros' bottom line is that the 2008 market crash proves that the efficient-market hypothesis (seeks and finds equilibrium) is now officially dead, giving Soros another opportunity to push his theory of reflexivity (better explained in Wikipedia). He then goes on to offer predictions on where Russia, China, India, etc. are headed in the near future.

Finally, Soros also claims that Obama is facing problems 2X those faced by FDR. The total outstanding credit was 160% GDP in 1929, 260% in 1932 (decline in GDP, accumulation of debt). By comparison, we entered the 2008 crash at 365%, and Soros believes this will rise to about 500% of GDP.
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83 of 97 people found the following review helpful By Slade on April 28, 2009
Format: Paperback
Actually, I read the earlier version, and found the book helpful and illuminating. I only came here to look into the more recent version and get sense of what he has added.

And I find several inaccurate reviews posted by people who apparently glanced at the book only to have a hint enough to write something nasty here.

Sunshine T, the conversation you mention was a reprinted piece of an NYTimes Mag article (written in first person) by Ron Suskind, NOT a conversation Soros had with Karl Rove. It was introduced and opened with a colon. It was a fully indented block of text. Have you been reading English long enough to know that these things mean something is being quoted? Then, next paragraph, Soros himself said "...the aide, presumably Karl Rove..."

Furthermore, Soros points out repeatedly that he is presenting a theory he expects others to investigate. If you want to trash someone's book, READ IT.

Another one-star reviewer, Marius R. completely MISSES THE PRIMARY POINT of the whole book, which is that previous market theories have consistently overlooked the effect humans and our psyches have on the economy. Soros' MAIN POINT is that humans and their psyches are a HUGE factor in the economy.
You got it 180 degrees wrong, M.R. Did you only skim the book also, or is this conscious disinformation?

Yet another, Booklover, didn't review the book either. Did you read it? Your claim as to the "underlying premise" of this book is NOT in this book. That may be Soros' intentions (I doubt it) but it's not in the book.

This is a book review area.

Please take your political outrage somewhere else, you guys. Soros has EARNED the right to have his economic theories analyzed and discussed by intelligent adults.
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53 of 64 people found the following review helpful By Herbert Gintis on June 3, 2009
Format: Paperback Verified Purchase
George Soros presents a critique of and an alternative traditional economic theory, which denies the possibility of the sort of housing and credit bubbles that characterize the crash of 2008 in the United States. Soros is charming, disarming, self-effacing (except about his ability to conquer financial markets), never dismissive of other theories, and never aggrandizing his own approach by presenting straw-man versions of other approaches. I came away from this book with a good deal of respect for Soros as a thinker and as a human being.

Soros' central claim is that traditional economic theory holds that competitive markets tend toward equilibrium, and this is false. "The belief that markets tend toward equilibrium," he writes, "...is no better than Marxist dogma. Both ideologies cloak themselves in scientific guise in order to make themselves more acceptable, but the theories they invoke do not stand up to the test of reality." (p. 75) Soros calls this faulty approach "market fundamentalism."

I learned economic theory when I was a graduate student at Harvard. The central model I learned was called "general equilibrium (GE) theory," initiated by Walras in the late nineteenth century, and perfected in the mid-twentieth century by Debreu, Arrow, Hurwicz, Hahn, McKenzie and others. GE theory is the basic, underlying model in all of contemporary economic theory. It is highly abstract, but by carefully specifying the conditions under which market equilibrium obtains, it provides an analytical basis for understanding not only markets, but also market failures (cases where competitive markets cannot exist, or lead to socially inefficient outcomes).
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