50 of 56 people found the following review helpful
Add-On To Prior Book; Overly Complex (for me at least),
This review is from: The Crash of 2008 and What it Means: The New Paradigm for Financial Markets (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.