GEORGE SOROS (1930-) The king of speculation warns against speculating
By HIROMITSU OCHIAI
Asahi Shimbun
Massive speculation in the money market has brought national economies to the brink of collapse. The role of hedge funds, which pool money from wealthy individuals to make speculative investments anywhere in the world, is particularly conspicuous. Of all the parties involved, however, George Soros is the most prominent with a huge fortune amassed by moving staggering sums of money back and forth. While some members of the media have hailed him as a modern alchemist, others refer to him as a monster, and many blame him, at least in part, for the unpredictability of the economy. When I met with him, however, he warned that if things continued in this fashion, financial markets would collapse.
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In mid-September 1992, Soros gambled a fortune. Acting on a hunch that the British pound could not remain at the existing exchange rate, he sold billions of pounds. Although the Bank of England scrambled to intervene by buying British pounds, other speculators followed Soros' lead and the pound plummeted. Soros, who apparently invested $7 billion (840 billion yen) in the venture, made a profit of $950 million and won international fame as "the man who broke the Bank of England."
In 1997, the Thai baht was hit by a wave of selling by speculators and once again some blamed Soros. The government of Thailand exhausted its foreign currency reserves in the struggle to protect the baht, bringing the country to the point of economic collapse. The Malaysian ringgit and other Asian currencies also came under attack and the currency crisis spread throughout Asia.
The Soros Fund Management, located on the 33rd floor of a skyscraper in Manhattan, manages seven hedge funds, including Quantum Fund. Its total capital of approximately $20 billion includes Soros' own capital as well as money entrusted to him by wealthy investors. Although the names of investors are strictly confidential, the majority are said to be Europeans.
I waited in a meeting room overlooking the green expanse of Central Park. After a short time, Soros entered from the adjacent office gripping three or four pens in his right hand. His hair is brown, his eyes blue, and there are deeply etched furrows in his brow. An article I read claimed that he "looks like a scholar, the very impression he desires to create," a description I find to be true.
Our interview lasted about one hour. His replies are amicable but short or even evasive when the subject is his personal life. "Tennis," he replies when I ask him what he enjoys. Concerning his family, he says simply, "I've got five children. But it's my second wife." As for his daily life, he insists "I don't have a typical day." Although rumors report that he abstains from both alcohol and cigarettes, he demurs with a laugh, "No, I like wine. I drink Kirin beer." I ask him what gives his life purpose, but he responds, "Let's say, life is very attractive compared to the alternative."
For three consecutive years beginning in 1991, he ranked No. 1 on Wall Street. Without a doubt, he is no ordinary billionaire, yet according to his friends he is completely indifferent to the kinds of things that interest the nouveau riche. "He has homes in New York and London, but I have never heard any talk of him collecting paintings or antiques." He even uses the subway--not to portray himself as one of the masses--but because it is punctual. When he visited Japan in January 1996, he rode the subway in Tokyo from Hibiya to Kamiyacho on the Hibiya line, paying 160 yen and clinging to the straps like any other passenger.
When I broached economic subjects, his answers are thorough. " ... I believe that there is a false idea about financial markets--namely, that they tend toward equilibrium. This idea is false because financial markets as distinct from other markets have no tendency toward equilibrium because financial markets generally discount the future. But the future is not something fixed. But it depends on how it is discounted."
"What is wrong with financial markets is that they can become unstable.
"... But in society there are values which cannot be expressed by the market because they are values that only people can decide. And the reason why the market has become so important is because the non-market sector--the other parts of society--function much worse than the market.
"Money is supposed to be a means to an end, but it has become an end unto itself. So I think this has gone a little too far. But I want to make it very clear that I am not an opponent of the market."
It seems strange to hear a man who became a billionaire through speculation voice such fears about the future of the market economy and reckless money games. I challenge him, by asking whether money speculation is the reason markets are destabilized.
He responds: "My concern for society is not expressed in my market behavior. ... So as a citizen I believe that markets need some supervision. And as a market participant I play by the rules. There is no conflict because these are different functions."
Such statements and behavior have apparently become more pronounced in the last few years and fellow financiers find it difficult to fathom his intentions. A stockbroker in New York commented, "There's a jinx in this trade that if you talk too much, your luck will fail."
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George Soros was born in Budapest, Hungary, in 1930, the son of a Jewish lawyer. In 1944, Hungary came under Nazi rule and the 14-year-old Soros spent his days hiding in basement cellars and attics to escape Nazi witch hunts. He has said in a previous interview that his father taught him how to survive. At the same time, a fierce antipathy to dictatorship was implanted in his heart. Later this inspired him to offer financial support to groups working for democratization in the Soviet Union and Eastern Europe. He established foundations in over 30 countries to which he has contributed more than $1 billion.
In 1947, at the age of 17, he emigrated to England where he entered the London School of Economics.
Although philosophy strongly appealed to him while he was in university, he became a salesman for a accessories after he graduated in order to make a living. In 1956, he emigrated once again, this time to the United States. There he became a trader for a securities firm, setting himself up independently in 1969 with several years experience under his belt and establishing a fund that later became the key investment Quantum Fund. Although still relatively unknown by the world at large, his fame grew rapidly in Wall Street and Chicago.
George Altman, an African-American broker, traded for the Board of Trade in central Chicago up until 1989. More than 20 years ago in Japan he was a professional baseball player with the Lotte Orions, where he played outfield and held the record for most runs batted in the Pacific League. In his early 40s, he returned to America where he became a trader.
Now 65, Altman moved to Missouri after retiring from the market. "I worked the soybean and government bond markets. It cost me $130,000 to get my license, using up the bulk of my earnings from Japan," he recalls.
"Soros? Sure I knew him. He traded on a completely different scale. When I was on the other side of a trade, it was terrible. But when we were on the same side, I was cheering him on, "Go, George, go!"
According to the Soros Fund Management Co., average annual returns for Quantum Fund from 1969 to 1979 were an incredible 32.6 percent. But it is not always smooth sailing. The Fund has occasionally sustained huge losses. Although Soros never revealed the exact figures, American economic journals and other publications report that he lost $200 million in the stock market crash on Black Monday in October 1987, $400 million through miscalculating the devaluation of the yen in February 1994, and $2 billion in the global stock market crash in October 1997.
At the time of the latter incident, he remarked in an interview, that it was a shock, but that he had no intention of grumbling about it now. In one of his books, he says that his creed is survival.
He attributes this conviction to his experience surviving the Holocaust. The market makes mistakes. People make mistakes. One should never allow oneself to become too caught up in recovering something already lost. This is the philosophy of speculation proposed by a man who has survived the vicissitudes of life to become one of the richest men on Earth.
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The year before last, an American ranked 94th in Japan's list of the highest taxpayers in the nation. He was the representative of Soros Global Research's Tokyo office. His self-assessed personal income tax payment amounted to approximately $290 million in 1996, while his income exceeded $500 million.
Yet at the beginning of last year, he no longer worked at the office. When I asked Soros about him, his comment was, "I can't say that he was particularly successful."
Shuhei Abe, 44, runs an investment consulting firm in Minato Ward, Tokyo and once worked as a contract manager at Soros' office in New York from 1985 to 1988.
"I was short selling Japanese stocks. Although I was just 30 at the time, Soros gave me responsibility for the management of $100 million." Abe was subsequently fired when he ran into trouble managing the money, but he praises Soros highly. "Some people quit after only one month. His treatment of people was based solely upon his own interest for survival. Although my memories are not necessarily heartwarming, that's the nature of the marketplace."
In August last year, the Russian economic crisis intensified and in September, the New York stock market plunged steeply.
Long Term Capital Management, a major American hedge fund, recorded $4 billion in losses. Soros reportedly lost $2 billion.
On Sept. 15, he appeared before the U.S. House of Representatives Committee on Banking and Financial Services where he repeated his concern about money markets that are behaving like wrecking balls, knocking over the economies of entire nations. He declared that the capitalist system is collapsing.
"The global capitalist system which has been responsible for the remarkable prosperity of this country in the last decade is coming apart at the seams," newspapers quoted him as telling the committee.
"Instead of acting like a pendulum, financial markets have recently acted more likely a wrecking ball, knocking over one economy after another."
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