Storied investor George Soros believes that the credit crisis is far from over, and sees regulatory failure as a major cause. From Bloomberg:
Billionaire George Soros said the global credit crisis will get worse before it gets better.Soros, who said lack of oversight is partly responsible for problems in the financial markets, criticized regulators and the U.S. administration for not “responding fully enough.” He was speaking on a teleconference call with reporters today….
“Authorities have not accepted the responsibilities to try to control asset bubbles from going too far,” Soros said. Recently established markets, including for credit-default swaps, are “totally unregulated, that’s the cause of the troubles.”…
Total losses for banks, hedge funds, pension funds, insurance companies, and sovereign wealth funds may swell to $945 billion, the International Monetary Fund said in a report on April 8.
“I think it’s a pretty accurate estimate of the loan losses,” Soros said. “But we have not yet seen the full effect of possible recession.”
Uncertainty about the ability of investors and traders to meet contract obligations is creating “mistrust” in the markets that “will not be fully cleared up until you have a regulated delivery mechanism and oversight over this market,” he said.
Morgan Stanley Chief Executive Officer John Mack said on April 8 that the credit crisis will last a couple of quarters longer and that the markets are facing the most difficult conditions he’s seen in 40 years.
Soros said the crisis will last longer than authorities predict.
“They claim that there will be a pickup in the second half of the year,” he said. “I cannot believe that. I don’t see any reason to believe it because it will take much longer for the full effect of the decline in the housing market to be felt.”
“This is a man-made crisis and it’s made by this false belief that markets correct their own excesses,” Soros said. “That’s the job of the regulators. And the regulators failed to perform their job.”
Separately, Soros said China was not immune to worldwide market conditions. China’s inflation has peaked and may be abating, he said.
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Iagree with Mr Soros’s statement that it is a man-made crisis but disagree in part wih the view that markets are incapable of correcting excesses. Unless one is to view that market chaos and near systemic failure is not punishment enough, if not, what has happened over the last couple of months is a correction of sorts, meted according to concepts of moral hazard. The biggest problem is society at large is unable to accept the consequences of those excesses, hence the bailout attempts. The socialization of the crisis is probably based on the idea that shared pain makes it more bearable; a version of misery loves company?