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?
No one mentions professionalism or ethics anymore. The government, with lots of legal help, has usurped the capacity and powers of self regulation. Now, we can say it’s the government’s fault. What an expensive luxury this is!
Oh but wait Goldman CEO giving the all clear. hum level three/two exploding but all clear , keep moving nothing to see here
Allot of the problem can be attributed to the liberal view of everyone deserves a home, and while it is true, you need to understand the responsibilities. It created an unnatural market demand generated by borrowers that weren’t ready for the responsibility. Most of those Sub Prime and ALT A loans were geared towards blacks and hispanics, or lower class whites that would not know how to handle the responsibility.
As an underwriter, I couldn’t believe the loans that got approved!!! All within “Guidelines”. Common sense was out the door.
Liberals helped create this too…
So far, this fiasco is only real estate & its derivatives. The seeds go back to 1932 with government guaranteeing loans; 1942 GI bill guaranteeing loans; & 1960s HUD. All of this government loan guaranteeing has created the biggest oversupply of housing in the entire history of mankind.
Now, George Soros says authorities weren’t regulating? They were regulating loan guarantees and got the expected results.
Or was Soros belly-aching about the probable fraud committed by derivative ratings Companies? Laws already exist against fraud. Expect litigation.
There are a couple more shoes to drop: American wages, health costs, government costs, resource consumption, and debt service are out of whack in comparison with every other nation on earth. Soros has one thing right, for the wrong reason, that this isn’t going to be over any time soon.
http://online.wsj.com/article/SB120770358026500175.html?mod=googlenews_wsj
“…
NCRC President and Chief Executive John Taylor said Tuesday that inflated credit ratings have devastated families who have lost their homes to foreclosure. Mr. Taylor blamed conflicts of interest in the ratings business, noting that rating firms are paid by the companies whose securities are being rated.
The Washington-based housing group urged the SEC to examine whether rating firms were “unduly influenced” by securities issuers or underwriters to give inflated ratings to residential mortgage-backed securities. It also called for SEC scrutiny into whether rating firms strayed from their usual standards or defrauded investors, for instance, by failing to consider factors such as mortgage fraud, declining underwriting standards and new loan products for riskier “subprime” borrowers.
…”
As the oversupply of homes start dictating prices (as soon as two or three years from now) the magnitude of derivative losses will be mind-boggling. That is when ratings companies will be hung.