For those who believe Soros is an insider – certainly not in the innermost ring, but closer than the rest of us – the following comments from a review of his upcoming book, “The Tragedy of the European Union,” are telling:
George Soros, the billionaire investor, believes the banking sector is a “parasite” holding back the economic recovery and an “incestuous” relationship with regulators means little has been done to resolve the issues behind the 2008 crisis.
“The banking sector is acting as a parasite on the real economy,” Mr Soros said in his new book “The Tragedy of the European Union”.
“The profitability of the finance industry has been excessive. For a while 35pc of all corporate profits in the United Kingdom and the United States came from the financial sector. That’s absurd.”
“Very little has been done to correct the excess leverage in the European banking system. The equity in the banks relative to their balance sheets is wafer thin, and that makes them very vulnerable.
“A real danger to the financial system is the incestuous relationship between national authorities and bank managements. France in particular is famous for its inspecteurs de finance, who end up running its major banks. Germany has its Landesbanken and Spain its caixas, which have unhealthy connections with provincial politicians.”
Each of the above statements could qualify for top billing at LRC or as the main topic in a Mises Daily article. Robert Wenzel could not have penned a more biting criticism of the current crony-banking environment.
But these statements aren’t the most telling; Soros has written such words before, writing like an Austrian economist in the past, for example:
I believe that the failure [of modern economic theory] is more profound than generally recognized. It goes back to the foundations of economic theory. Economics tried to model itself on Newtonian physics. It sought to establish universally and timelessly valid laws governing reality. But economics is a social science and there is a fundamental difference between the natural and social sciences. Social phenomena have thinking participants who base their decisions on imperfect knowledge. That is what economic theory has tried to ignore.
Social events, by contrast, have thinking participants who have a will of their own. They are not detached observers but engaged decision makers whose decisions greatly influence the course of events…. [A participant’s] lack of perfect knowledge or fallibility introduces an element of indeterminacy into the course of events that is absent when the events relate to the behavior of inanimate objects. The resulting uncertainty hinders the social sciences in producing laws similar to Newton’s physics.
To be sure, while he sounds promising in describing the situation, Soros doesn’t go full-boat Austrian / free-market for the solution. For example, taken from the preface of the book (available as a preview from Amazon), he blames collateralized debt obligations and credit default swaps for the boom-bust cycle, without pointing to the root. He doesn’t question central banking; he doesn’t question government regulation.
The most telling statements from the aforementioned book review?