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The New Paradigm for Financial Markets

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Manufacturer: Public Affairs
Category: EBooks

List Price: ~~$22.95~~
Buy New: $9.99
You Save: $12.96 (56%)

Avg. Customer Rating: 3.5 out of 5 stars

56 reviews
Sales Rank: 215

Format: Kindle Book
Media: Kindle Edition
Pages: 192

Dewey Decimal Number: 332
ASIN: B00171KGFK

Publication Date: April 3, 2008
Availability: Usually ships in 24 hours

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Editorial Reviews:

Product Description
In the midst of one of the most serious financial upheavals since the Great Depression, George Soros, the legendary financier and philanthropist, writes about the origins of the crisis and proposes a set of policies that should be adopted to confront it. Soros, whose breadth of experience in financial markets is unrivaled, places the current crisis in the context of his decades of study of how individuals and institutions handle the boom and bust cycles that now dominate global economic activity. "This is a once in a lifetime moment," writes Soros in characterizing the scale of financial distress spreading across Wall Street and other financial centers around the world. In a concise essay that combines practical insight with philosophical depth, Soros makes an invaluable contribution to our understanding of the great credit crisis and its implications for our nation and the world.

Customer Reviews: Read 51 more reviews...

4 out of 5 stars

Insightful read.... November 16, 2008
Insightful book. Recommend for any who need help connecting the dots on the current global financial condition.

5 out of 5 stars

More than worth it just for the philosophy November 13, 2008
I just loved this book.
This book is a must for people who blindly believe in market prediction, economists and fundamentalists. It argues that it is necessary to take into consideration the point of view of the "observer" who interacts and influences the outcome; thus rendering the prediction obsolete and indeterminate.
Soros says that he has been a successful investor and a FAILED philosopher until this book. Now he believes (and I FULLY AGREE) that he has become a successful philosopher. The funny thing is that he FAILED as an investor because all his predictions in the book turned out to be wrong (at least in the short run). But I guess that drives his point home: the reflexivity makes it impossible to predict markets....

2 out of 5 stars

Some interesting insights but don't expect much practical value November 11, 2008
This was my first Soros book so I was only vaguely familiar with his theory of reflexivity. He spends a great portion of the book explaining his theory to readers. His thoughts are somewhat interesting but I believe that he tries to apply his theory to issues where alternative models would be more useful. As Mark Twain said: "To a man with a hammer, everything looks like a nail". For example, I do not believe that his reflexivity theory is not a good framework in helping us understand Bush's foreign policy and its effect on the world (as he claims) nor the 2008 credit crisis. This short book was repetitive at times and poorly edited.

He does a decent job explaining what led to the credit crisis, but this was a relatively small part of the book. Most readers will find the final chapter where he tries to predict the future most interesting. In fact, many may want to just read this part which should not take more than 20 minutes. In all fairness, Soros openly admits that his predictions will be far from perfect (or something to that effect). The book was published in April 2008 and as I write this review in November of 2008 I know that many of his predictions have been wrong. For example, he was short on the dollar, long on Chinese and Indian equities, and long on commodities. While US and European stocks have not done so well, Chinese and Indian stocks have even done worse. The dollar has been gaining strength against the Euro and commodities like oil have plunged. Of course, this crisis is far from over and we have to wait to see what the future holds.

5 out of 5 stars

The New Paradigm for Financial Markets November 1, 2008
2 out of 2 found this review helpful

Book Review submitted by: Stephen J. Hage, SteveH9697@aol.com

Books about economics and finance, for most people, are as appealing as having a root canal done without anesthesia. This is not one of those books. The subtitle: The Credit Crisis of 2008 And What it Means succinctly explains what the book is about. And, surprisingly, it's in small format and has only 162 pages including acknowledgements.

It's impossible today to turn on the news without hearing something about the credit crisis and there's no shortage of individuals willing to tell anyone who'll listen what caused it and who's responsible. The problem is, there are lots of conflicting opinions and it's, at best, difficult to determine who actually knows.

To be sure, almost everyone has been touched in some way by the credit crisis and its impact will ripple through the global economy for years. In attempting to understand it, I believe it's important to choose carefully among those willing to offer an explanation.

I chose George Soros because: The Quantum Fund he co founded with Jim Rogers in 1970 returned 42.6% per year for 10 years and, in 2007 returned almost 32% netting Soros $2.9 billion.

Soros is a spectacularly successful hedge fund manager with an estimated current net worth of around $9 billion and ranked by Forbes as the 99th richest person in the world. Additionally he's an economist and philosopher. Nothing succeeds like success. Yowza!

There's nothing dry or tweedy about what he has to say. Soros disagrees with economists who believe economics is or ever can be a scientific pursuit like physics, chemistry or mathematics. And even though there are courses in mathematical economics and entire industries devoted to it Soros believes the "Quants" are wrong. The central theme of his conceptual framework is, economics is a social science. If you really want to understand it, you must focus on what people do and why.

The prime driver of economic dynamics is not money, or mathematics, or science, or technology it is rather what he calls Reflexivity which, more than anything else, is driven by human nature.

Current economic theory holds that markets naturally tend toward equilibrium. Soros believes that conviction is not only wrong but one of the central reasons we find ourselves in such dire economic straits. On the housing bubble he offers this:

"Taken on its own the United States housing bubble faithfully followed the course prescribed for it by my boom-bust model. There was a prevailing trend--ever more aggressive relaxation of lending standards and expansion of loan-to-value ratios--and it was supported by a prevailing misconception that the value of the collateral was not affected by the willingness to lend. That is the most common misconception that has fueled bubbles in the past, particularly in the real estate area. What is amazing is that the lesson has still not been learned." (Italics mine)

Soros credits Karl Popper with the underpinnings of his economic philosophy and his argument is clean and satisfying from a philosophical perspective.

I am not an economist but I'm certainly interested in gaining some understanding of what happened to our economy, how we got to where we are, and what we ought to do about it.

Lots of people think they know. Unfortunately many of those same people are the ones who brought us to where we are.

When it comes to gaining deep understanding of what our economy does, how it does it and why, I'm inclined to pay attention to someone who, by manipulating it to his advantage, is the 99th richest person in the world. I think anyone else interested in the economy should have the same inclination. YOWZA!

I strongly recommend you read this book.

3 out of 5 stars

Brilliant and pedestrian at the same time October 25, 2008
4 out of 4 found this review helpful

This book provides a cogent and prescient analysis of our current international financial mess in the credit markets. Even though the book was published in May 2008, parts of it read like current analyses in the WSJ and NYT. I only wish I had read this in May when it came out! Take the following as an example: "Whether we are in a recession now is questionable; that we shall slip into recession in the course of 2008 I consider a certainty." Or this: "The Bush administration and most economic forecasters do not understand that markets can be self-reinforcing on the downside as well as the upside."

So, why do I only give the book 3 stars? Because it's really two books. One is the analysis mentioned above. The other is a bizarre bit of axe-grinding as he promotes a theory he developed decades ago that he keeps presenting to the world and that the world keeps ignoring. Well, the world ignores his theory with good reason.

He makes a valid point, from a philosophical point of view: modern science is built on traditional logic, which has an assumption of independence, ie, objects of thought must be independent of each other. This translates to the economic world, in which the classic model of supply and demand requires that supply be independent of demand. But (he doesn't come right out and say this clearly) in the financial markets, this simply isn't so. Supply and demand are not independent, simply because market participants can be either buyers or sellers. Which they are can change rapidly, causing the traditional theory of supply and demand to be a poor predictor of financial markets.

But, the model Soros proposes is, to be kind, quaint. Essentially, he argues that in the social sciences the scientific approaches used in the physical sciences simply can't work. This is because humans not only study how the world works (cognitive function), but also participate in it (manipulative function), thus changing how it works. While it's clear that humans influence how the world works, it's not clear that his proposed model, his theory of reflexivity, is the best approach to understand it. For starters, he simply keeps repeating his theory, mantra-like, throughout the book. He provides no serious development of the model nor any data to back it up. In addition, his assertion time and again that the non-human, physical world is easy to model and to make predictions about, is naive, at best. The real world, physical and biological, is highly complex and dynamic, whether humans are involved or not. An example is climate change. Despite progress, we are nowhere near close to being able to predict changes to global climate.

More critically, there are other approaches that have been developed that offer insights that are more profound than his. First, from a philosophical/logical perspective, is fuzzy logic, developed by Lotfi Zadeh in the 70s. Fuzzy logic explicitly violates the independence assumption required in traditional logic, making clear that traditional logic (and science, by extension) are limited by the extent to which they rely on this assumption. More useful in the context of financial markets are dynamic simulation models, which can at least demonstrate systematically, and under specified conditions, how the markets are unstable. In particular, the concept of positive feedback in a system (good things get better, bad things get worse), which Soros understands (see quote about Bush administration above) is a much better way to understand what goes on in bubbles than Soros' sketchy theory.

So, the book leaves me with mixed feelings--brilliant in some ways, pedestrian in others.

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