George Soros on Bill Moyers

Watch the video:  (here is my paraphrased transcript, emphasis mine):

The ideological excess of market fundamentalism has created this crisis and now it will be corrected.  Markets can adjust, but they are also prone to be mistaken because there is always a prevailing bias and those moods can be self-reinforcing and leads to bubbles.

The market got too cocky using leverage and the financial system is teetering on the edge of disaster, but it only rarely goes over the edge.  This is the most serious one since the 1930's.

Unfortunately the leaders are reacting and not prempting the problems.  This is because of this ideologic belief in market fundamentalism and that the markets are self-correcting, so the leaders have not been pro-active.

Banks give credit based on the value of the houses, but they fail to understand that the value of the house is contingent on the amount of credit the bank gives.  It's circular, and house prices appreciate and banks give more credit and then house prices increase more, in a virtuous circle. This is exacerbated by leverage.

Ratings agencies gave AAA ratings to mortgage backed securities and the system failed to factor in the risk.  This is a failure of regulation with new financial instruments, not only in the housing market, but also in other markets.  The super-bubble is the 25 years of constantly expanding credit, growing 3X faster than the economy itself.

Sec'y Paulson and the government are coming around and doing what Soros recommended, but unfortunately they are behind the curve.  The actions are coming too late, and he hopes they will catch up as the amounts of capital get bigger and bigger.  Buying toxic paper is a nonstarter.

Hopefully we are not heading toward 1930, but we are definitely heading to an end of an era.  We are now at the height of the financial crisis, and then we will have the fall-out in the real economy.  

If we do the right things, the pain will be less.  So far, we have been doing the wrong things and hopefully we will have a new government in a few months.  Mortgages need to be renegotiated to avoid a correction to price to the downside.  Ten million homes now have negative equity,  and that will be 20 million if no action is taken.

Paulson represents the very kind of financial engineering that got into this mess.  He should go.  

The bailout money should be put into the capital of the bank, so that the capital of the bank can sustain 12X the capital in the bank.  Government needs to play a small role, but it is necessary, as little as possible.

Our ability to govern ouselves does not keep pace with our ability to exercise power to overcome nature.  We could actually destroy our civilization because of our inability to govern ourselves.

There is a common interest... and this belief that everyone pursuing their self-interest will maximize the common interest or take care of the common interest is a false idea.  It is a suitable idea for those who are rich, successful and powerful; it allows them to enjoy the fruits of society without paying taxes.  

For example, we should have a tax on carbon emissions, so instead we will ahve a cap-and-trade and that will have loopholes and will not solve the problem.

We need to deal with the mortgage problem, prevent foreclosures, recapitailze banks... and then we need to work on a better world order to confront world problems-- like global warming-- that will take a lot of capital.  The US consumer was the motor that drove the world economy, and now we need a new motor.  Global warming is a new motor that will need a big investment.

Market fundamentlists are making the same mistake that Karl Marx did.  If these guys had the best interests of the people in mind, they would have succeeded.  The mortgage agent was involved only with his own self-interest, just like the false ideology of Karl Marx.  

I think the only ideology that is not false is the one that I'm proposing; namely, the recognition that all our ideas, all our human constructs have a flaw in it. And perfection is not attainable. And we must engage in critical thinking and correct our mistakes.

As a child, I experienced Fascism, the Nazi occupation and then Communism, two false ideologies. And I learned that both of those ideologies are false.Both are false ideologies.  I was shocked that even in a democracy people can be mis-lead like they have been mis-lead these past few years.