Re: <nettime> Fortune magazine on Soros

[Fred Heutte <phred@sunlightdata.com>]

Thanks to those who pointed out the Fortune article is 
available to subscribers only.  Herewith for your interest . . .
 
fred

-------------------------------------

George Soros Is Mad as Hell

He made billions anticipating blowups. Now he thinks George Bush
is creating one.

FORTUNE

Monday, October 13, 2003 

By Mark Gimein 

George Soros owns no private plane, no Caribbean island, no yacht, no
ranch in the West, no collection of Old Masters. When he travels to
Budapest, the city where he was born and survived the Nazi occupation, he
stays in an unfashionable hotel that happens to be nestled in the middle
of a beautiful park where he can go for vigorous walks. He travels solo,
his wife preferring to stay in the U.S. while he tours his international
philanthropic empire. Walking onto a stage in Europe, he is illuminated by
the flashes of little pocket cameras that audience members hold over their
heads. But offstage he waits in line at the bar for his Campari like
everybody else, looking a little lost. He is naturally reserved, and that
is somehow accented by his precise Central European inflections. In a
public setting he can appear strikingly alone, even lonely, a private man
who has found himself living a very public life.

His demeanor belies his influence. George Soros is one of the most
successful investors of all time. Even now, though he manages little or no
money besides his own, he can move markets with a ten-minute appearance on
cable television. Detractors have accused him of destabilizing world
currencies and wrecking the economies of entire nations. He is appealing a
French conviction for insider trading. He has received humanitarian awards
too numerous to count.

Soros has always been a polarizing figure, and over the next few months he
is sure to become even more of one, especially in the U.S., where his name
has never had the totemic power it does in Europe. At the age of 73,
George Soros has found new purpose: He has recast himself as a fierce,
angry, partisan critic of the Bush administration and American policy. In
what amounts to a barnstorming tour that has taken him from town halls in
Seattle to a school of international relations in Baltimore to the World
Economic Forum in Athens, Soros has argued that the U.S. right now is in
the midst of a crisis. He believes that both at home and abroad, the
American government has put in jeopardy the values of openness and
democracy in a search for "invisible enemies." A careful observer of the
international political scene, with contacts ranging all the way from UN
chief Kofi Annan to Brazilian President Luiz Lula da Silva to Bush
foreign- policy eminence Paul Wolfowitz, Soros attacks Bush in the most
direct and dramatic terms.

"I lived through both German and Soviet occupation," Soros told me as we
walked through a park on Budapest's Margaret Island. "When I hear
President Bush say that those who are not with us are against us, I hear
alarm bells." He calls Bush's speeches "Orwellian" and compares the Bush
vision of international democracy—"You can have freedom as long as you do
what we tell you to do"—to Soviet rhetoric about "people's democracies."

Soros has just committed $10 million of his own money to an effort to drum
up support for Democrats in key states, immediately becoming one of the
biggest individual donors to next year's electoral race. In September he
staged a fundraiser for former Vermont governor Howard Dean. And after
years of writing moderate, carefully argued—and not very
influential—tracts about the international economy, he is now almost ready
to publish a very different kind of work, a book to be called The Bubble
of American Supremacy. It's a no-holds- barred attack on what he sees as
the hubris of American policy. "I've come to the conclusion," Soros told
FORTUNE, "that one can do a lot more about the issues I care about by
changing the government than by pushing the issues." In short, he has
become the world's angriest billionaire.

It would be polite to call Soros's crusade something like the "debate
about America's place in the world," but it is simpler to call it a fight
against the Bush administration. "I was very comfortable with what this
country stood for," Soros says. "But with the Bush administration coming
into power, and the way it has exploited the terrorist attacks of Sept.
11, I feel very uncomfortable about the direction in which the U.S. is
taking the world, and to me it is not business as usual."

Last summer Soros holed up with half a dozen top Democratic political
strategists at a house he owns on Long Island to try to figure out how he
could help bring down Bush, getting an education from some of the
Democratic Party's most prominent fundraisers and consultants. In August
he agreed to lead several other major donors in what Democrats hope will
be $75 million in spending on a grass-roots get-out-the-vote effort in 17
battleground states. Called America Coming Together, it's directed by top
Democratic fundraisers Steve Rosenthal and Ellen Malcolm. That makes Soros
a key player in the huge "soft money" push that the Democrats, hampered by
new restrictions on campaign finance, hope will be one of the keys to
matching Bush's formidable fundraising apparatus in the 2004 election.

The people who talked politics with Soros are discreet about those
meetings. Mark Steitz, a political consultant, says Soros "approached it
like a businessperson going into a new business." Rosenthal, the former
political finance guru for the AFL-CIO, says that for Soros "it was more
of a listening and absorbing session. He's not a guy who felt it necessary
to comment on everything." But if he is willing to listen when it comes to
election tactics, Soros has some very definite ideas about his broad
agenda. He believes that by thumbing its nose at multinationalism, the
Bush administration has frittered away its credibility abroad since Sept.
11. Having done more to build Eastern European democracies after the fall
of Communism than any other individual, Soros now advocates a "Soros
doctrine," in which the U.S. would team up with the United Nations and
other multilateral groups to intervene early and peacefully in countries
facing the prospect of social meltdown. He has a domestic program, too.
Despite an admitted aversion to giving his money to the government, Soros
is pushing for more progressive taxation—read: higher taxes for the
wealthy—including a return of the estate tax (an idea that would cost
Soros himself billions, albeit posthumously). Soros is a deficit hawk who
believes the Bush Administration's deficits will stifle any economic
recovery. He is furious about what he sees as the Bush administration's
encroachments on civil liberties, regarding the Patriot Act and much of
the broader domestic war on terror as an insidious threat to what he calls
open society. Soros thinks that if the U.S. doesn't change its outlook, at
home and abroad, the country is in grave danger.

Soros has made a career in finance and philanthropy out of seeing when
normal situations turn far from normal. "Life is generated at the edge of
chaos," Soros told me, "so I specialize in this edge of chaos situation.
And that's when I did best." He has become one of the richest men in the
world by charting these moments of change—and reacting to them earlier
than other financiers and much earlier than most governments. Soros is
convinced this is exactly the kind of moment we're in now.

One crisis Soros foresees is economic. In one of his books Soros gives the
example of a "benign circle" in which currencies steadily rise when an
economy is strong, and investors gravitate toward buying stocks and bonds
in the rising currency (precisely the situation the U.S. has been in for
most of the past decade). But when the pattern is reversed, the circle
unwinds astonishingly fast. Soros thinks this may well happen to the U.S.
in the wake of rising deficits and military spending.

But the bigger bubble that Soros sees is ideological. "The crisis now, the
one that I'm predicting, the crisis of global capitalism, latest version,
is a political and military crisis," an agitated Soros told me. "It has
been brought about by the exploitation of Sept. 11 by the Bush
administration to pursue its policy of dominating the world in the guise
of fighting terrorism." In his writings, Soros discusses how bubbles or
"self-reinforcing" trends develop when a wrong idea—whether in finance or
politics—survives a comparatively easy test, making an idea that's
unsustainable in the long term appear prescient in the short. That's how
Soros thinks of the Iraq war: A quick military victory reinforces the
wrongheaded idea that thanks to an unbeatable military, the U.S. can
achieve its international objectives by going to war. In a draft of the
forthcoming The Bubble of American Supremacy, Soros puts it more strongly:
"[W]e are becoming enmeshed in a vicious circle of escalating violence."

Over the past ten years, Soros has given away $4 billion, for everything
from curing tuberculosis in Russian prisons to supporting dissidents in
Zimbabwe to setting up hospices in the U.S. For those keeping count, his
annual giving is up there with the Ford Foundation's. He has written seven
books on economics and world affairs, dense tracts of political theory and
complex economic programs. The staggering weight of his accomplishment
leaves one almost embarrassed to mention, you know, his money, which is
the reason we became interested in George Soros in the first place.

But it is often the people who know Soros from his life as a manager and
maker of money who offer the best and bluntest insights into what drives
him. Stanley Druckenmiller, who spent a decade running Soros's Quantum
fund, says, "He's a brilliant man, a brilliant manager. But his greatest
strength, not to be foul or anything, is his balls. When he'd see
something, obvious or not obvious, he was willing to bet it bigger than
other people."

Descriptions of Quantum usually put it in the category of "macro
funds"—shorthand for its strategy of making leveraged bets on worldwide
macroeconomic events. It is easy to forget that before Soros there was no
such thing as a macro fund. There were stock funds and bond funds (not
nearly as many as there are now), but Soros invented something new. Here
was a fund manager who saw the whole world as a stage, who made bets on
currencies and stock indexes, who tried to guess the behavior of the
central bankers who were really his closest counterparts. Druckenmiller
describes Soros as the first money manager to say, "I don't have to just
trade stocks or bonds—if I've got five or six weapons at my disposal ...
I'll go where the action is."

Soros started his first hedge fund in 1969 with $4 million, just a
fraction of it his own. Between that year and 2000, the last twelve years
with Druckenmiller's help, Soros's flagship fund returned an average of
31% annually, with only three losing years (the tech stock crash made 2000
one of them). Today his fund company has about $12 billion under
management. Of that, $7.4 billion is in the flagship Quantum Endowment
fund. Though Soros maintains that there are outside investors in Quantum,
former executives of his fund company believe that the overwhelming share,
if not all, of that $7.4 billion belongs to Soros and his family.

The fortune that Soros has acquired, and the regularity with which he has
predicted the turns of the world economy, obscure what a painful,
emotional business making money has been for him. In an interview with
Byron Wien in Soros on Soros, a collection of conversations about money
and politics, he admits that often he would know it was time to sell out a
position when his back started killing him. And when he describes his one
truly awful year as an investor, when he lost 23% of his fund in 1981, he
describes it as "blowing up"—not a failure of analysis but an unconscious,
primal response.

Soros has always appeared somewhat stunned by his own preternatural
ability to make money in the financial markets. Though he has written a
book about it, The Alchemy of Finance, he has never believed that his
talent is "teachable," nor has he ever really succeeded in explaining it.
The upshot of Soros's theories about the financial markets is that while
in ordinary times the markets undulate with the steady, sinuous waves we
know from market charts, there are extraordinary periods in which the
markets change rapidly, and the interaction of market realities and
investors' expectations creates powerful, self- reinforcing trends—bubbles
and crashes. Soros likes to call those situations "far from equilibrium,"
a safe, scientific- sounding term for situations that to most people are
frightening and puzzling.

Soros tries to recognize these situations by the small signs that "normal"
is turning into a bubble, a boom/bust cycle, or a crisis. We all know
about the hurricane that begins with the flap of a butterfly's wings, but
Soros is the rare person who is habitually willing to follow the
implications. Very often those signs come from politics: Soros has been
particularly adept at noticing those instances when statesmen, Finance
Ministers, and politicians try to react, tentatively and incompletely, to
big economic and social trends that are just about to—but have not
yet—become full blown crises.

Soros and Druckenmiller famously made a billion dollars betting that the
British pound would go down. In Soros on Soros, he says the sequence of
events that led to the bet started with an offhand comment from the German
Finance Minister about the lira. That led Soros to believe that the whole
European currency market was a lot less stable than anyone else thought.
One example of a small event hinting at major disruption that he often
turns to is the phone call that Mikhail Gorbachev made to noted dissident
Andrei Sakharov in 1986. It was to Soros a subtle but unmistakable sign
that the entire Soviet system was on the verge of transformation.

Understanding chaos is something that Soros has pursued in what he calls
the laboratory of finance and in reading and writing philosophy, but it
also has very deep roots in his psyche. Soros and his family were among
the minority of Budapest Jews who survived the 1944 Nazi invasion of
Hungary. His father, Tivadar Soros, wrote a little-read but riveting book
titled Masquerade about the family's months of hiding and running from the
Germans and their collaborators. Lucid and even casual in tone, Masquerade
recounts the way so many of Budapest's Jews, unable to see how dark their
situation was, fell into the tightening noose of the "Jewish laws"—even
answering summonses to the local police station to be deported to
concentration camps in alphabetical order. And yet a few—including Tivadar
Soros and his family—were able to use the confusion of war as a cover to
hide under false identities.

"[My] view of the world, I would say, was formed very much in the
traumatic experience in the Second World War when Hungary was occupied by
Nazi Germany and they were deporting Jews to Auschwitz," Soros told me. "I
was lucky enough to have a father who understood that this is not
normalcy. This is far from equilibrium. And if you go by the rules that
you normally go by, you're going to die. I learned from a grand master in
the Second World War, and I basically applied this view of the world to
the financial markets and also to my political vision."

Soros has outlined those views in his books. Repeatedly he has tried to
systematize his thinking, generally returning to the theory he calls
"reflexivity" and trying to use it to explain the emergence of "out of
equilibrium" conditions—whether the rapid fall of the Communist bloc or
the Asian currency crisis. Soros seems puzzled that these books have not
been more influential. He has joked that he is a "failed philosopher" but
admits that he was irked when his biographer, Michael Kaufman, took that
estimation at face value. But in fact the density and abstraction of his
books—which rarely grant the reader a personal detail—have greatly limited
their influence. "Most of the time," says Soros's friend Wiktor
Osiatynski, a Polish legal scholar who sits on the boards of several of
Soros's foundations, "he was treated seriously as a donor but not so
seriously as a thinker." Stanley Druckenmiller, who remains a friend of
Soros's but disagrees with him on nearly every political point, argues
that Soros's strength has been not been putting together theoretical
models but "relying on the intuitive" to know when the world is changing
enough to make existing models obsolete.

It's that intuitiveness, the visceralness of his Hungarian experience,
that has been missing from Soros's writing. The draft of The Bubble of
American Supremacy is the first of his books to have it. In it, Soros
notes with some pride that his politics have become "rabid." He has
sometimes talked about how in his first fund, his partner, Jim Rogers, did
the analysis while Soros "pulled the trigger," making the decisions. It is
as if when it comes to politics and philosophy, Soros himself has decided
to pull the trigger. "We are now being led by people who follow a false
and dangerous ideology," Soros told a sympathetic Washington audience in
September. "[This country] is where the future of the world is being
decided." It is, in other words, the kind of "out of equilibrium"
situation that engages Soros.

So how seriously should we take Soros's warnings? Soros himself hedges a
little. If, as Soros does, you spend your time looking for "far from
equilibrium" situations, you're bound to find them. Soros is very much
aware of this: In 1998 he wrote a book, The Crisis of Global Capitalism,
predicting a meltdown that never quite happened. "Just as economists have
predicted the last ten of three recessions," he says, "the same way, I
predict ten boom-bust situations out of three."

Whether or not Soros turns out to be right this time in thrusting himself
into the election debate, he has made himself a big fat target for the
Republicans. Before the election season is out you can expect Soros's dire
predictions, and Soros himself, to become an issue. For those who have
distrusted him, Soros has always been easy to paint as an Ian Fleming
villain. Secretive moneymaking apparatus? Check. Member of the Council on
Foreign Relations? Check. Hobnobs with heads of state? Phony- sounding,
palindromic name? Check, check. Add to that "biggest soft-money
contributor to the anti-Bush forces," and you have a recipe for copious
mudslinging.

"The Democratic party has been unable to broaden their message," says
Republican National Committee spokeswoman Christine Iverson, "and as a
result they remain beholden to a very small group of very wealthy people
with narrow special interests." Soros's "interests" may be very different
from those of corporate PACs angling for their bit of gain in the
legislative and regulatory arenas. Distinctions like that don't last long
in the rough argot of real-world politics, though. "George Soros has
purchased the Democratic Party for $10 million," Iverson says.

Meanwhile, Democrats soft-pedal how much influence he is likely to have.
"I don't think he'll make much headway in some of his particular issues,"
says Tom Mann, a Democratic political analyst at the Brookings
Institution. "Will it affect the agenda of the party? It's a matter of
relative resources. Do you really believe Soros's $10 million will make a
difference in the party's agenda in an election in which $4 billion will
be spent?" Well, yes, if it gets Soros's ideas noticed. But ironically,
the more money Soros gives, the more the Democrats have to avoid the
appearance that they're kowtowing to him. Democratic fundraiser Ellen
Malcolm, a participant in Soros's summer retreat, deflects questions about
Soros's views by saying, "He's a very thoughtful, intelligent person who
cares deeply about democracy."

Whichever side of the political divide you are on, it makes sense to pay
Soros some heed on international economics. When he has been right about
international trends, it has often been spectacularly so. To Soros, the
casual phrases of a Finance Minister or a Treasury Secretary are never
just casual. Last summer, for instance, Soros told viewers on CNBC that
the new U.S. Treasury Secretary, John Snow, was intentionally exposing the
dollar to a precipitous drop and that Soros himself was betting against
the dollar. Soros saw Snow's vague comments that a falling dollar would
help U.S. exports as the sign of a deliberate, short-sighted policy that
would give a temporary boost to U.S. exports while hurting the rest of the
world. "Deliberately devaluing the dollar is in some ways reminiscent of
the competitive devaluations that occurred in the interwar period, which
then resulted in a global depression," Soros says now. "It was a nice
frosting on the cake [for Snow] to say 'we can screw Old Europe by
devaluing the dollar.' "

Most analysts at the time believed that Snow's comments were, if not a
slip-up, then a trial balloon rather than a reflection of a new economic
policy. The President soon reiterated the traditional American commitment
to a strong dollar. Now, six months later, the dollar is back on the
agenda, and at the latest international economic summit, the U.S. pushed
for ... a weaker dollar.

It makes for an impressive display of Soros's mix of political and
economic acumen, especially notable because it is driven not just by a
feel for the movements of the world economy but even more by a feel for
what motivates American politicians. "The kind of boom-bust sequence I
have been best at reading," Soros says, "always has a political element."
That talent for reading politics and politicians is one that Soros will
likely have plenty of opportunity to display. Actually, you can think of
the big game of domestic politics that Soros has taken on as being a lot
like the wrenching exercise of running billions of dollars. Just with
higher stakes.




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