Hello Im Shekhar Gupta and my guest today is a truly remarkable man,a brilliant speculator if I may say so and a very generous philanthropist. Somebody who knows to play the market better than anybody you would know. But also somebody who is also the most prominent critic of the markets George Soros. Mr George Soros welcome to Walk The Talk and India. •Shekhar Gupta: Welcome back to India. How do things look to you now? Three years back you said things look great for India? George Soros: Well it did not work out that way. It was a very good one year and then it went the other way. And you had a big boom and a big bust. •Shekhar Gupta: But yet we in India would like to believe that we havent done quite as badly. George Soros: I think actually I made a mistake in my judgment because I thought there would be some decoupling between the Indian markets and the rest of the world. And that did not happen. The Indian market was more severely damaged than the western markets. But the economy infact hasnt been that bad. So it was the market phenonmenon. So it was largely foreign investors coming in,like me and leaving and that what created the boom and the bust. •Shekhar Gupta: Do you now think with the benefit of 20-20 hindsight foreign investors got panicky too soon in India that they transmitted the panic of the western markets to India. George Soros: No,no. I think Ive lost more money in India than anywhere else. And that is because I did not panic that soon enough. It was a right thing to get out before the others. But I think that going forward since the Indian economy was not as badly damaged as other countries,now I think the outlook for India is actually better than most other countries. Partly because India is more separated due of its domestic growth. And of course there is tremendous need for infrastructure investment and therefore an economic stimulus would be very well spent. •Shekhar Gupta: Would you suggest that the sudden boom that we have seen in the past three weeks,Indian markets have left the world behind. Is it worrying or do you think India deserves? George Soros: I think that is a reflection of a very favourable outcome of the election the prospect of a stable government going forward. So in this case,though it was a very big jump and needs some consolidation,I think it was well justified. •Shekhar Gupta: Is George Soros saying that in this case the markets may reflect the reality on the ground? You are always very skeptical about the markets. George Soros: Yes,the markets are prone to exaggerate one way or the other. Ive the interpretation of the markets which is different from the one that used to prevail. Namely that the markets will reflect the underlying very accurately. I have a different interpretation,which says that the markets distort and they always present reality in a biased way and this is really important part that the bias by the markets has a way of affecting the real economy. •Shekhar Gupta: In fact you have written that that it was the availability of cheaper credit that rose the prices in America. So that was a distortion? And it was market created distortion? George Soros: Yes. What Im saying is that far from what is always being talked about the equilibrium. Markets have a way of producing ripples and therefore the regulators have to accept that there is no for preventing bubbles from growing too big. •Shekhar Gupta: But that is precisely why markets are so much fun and not boring. George Soros: That is for sure •Shekhar Gupta: And that is what brings George Soros back from retirement? George Soros: Well,it took me out of retirement for a while because I felt I could really lose a large part of the money I made throughout my life time. So I came out of my retirement and managed to preserve my capital. But now Ive gone back to retirement. I no longer as active as I was for the last two years. •Shekhar Gupta: People say you came out of retirement and made $2 billion of money. So you can afford to go back to retirement. But tell me you been writing on this,your latest book as well. You say that what has happened was a life changing and a history changing event as well. And markets will never be the same again. George Soros: No. an era has ended. •Shekhar Gupta: American dominanace. George Soros: There was a super bubble under American domination which really lasted 25 years. And bubbles come and go. •Shekhar Gupta: Was Alen Greenspan was blowing into that bubble? George Soros: Well he certainly had a lot to do with it. Because he had a belief in market fundamentalism,markets are self correcting and therefore you should leave them alone. And there is no need for regulation and also that was the basis of globalization. Because if you allow financial capital to flow freely from one country to the other it is very difficult to regulate it and protect it,so it is very favourable to owners of financial capital. •Shekhar Gupta: So they can just go from one place to the other and avoid regulation. George Soros: Thats right. •Shekhar Gupta: And that is not going to happen now? George Soros: Well that is what I would like to see. Gloabal economy being preserved or created. But it has to be a different one. It has to be very well regulated. •Shekhar Gupta: So,are you talking of a globalised regulation? Something that G20 talks about? George Soros: If you want have gloabalised markets,you have to have a globalised regulation. •Shekhar Gupta: We know that you are not a big greespan fan. George Soros: No I wasnt. thats true. But I had respect for him as a person. Because he recognises that he made a mistake. Which is to his credit. •Shekhar Gupta: Which is better than George Bush? George Soros: Thats right. •Shekhar Gupta: To what extent was George Bush and the group around him responsible for creating this bubble? George Soros: They did not create this bubble. George Bush was responsible for a lot of other things. Ive been very very critical of him,but not in this respect. This should actually go back to Ronald Regan,who should be enshrined as a in the amercian folklore. Actually he is the one responsible for this bubble. Because he spoke about the magic of the market place that had to liberate. That was the beginning of fulfillment of global financial markets. •Shekhar Gupta: You have also written in the past that markets have imperfections but they are less imperfect than the states and the government. So how do you strike a balance now? George Soros: Well the point is that all human constants relating to human affairs are imperfect. that is the human condition. That we are thinking participants. And in trying to think that .. we cannot gain the kind of knowledge than by studying the natural phenomenon. Because those natural phenomenon occur independently of what you think. But when it comes to human affairs,what you aer thinking inherently influences the course of evenets. •Shekhar Gupta: That is George Soros,the philosopher talking. George Soros: I used to call myself a failed philosopher because I was always interested in philosophy. And then I went into the markets,and aI was successful there and then I tried to explain my philosophy. I published a book 20 years ago called the alchemy of finance,which was studiously noted by economists. Now they have come around. •Shekhar Gupta: I believe you were not very good with mathematics at LSE. George Soros: Thats correct. I was never correct in building those models. So Id to question the assumptions on which those models were built. •Shekhar Gupta: It was said that all the maths wizkids from Yale and Wisconsin and Harvard got together and created this complex financial instruments that nobody could escape and then you had this crisis. George Soros: Thats right. And they were built on false assumptions namely rational expectations and efficient markets. And deviations from equilibrium that occur under that fashion. Tyhen these instruments very widely used and when financial markets went into these crisis,they lost value. They were AAA instrumentsthe highest ranking. And practically from one day to the other,they became practically nothing. •Shekhar Gupta: Tell us one experience from that phase that really surprised you. George Soros: I cant as I wasnt that actively engaged. But when I came back to the markets,I saw instruments that were generally used and I didnt know anything about them particularly the credit default swaps. And I now understand them and I realise that they are actually toxic. And effectively should not be freely traded. I go much further in that respect than other people. •Shekhar Gupta: So what advice would you have for a country like India? Should we move into financial deregulation or stay in the trenches? George Soros: No ,I think India has done very well by deregulating. Because India was over regulated. I think there is need for better regulation. This is a point that you made. Just because the markets are imperfect does not mean that we should go back to a very regulated economy. it just means that it should be regulated better. •Shekhar Gupta: It takes no time,for regulation to become control. George Soros: But you see,if markets are imperfect,the regulators,who are also human. So the sunject is the same imprefect understanding. •Shekhar Gupta: But in America,the regulators were not from universities like Yale and Wisconsin. George Soros: And regulators in addition they are bureaucratic and are subject to political influence. That really makes them less desirebale. So you only want ot make use of regulation to as less extent as possible. •Shekhar Gupta: In you book,you talk about the prospects of India,china and the Us gouing ahead. Tell us briefly about India and China. George Soros: I think Chiona is best suited to emerge from the crisis sooner. And I expect its power and influence to grow. India I think is more solid than most other counries mainly because of the pent up domestic demand,the need for infrastructure. So I think inidia will be doing relatively well. But markets in the global; economy is in very serious trouble. It is not the crisis to pass very eaily. America in particular has to make a very big adjustment. In the last 75 years,consumers were consuming more than they were producing,and America ran a persitant current account deficit which was growing and reached almost 7 per cent of the GDP. •Shekhar Gupta: In fact you have written that Obamas challenge is much bigger than FDRs. George Soros: Thats right. The problem confronting America is now greater. Credit has collapsed. And the system is kept going by the artifical life support. So you are very far from equilibrium and back to equilibrium,you cant go back directly. •Shekhar Gupta: When a car begins to skid tehn you first have to turn the wheel in the same direction as the skid. Then you can bring it back. George Soros: So it is bringing back. Which is. •Shekhar Gupta: So you think obama is doing that? George Soros: He is doing that. •Shekhar Gupta: Does he have the wisdom? George Soros: Well,he is moving in the right direction. He ahs gone about recapitalization of the banks very successfully. That is the weakest point of his performance. But in other ways,he has done very well. •Shekhar Gupta: Give us in one line advice to Obama,Hu Jintao and Dr Manmohan singh. George Soros: Well,one line I would say that reality is much more complex that I can explain in one sentence. Thats what I would say. In other words,the problems confronting us are complex. •Shekhar Gupta: And what will you tell Hu Jintao? George Soros: Well I have met him. And I talked to him about transparency. And you know what he said to me? Nothing. Because,being president of china,you are not allowed to have an opinion until you have consulted all the powers within the party. So it is not really who makes policy himself. •Shekhar Gupta: So that is the democracy they have there? George Soros: There is a way to consuling. So it is not a dictatorial type of governemtn it used to be. •Shekhar Gupta: And what will you tell Dr Manmohan Singh? George Soros: Well,I wish him lick. He has got a strng manadate. And will live up to the strondf mandate that he has now. •Shekhar Gupta: But what would you advice him to do with the economy? George Soros: To the extent possible,he should spend in infrastructure. It is important to stimulate the economy. This is not a time to be too conservative and cautous. •Shekhar Gupta: So you can sacrifice on the fiscal discipline a little bit? George Soros: As loosely as I can •Shekhar Gupta: So you can sacrifice on the fiscal discipline a little bit? George Soros: As loosely as I can do it without distorting the confidence in the currency. •Shekhar Gupta: I hope they are all hearing. It was wonderful having you here George Soros. Investor,philanthropist and a philosopher.
