The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means (Hardcover) by George Soros

rating	frequency	%
5		13%
4		21%
3		40%
2		18%
1		5%

08/21/08

Peter added it

bookshelves: did-not-finish

Maybe it's just me, but this book felt overly complex. I personally believe the true mark of genius is someone who can both understand what is seemingly infinitely complex, while at the same time convey that concept to lay people with ease and in simple terms. George, while likely intelligent (I can't tell, I spent too much time trying to decipher what he was trying to say... and not much time really understanding what he was talking about) either cannot, or chose not to do this. The book is com...more

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04/12/08

Rob rated it:

bookshelves: economics-finance

I felt let down by this book. At first it gives a good overview and timeline of the current credit crunch (although nothing someone wouldn't have known from reading the paper once and a while over the past 6 months). Then, it delves into Soros's theory of "reflexivity", which attempts to debunk efficient market theory. I was highly disappointed in this section. I didn't think it was convincing at all, which says a lot since I'm not a big believer in efficient markets to begin with!...more

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11/21/08

sleeps9hours rated it:

Read in November, 2008

The first Soros I've read. Very interesting. I like his philosophical take on the machinations of the financial markets. Very timely.

Copious notes:

p. 36 Scientific laws cannot be verified; they can only be falsified. That is the role of testing. Scientific laws can be tested by pairing off initial conditions with final conditions. If they fail to conform to the scientific law in question, that law has been falsified. Statements that are not subject to falsification...more

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02/08/09

Wayne rated it:

bookshelves: 2009, biographical-real-life, economics, investing-trading

Read in February, 2009

I really want to like this book and can't deny that Soros obviously has some fundamental truth to his Reflexivity Theory.

The first half of the book is spent explaining his theory of reflexivity and how it contradicts to the financial equilibrium theory. Both theories are philosophical ideas and the first half of the book reads like a mixture of a philosophy text and an short autobiographical summary of his role in the financial market. This is also the part that I leaves me finding ...more

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12/13/08

Peter added it

Read in December, 2008

Soros' theory of reflexivity is interesting, even if I am not sure that what he is talking about is really what should be called a theory. I mean what he has to say about reflexivity is more along the lines of descriptive. But difference between description and theory is so hard to draw. He has a lot to say about why Economics is not a science. I think few would disagree.

However the book is obsessed with random references to various other authors, all of which seem like apostrophes...more Soros' theory of reflexivity is interesting, even if I am not sure that what he is talking about is really what should be called a theory. I mean what he has to say about reflexivity is more along the lines of descriptive. But difference between description and theory is so hard to draw. He has a lot to say about why Economics is not a science. I think few would disagree.

However the book is obsessed with random references to various other authors, all of which seem like apostrophes. Certainly his understanding of the general movements of financial markets is informed and I enjoyed his synopsis of the events leading up to but not including these last few months of the current economic debacle. He is by reputation a very successful trader, but I am not sure he shed much light on either how he applies his 'theory' to his trading or how he thinks reflectivity should be applied to policy decisions. And yet I would not call his effort philosophical. I am not sure what he is really trying to accomplish beyond the brute act of speaking.

At one point he tells an interesting story: his son thinks his financial decisions are motivated more by his aching back than his theoretic understanding of the markets. I become more and more sure, as I continued to read, that his son was probably right. How theorectic speculation affects ones understanding or feeling for something is a very difficult thing to talk about. He does really get into it at all.

Neither was I convinced that the notions contained in the book are as radical or as new as he suggests they are. I am not an expert but I am pretty sure there are many out there who are not big believers in equilibrium assumptions concerning market cycles. And the idea that market movements are self motivating and so ultimately none responsive to static economic models seems to have been around a good long while as well. But who knows?

But mostly the book is hampered in its efforts to explicate what it is it has to say by being as badly written as it is. My word. The book is openly obsessed with its own reception in ways that are not only a little pathetic but have so much of our attention as to systemically interfere with his presentation. The organization of the material, in general, is just awful. To call it sophomoric would be kind. I guess he sells a lot of books. I read this book in a few hours in the bookstore. If his notion of the reflexive nature of market cycles is a jewel, it is a jewel still very much in the rough. (less)

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12/03/08

Chris rated it:

Read in December, 2008

recommended to Chris by: Matt

The other reviews for this book mostly get it right, so I will not rehash what they have written. I have read the last few books by Soros, and his philosophy takes a while to sink in, but I did not find this book to be overly complex or confusing. Rather, I feel that in explaining the current crisis, Soros's theories on reflexivity, fertile fallacies and his attacks on market fundamentalism are perfectly timed - and if people are serious about a more sophisticated and subtle understanding of the...more

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02/04/09

Robert rated it:

Read in February, 2009

First off, I must start by saying that I have a tremendous amount of respect and admiration for George Soros! I think he has achieved an incredible amount of good with his wealth while showing the world what is possible when the powerful apply themselves to highest of human ideals. His Open Society foundation is a remarkable achievment and a grand testament to those ideals.

Having said all that, he really needs to move on from this whole Karl Popper/Reflexivity thing. I und...more

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11/07/08

Jon rated it:

bookshelves: economics, finance, politics

Read in November, 2008

If you haven't read any Soros books in the past then you'll be frustrated by the first half of the book. He talks about his reflexive theory which his attempt at providing some kind of philosophic idea. The problem with this presentation is that 1/3rd of the time he apologizes for his previous books and attempts to explain reflexive theory. Unfortunately you're not given enough information in this book to fully understand the theory nor make a determination of his motives of this theory. (I ...more

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05/17/09

Caroline rated it:

Read in May, 2009

I appreciated the candid description of the ideology that has gotten our economy into trouble - he calls it 'market fundamentalism'. Too many politicians & regulators have been thinking & acting as if market forces on their own would automatically correct the economy so there wasn't any need for any regulations... never mind the lessons from the Great Depression. The laws passed during FDR's presidency in the 30's to ensure nothing that bad could ever happen again are not relevant to our time...more

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11/04/08

Austen rated it:

Read in November, 2008

recommended to Austen by: Amanda Yaggy

"People want to know what lies ahead. I cannot tell them because I do not know. What I want to tell them is something different. I want to explain the human condition."

I am not an economist, nor do I participate in financial markets in any significant way. Really, I never even took a business course as an undergraduate. I mention this because many of the specific details that Soros presents are cloaked in a specialized language that is almost totally unfamiliar to me. ...more "People want to know what lies ahead. I cannot tell them because I do not know. What I want to tell them is something different. I want to explain the human condition."

I am not an economist, nor do I participate in financial markets in any significant way. Really, I never even took a business course as an undergraduate. I mention this because many of the specific details that Soros presents are cloaked in a specialized language that is almost totally unfamiliar to me. Even Wikipedia can't help me understand what a Hedge Fund is...

However, there are some concepts that I can wrap my head around. Th Federal Reserve Bank lowered interest rates significantly after the internet bubble (think .com entrepreneurs who made tons of money) burst in 2000, and then again after September 11th, 2001. They continued to do so until the federal interest rate had reached just 1% in 2004, from 6.5% in early 2000. This is done, of course, to stimulate economic growth when a possible economic crisis looms. However, this extremely low interest rate meant that central banks and other financial institutions took out alot of money from the Fed, so that they could turn around and loan it out (think mortgages to people who really can't afford them). This however, is only part of a larger "super bubble" that Soros perceives in today's (semi-global?) economy that has been growing since Ronald Reagan was elected in 1980.

Soros is proposing that an economic era is ending--an era that has placed the United States in the center of a global economy, and that has meant lavish and relatively unrestricted profits for largely-American companies and corporations. He insists that traditional ways of looking at the marketplace are fundamentally incorrect because they assume that free (unrestricted) markets are self-correcting, and that equilibrium is the default state. Soros, instead further develops his idea of (two-way) reflexivity, which has led many over the years to refer to him as a failed philosopher, if an extremely successful investor and Hedge Fund manager.
His concept of reflexivity doesn't strike me as profound--that there is a difference between the reality we perceive and reality, itself. In the case of financial markets, this is difficult because we affect the reality we perceive because we act upon it, based upon our assumptions of a reality that we are constantly manipulating. As such, Soros says that his theory can help us to understand the past, but not the future--markets tend toward unpredictability, and humans possess an imperfect understanding of reality. Also, complicating his and our understanding of modern day economic trends are the increasing abstraction and complexity of recently developed market tools. These new ways of buying, repacking, trading, rearranging, and selling are so complicated that when, for example, I default on my mortgage, it is extremely difficult to figure out who owns what, and who has to pay whom. The increasingly amorphous and abstract way that investments are rearranged and exchanged has created a situation (already abetted by Republican politicians infatuated with the self-regulating, free market myth) where regulatory agencies can sometimes no longer assess the risk of a given investment, and instead rely upon the information provided by the institution offering the investment, itself.

Our economy is out of control, but it appears that the past few decades of economic deregulation, bold risk-taking, and unimagined prosperity for some (perhaps even the reality of the dollar standard!) has largely come to an end. Although, no one, including Soros seem to know what even the next few years will hold for our economy. (less)

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11/03/08

Bart rated it:

Read in November, 2008

recommends it for: Those interested in the economic theory of reflexivity

This book marks what George Soros promises is his final treatment of the invaluable theory of reflexivity. The New Financial Paradigm is too long by half, yes, and Soros occasionally tries to cram reflexivity into his explanations of unrelated phenomena. But for all that, reflexivity is a wonderful tool that has been both undeservedly dismissed and undeservedly unremarked upon.

The term reflexivity is derived from Romance languages’ transitive and self-referential verbs. Effectiv...more

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09/23/08

Eric rated it:

bookshelves: economics

Read in October, 2008

Picked up this book three weeks ago as it seemed timely. Just finished it last night, not quite so timely!

Soros wants to be a philosopher, but he should just stop with that and read some more. He has the Theory of Reflexivity - that real people and their thoughts are a part of market dynamics, and thus markets don't behave according to the dominant equilibrium analysis. There is feedback between facts and thoughts, and between thoughts and thoughts. He spends way to much time on ...more Picked up this book three weeks ago as it seemed timely. Just finished it last night, not quite so timely!

Soros wants to be a philosopher, but he should just stop with that and read some more. He has the Theory of Reflexivity - that real people and their thoughts are a part of market dynamics, and thus markets don't behave according to the dominant equilibrium analysis. There is feedback between facts and thoughts, and between thoughts and thoughts. He spends way to much time on this without progressing the concept. He seems unaware that there are sciences that incorporate uncertainties. Thermodynamics, of resurgent importance in this day and age, has has done so for like 150 years.

Soros also does not take care to isolate the issue of unstable positive feedback loops from that of uncertainty. Brains in the loop - impossible to analyze. Positive feedback though, is another matter.

I was also disappointed that in the end, he discloses that his investment strategy for 2008 included shorting US stocks. I personally have believed for a long time that shorting is a dangerous practice, and unnecessary for liquidity as is so often argued. Shorting makes it possible for individuals to make money in a downward drafting market. That is why it is done. If a company is doing poorly, there will be plenty of sellers. And the price will drop. We need that to be accelerated by shorting?

Anyway, to get to the point, shorting is an amplifying positive feedback.

A. I see a stock going down and think it will go further.
B. Even though I don't own it, I sell it.
C. It goes down.

If shorting is done on a big enough scale, it drives the price down even faster than it would otherwise. That's the positive feedback.

Buying stock is also a positive feedback loop, in that large enough purchases will cause the stock to rise, leading to more purchases. This can lead to bubbles, perhaps you can think of a few of those in the recent past.

But buying is at least a bet on a positive outcome. Why allow people to place self-fulfilling bets on negative outcomes? Is the liquidity value worth the damage?

So I was hugely disappointed when after Soros' analysis of the market problems, his so-called super-bubble, he then invokes a strategy of shorting without acknowledging its role in the problems.(less)

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08/26/08

Max Stone rated it:

Read in May, 2008

I have the more-or-less standard criticism of this book, I assume. The author is a great and famous investor, and a not-so-great and not-so-famous philosopher, and again he has written a book that is 85% about his philosophy and added just enough stuff about current financial markets that people will buy it to read his investing opinion. on the positive side, he is very upfront that that is what he is trying to do.

the problems with his philosophy (which very briefly, is that mark...more I have the more-or-less standard criticism of this book, I assume. The author is a great and famous investor, and a not-so-great and not-so-famous philosopher, and again he has written a book that is 85% about his philosophy and added just enough stuff about current financial markets that people will buy it to read his investing opinion. on the positive side, he is very upfront that that is what he is trying to do.

the problems with his philosophy (which very briefly, is that markets are inherently unstable because there is a feedback loop between markets and people's opinions on markets, which leads to chaotic price action, in the sense that it is impossible to create rules to predict what will happen, because those very rules will alter the process, etc) are:

1. it isn't as original or as important as he seems to think. sure, I buy that no investing rule is guaranteed to work because the very knowledge of it working will make it not work so well any more. and I get that there are all sorts of feedback loops there. but not sure I need his whole philosophical framework around that.

2. i think his fundamental message about the credit crash is somewhat misguided. briefly, it is that since markets are subject to feedback loops which take prices far from equilibrium prices, we need more regulations to prevent stuff from getting too out of control. but it the leap from "sometimes stuff moves far beyond equilibrium or fair pricing" to "therefore we need to regulate" that I think is a stretch. sometimes intervention is the right thing, but he presents no evidence about how far is too far from equilibrium, and the costs and consequences of waiting for markets to returns in the direction of equilibrium of their own accord (which they will; I assume even Soros wouldn't say they will move infinitely far away). I'm not a market fundamentalist who believes everything is best off left solely to markets, but I didn't think his reasoning here was very convincing.

of course he is a kajillion times more successful investor than I will ever be, so what do I know? I'm sure he'd give any book I wrote negative 3 stars....(less)

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07/08/08

Greg rated it:

Read in July, 2008

Soros turns philosopher and develops his "theory of reflexivity". The way he does this is by repeating it about three dozens times. Repeating oneself does not equal profundity. Throwing in a plethora of anecdotes about how one made or lost money doesn't do it either. I kept waiting for this amazing theory to be developed. Then I hit the end of the book.

The "theory," he admits, is not really a theory, but a rejection of the idea of market equilibrium. One rea...more Soros turns philosopher and develops his "theory of reflexivity". The way he does this is by repeating it about three dozens times. Repeating oneself does not equal profundity. Throwing in a plethora of anecdotes about how one made or lost money doesn't do it either. I kept waiting for this amazing theory to be developed. Then I hit the end of the book.

The "theory," he admits, is not really a theory, but a rejection of the idea of market equilibrium. One reason is that equilibrium theory assumes perfect knowledge, and human knowledge is limited and fallible. More importantly, he reasons that the interplay between human analysis and manipulation is too intertwined. In other words, we cannot study markets like we do physics, because the humans studying are also participating. It's a good point as far as it goes. I always view it as a good sign when we humans step back from our pretense of objectivity and realize the limitations of our our knowledge.

I did appreciate this book for explaining the current mortgage crisis, something I knew little about. The crisis is an example of his theory. Lenders after the tech bubble burst (and after 9/11) began to lend more with the extremely low fed rates. Housing prices rose. Then the lenders looked at their "objective" fundamentals and found they had high principle-to-loan ratios. So they lent more, often to folks with bad credit. And they packaged the credit into all sorts of innovative unregulated instruments, and sold them to other "objective" humans. More people buying and refinancing homes meant housing prices continued to rise. Everything went up - expectations and the so-called fundamentals. And so the "reflexive" cycle went.

Soros is no socialist - he believes the free market can be very efficient and in most cases, is the most beneficial system of economics for everyone. It just needs some level of judicious regulation. How much and what kind is the real question. He proposes some such regulations. For example, he proposes some ideas for how to regulate these new innovative credit instruments that are out of control. But he does so at a very high, almost sound-bite, level. I would have liked more there.

I don't know enough to evaluate his idea that we are in a dangerous "super-bubble," extending far beyond the housing market. He predicts its going to burst in a big way. Maybe so. Hope not.

POST-REVIEW NOTE: It did burst. I wrote the review above in July 2008. It's now March 2009 and the Dow is below 7000 - still diving since the mortgage crisis last fall. Wow. He was right.(less)

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02/01/09

Sally rated it:

bookshelves: economics, history-current, philosophy-personal

Read in January, 2009

That markets and other social institutions are filled with human uncertainty rather than being subject to description and prediction using strict scientific laws would seem obvious. However, recent economic thought has held the opposite, fancying itself in the realm of the physical sciences. This book puts forward the author's alternative theory of how the market works and his analysis of events over the last decades that have led to the present financial crisis. Worth reading.

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02/03/09

Marc rated it:

Excellent analysis and review of the credit "crash" of '08, as well as other bubbles throughout financial history. The sections that related to his theory on reflexivity were very confusing - I don't see how a man as brilliant in finance and arbitrage as this can't do a better job explaining a theory he "developed"! I personally feel he extends the efficient market hypothesis a bit too far into realms it was not meant to be applied. Still, worth the read for the few chapte...more

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06/16/08

Scott rated it:

Has a copy to sell/swap — Read in June, 2008

recommends it for: Those with a strong thirst for financial market knowledge and current affairs.

For those of you who don't quite understand why the economy is not doing so hot and the causal factors that have led to the housing bubble as well as the "super-bubble" as Soros puts it, this is the book for you. Soros combines both philosophy and financial/economic expertises in relaying his message that the causal factors of the aforementioned "bubbles" can be tied to a term "reflexivity." In a nutshell reflexivity has two main parts, a cognitive function (what ...more

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01/10/09

Ron rated it:

Read in December, 2008

On the down side, he tries to make too much of the philosophical side of his argument - he describes it as if it were a new theory, but I swear I've heard it before. On the positive side, he really explains well the crash, why it happened and so forth. Very educational in that respect.

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01/09/09

Kerin rated it:

Read in January, 2009

The book explains everything that happened to get the economy where it is right now. He also explains all the new fee based instruments but I don't retain that info very well. Has some recommendations for how to fix things. It is a short book, not hard to read or understand.

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06/26/09

Douglas rated it:

I think the history of the credit crunch is pretty good, but not unique. The theoretical component -- reflexology -- could, perhaps, use some cognitive science reading. It turns out there is a science of making decisions. Who knew.

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