George Soros is perhaps one of the most well-known economic forces in the world. He was called the architect of the “Asian Financial Crisis of 1997,” and is well known for his acts that led to the “Breaking of the Bank of England. ” Currently the chairman of the Soros Fund Management group and the Open Society Institute, George Soros is also ranked as the 80th richest person in the world (Stone 547). Such titles and acclaims to fame do not happen to everyone and do not happen overnight. Using his philosophy of “reflexivity,” Soros is able to make millions of dollars overnight with his investment transactions (Bryant 114).
In order to arrive at a better understanding of what makes George Soros a financial success story one must first examine the path that he took in life. Upon moving to the United States in 1956, Soros worked as an arbitrage trader with F. M. Mayer and Wertheim and Company (Stone 547). It was during this time that he developed his theory of “reflexivity. ” Under this theory, Soros believed that the value of a market was based on the perspective that its participants had on the market (Stone 547).
This theory leads to market speculation and thus an over-inflation of the actual prices of the commodities available in the market (Stone 547). It is this theory that Soros has capitalized on and it is this same theory that prompted Soros to take his first steps in investing. Soros realized that the concept of “reflexivity” could only be profitable if one took active participation in the market (Bryant 114). During his work with Arnhold and S. Bleichroeder, he discovered that he was a better investor than an executive.
He then persuaded his company to set up an off-shore investment fund that he utilized for his deals (Bryant 114). When investment regulations restricted his control over the funds, he set up his own private investment firm known as the Quantum Fund. It was from this stepping stone that Soros was able to amass the huge personal fortune that he now controls. The best ways to understand how George Soros makes so much money is in understanding the role that he played in the “Breaking of the Bank of England” incident. During this time, Soros sold short over US $10 billion worth of British pounds.
This was a move that was prompted by the hesitance of the Bank of England to raise its local interest rates to place it at par with the other European Exchange Rate Mechanism countries (Stone 547). Since the Bank of England also refused to float it currency to levels that Soros wanted, he initiated its collapse by selling a huge amount of pounds. This move prompted the Bank of England to withdraw its currency from the European Exchange Rate Mechanism. This was followed by the devaluing of the pound sterling that led to the collapse of the value of the pound.
From this single transaction alone, it is estimated that Soros was able to earn around US $1. 1 billion (Stone 547). This is the same strategy that Soros employed during the “Asian Financial Crisis of 1997” that led to the collapse of a number of Asian economies due to the massive investment repatriation that Soros initiated within the area (Stone 547). The main philosophies that Soros employs in this investment practices are largely influenced by the writings of Karl Popper. , under whom he studied at the London School of Economics (Bryant 114).
The concepts such as static disequilibrium, near-equilibrium conditions and dynamic disequilibrium have all been introduced by Soros (Bryant 114). While these concepts are not conventional in every sense of the word, they have proven to be effective as shown by the financial success that George Soros has had over the years. Perhaps the one characteristic that makes George Soros a financial genius is his keen ability to remain ahead of the pack. The large sums that he controls enables him to shake certain regional economies or even jump start them.
It is this advantage that enables him to make the bold moves that he has done and also allows him to earn the sums that he does.
Works Cited: Bryant, C. G. A. (2002). ‘George Soros’s theory of reflexivity: a comparison with the theories of Giddens and Beck and a consideration of its practical value’, Economy and Society, 31 (1), pp. 112-131. Stone, Diane. (2007) “Market Principles, Philanthropic Ideals and Public Service Values: The Public Policy Program at the Central European University”, PS: Political Science and Politics, July: 545—551
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