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IP: SOROS: Must have economic "third way"

From: [email protected]
Subject: IP: SOROS: Must have economic "third way"
Date: Tue, 06 Oct 1998 08:56:17 -0500
To: [email protected]

Source:  The London Independent
U.K. Section

Soros calls for new cash restraints

GEORGE SOROS, one of the world's leading
financiers, launched a scathing attack yesterday
on governments and bankers alike for causing a
financial crisis so severe that it could topple the
world's economic system. 

"I am very concerned because it will lead to
basically the breakdown of the global capitalist
system," he said. 

Coming from a pre-eminent global capitalist, his
words are all the more striking because he
advises new restraints on the movement of
international cash. 

He spoke as the annual meetings of the
International Monetary Fund and the World Bank
wrestled with a financial crisis that has wrecked
Asia and Russia and now threatens Latin

Mr Soros, in his speech and in a book to be
published next month, attacks free marketeers -
or "market fundmentalists," as he calls them - for
weakening the world financial system,
impoverishing developing countries and
threatening democracy itself. 

Governments have botched their efforts to tackle
the crisis. "The authorities have failed to control
the situation," he said. "The G7 or the G whatever
should have been shut into a room and hammered
this out." 

Mr Soros said that in the future, limits would have
to be put on the global casino to prevent it from
destabilising states and societies. 

"Some restraints on capital movements would
have been very useful to protect countries against
the onslaught of the wrecking ball," he said. 

"The free movement of capital, totally free flow, is
not advisable." 

Mr Soros is chairman of Soros Fund
Management, a leading financier who speculated
against the pound - and won handsomely - in
1992. But he has become increasingly convinced
that pure capitalism is just as dangerous to the
world as communism, and has become a leading
advocate of an economic third way. 

"We have been living with and basing ourselves
on a false model of how financial markets
operate," he said. 

Markets are capable of tipping into instability so
severe that it threatens the roots of democracy

"It is market fundamentalism that has rendered the
global capitalist system unsound and
unsustainable," he writes in his book The Crisis of
Global Capitalism, a section of which was
released yesterday. 

So great had financial instability become that
"market fundamentalism is today a greater threat
to open society than totalitarian ideology", said
Mr Soros, who grew up under first Nazi, then
Communist rule in Hungary. 

"Market forces, if they are given complete
authority even in the purely economic and
financial arenas, will produce chaos and could
ultimately lead to the downfall of the global
democratic capitalist system." 

The impact had been particularly hard on
developing nations forced to follow the course set
by western institutions and banks, he said. 

"Conditions have tilted too far towards the
countries at the centre of capitalist system to the
detriment of countries at the periphery. These
conditions are unsustainable." 

The only way to recover from the present crisis
was to organise flows of capital back into the
developing countries, he argued, but so far the
IMF and western governments had been unwilling
to meet this challenge. 

City staff braced for tidal wave of sackings
as banks cut back 

Morale among City high-flyers has reached rock
bottom as they brace themselves for a wave of
redundancies over the coming weeks as a result
of the global financial crisis. 

Although redundancies have now, so far, been
limited, the fear of real collapse and a return to
the austerity of the early 1990's when blue chip
firms like Goldman Sachs were laying off staff by
the thousand, means conspicuous consumption
and optimism are becoming a thing of the past. 

The latest to feel the chill are staff at Warburg
Dillon Reed, one of the City's top securities firms
who are braced for substantial lay-offs in the
wake of last week's disclosures that the bank's
Swiss parent has suffered serious losses from its
investment in high risk hedge-funds. 

Insiders say that Warburg's 4,500 London-based
staff expect announcements detailing cutbacks
later this week. 

The latest quarterly survey of the UK Financial
Services industry by the Confederation of British
Industry and consultants
PricewaterhouseCoopers yesterday showed
business confidence among financial sector firms
falling to its lowest for eight years. 

Firms which have already announced lay-offs
since this present bout of turmoil hit financial
markets include ING Barings, Robert Fleming
and Japanese firms Daiwa and Nikko. 

One of the larger firms Merrill Lynch has already
cancelled its Christmas Party and ordered staff to
cut back on overseas travel, entertainment and
the use of mobile phones in an attempt to save
150m this year. The firm lent billions to high risk
hedge funds. Jobs cuts are expected to follow. 

It is widely feared that at least one big
international bank could go under because of
losses to these highly speculative investment
operations despite last month's 2.4bn bail-out of
Long-Term Capital Management by a consortium
of big international banks. 

With nervous investors sitting on their hands,
traders have had more time to spend in City
drinking haunts to drown sorrows and swap
tidbits about the latest bank to hit trouble. 

The cutbacks are likely to be even more painful
this time round because of the speed with which
this crisis has hit. Many firms were still out there
trying to recruit until late into August, pushing up
salaries for some categories of staff to
stratospheric levels. 

Now those expansion plans have gone on hold.
Prestige office developments in the Square Mile
are being shelved as demand for space has
vanished overnight. 

"First to rise, first to go," said Joseph Toots, a
stockbroker, sipping a glass of zinfandel in a
Broadgate winebar. "My job may be a trifle
insecure at the moment, but who knows, lets wait
until Christmas." Mr Toots knows his bonus
which last year was "definitely six figure", will be
minimal this time around. "Good thing I bought my
house outright," he said. 

But it is not just sports car dealers and Dom
Perignon stockists who are monitoring the
situation with gloomy eyes. 

The downturn in the City is hitting at a time when
High Street shops are already deserted as a result
of the huge rise in the cost of borrowing since last

Contrary to common perception the City is not
the place where everybody earns a half million
pound bonus; many thirty-somethings are pushing
themselves to the limit, earning what sound like fat
salaries until you hear their commitments. It is
these middle-class, high-income people, whose
wealth is more a prospect than a reality who may
be hit the hardest. 

"We are going to have to have a serious rethink
about everything," said Julia, a consultant. She
says she and her husband are delaying the day
when they will have to sit down and face financial

"We earn almost 100,000 between us, but with
the mortgage and the school and the nursery fees
(they have three small children) we're not going to
survive like this." 

She says she was depending on her share
portfolio to cover the mortgage on their three
bedroom terraced house in Islington and it doesn't
anymore. "The house may have to be sold," she
says, "and god knows how we will afford the
school fees." 

It may sound like a yuppie problem, but smaller
things have been known to drive people into
domestic conflict. 

Isobel Thacker, a banker, said the same problem
has just made her cancel plans to move house. "I
can't afford to move anymore, we're all staying
put," she said. 
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