Check out the washingtonpost.com’s Insider’s Guide to Davos.
I was at the same George Soros lunch Jacob Weisberg attended (smoked salmon: good; lamb: fair; blueberry crème brule: excellent), but I left with a somewhat different thought. Soros is a genuinely fascinating character. He’s got a colorful history, is the rare hedge fund manager/intellectual, and expresses views that frequently diverge from the consensus. He’s also proved himself to be a genius investor, though when journalists ask for investment insight at these events, he demurs. Sample quote in response to a question about commodities: “I know exactly what those commodity prices are going to be but I’m not at liberty to disclose.” He prefers to talk about the big picture—philosophy, the state of the economy, politics. And here’s the thing. While Soros did have a great line about credit default swaps—“you buy insurance on someone else’s life and then have a license to kill them”—as I look back at my notes, much of what he said was a pretty conventional take, the sort you’d hear from a good university professor.
He spoke about reflexivity, his theory about how market and economic fundamentals can be influenced and reinforced by perceptions. The lesson he learned from this bubble was one he already learned several times: Investors are irrational, and bubbles can be quite rational. “As a participant, when I recognize a bubble, I rush out and buy.” What’s needed is a system of regulators who will avert bubbles before they get out of control, and simply controlling the money supply won’t forestall credit excesses. Regulators—and we need good global regulators—can avert bubbles by forcing banks to maintain higher-minimum capital requirements or less permissive margin requirements. Soros criticized the rescue as being too easy on the banks and too expensive for taxpayers. We’ve heard it all several times before, and frequently articulated more coherently by people in the room—and yet we hung on every word.
While copies of his new book, The Soros Lectures, were available, the experience got me thinking about another Soros volume, The Alchemy of Finance. It struck me that the difference between banality and profundity is generally a few billion dollars: The real alchemy of finance is to endow those skilled at finance to wield authority in adjacent or even unrelated areas. That’s the general theory of Davos, bankers sharing their theories about nonbanking subjects. Stick around and you’ll hear a lot of conventional wisdom on globalization, climate change, poverty reduction, financial crisis, but it somehow sounds deeper and more weighty because it’s delivered by an extraordinarily wealthy CEO, a private equity executive, or hedge fund manager rather than by a journalist.