George Soros finally gets it

http://optionarmageddon.m…inally-gets-it/

Rolfe over at Option Armageddon tackles George Soros amazing flip-flop from his side-pocket banking position that he publicized a bit over two weeks ago (Feb. 4).

As I commented on OA, it seems more and more true believers in the financial system are losing faith and turning into apostates. What’s interesting in Soros’ case is how dire he paints the present situation, comparing it to the collapse of the Soviet Union. Perhaps he’s not far off the mark.

Per Rolfe:

Anyway, only three weeks after arguing “side-pockets” were the magic bullet, Soros now sounds downright despondent. Reuters:

Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.

Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.

He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.

“We witnessed the collapse of the financial system,” Soros said at a Columbia University dinner. “It was placed on life support, and it’s still on life support. There’s no sign that we are anywhere near a bottom.”

Three weeks ago George thought all we needed was a little financial engineering. Now he sees “no prospect” of resolution and says we’re falling like the Soviet Union. What changed? My guess is that George finally started to think outside the box; he put his big brain to work thinking about the very foundation of our economic system and realized its broken.

Why highlight this particular flip-flop with a blog post? I think it’s emblematic, and not in a good way.

I continue to be struck by the level of ignorance among our captains of industry, our leading policitians, our financial elite and, most ominously, our economic “experts.” Few appear to recognize the depth of the crisis we face. Most still aren’t prepared to ask the hard, fundamental questions about our economic system. Anyone who mentions the gold standard, for instance, is treated as a novelty.

The problem, I think, is that so many of our leaders are tied immovably to the old way of doing business. A man will make himself believe most anything if his salary depends on it. Lots of salaries are at risk, so lots of heels are digging themselves in.

Anyway, as I’ve argued for awhile, the only way to “solve” the crisis is to let asset prices fall. And that means the balance sheets on which those assets currently reside need to recognize substantial losses. Call it the “Fight Club” solution*—everyone goes back to $0. This would be highly painful for ALL Americans. But it would be most painful for those with the most to lose…

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*Fight Club screenplay:

JACK
…I believe the plan is to blow up the headquarters of these credit card companies and the TRW building.

STERN
Why these buildings? why credit card companies?

JACK
If you erase the debt record, we all go back to zero. It’ll create total chaos.

As I noted (H/T MVC), today happens to be Chuck Palahniuk’s, Fight Club author, birthday.