The Human Element: The Cause and The Solution to The Problem
Writing a Book Review of sorts can be intimidating. I’m sure it’s common to feel hesitant about being able to adequately come anywhere close to doing justice to the many inter-related ideas an author has expressed in his work. At the same time, there is an eagerness to share the insights gleaned from their work as well. The latter is what I will attempt to do here.
The book I’ll be referring to in this post is George Soros’ “The New Paradigm for Financial Markets: The Credit Crisis of 2008″. I am by no means any kind of a financial expert. While I’m sure that different people will focus on different aspects of this book, my aim is to simply express the main point that stood out for me. That happens to be the human element of the equation.
In his book, Soros demonstrates how the long-held belief that markets naturally tend towards equilibrium is actually a misconception. He states that markets trend away from a norm as often as they trend towards a norm (assuming a ‘norm’ even really exists). He goes on to explain that markets are not scientifically predictable because the decisions of the market participants and the regulators are not predictable.
He writes about the resistance he receives to his ”no equilibrium” theory due to the fact, which he also agrees with, that markets can appear to be self-correcting to a point, especially in normal conditions.
Yet breakdowns can occur. These boom-bust cycles, or bubbles, occur due to what Soros describes is a “self-reinforcing but eventually self-defeating” interaction between a misconception and a trend which ultimately becomes unsustainable, for example: “whereby valuations affect the fundamentals that they are supposed to reflect”, or “where the willingness to lend influences the value of the collateral.”
He argues that this potential for a breakdown is what creates the necessity of oversight, regulation, supervision, or eventually intervention of some sort. And, as Soros openly acknowledges, it is also true that regulators can be as wrong as the markets at times, too, so that’s why it is so important to get the regulatory environment right.
Soros covers so much more in his book, but it is the dynamic of the human element being both the cause and the solution to the problem that intrigues me most. In his own words: “the future is dependent on the participants’ decisions” and the current financial crisis “is a vivid demonstration of how much damage misconceptions can cause.”
How will we learn from the past? Could the general public become a regulator of sorts, too? Can we individually and collectively take more responsibility for doing some of what Soros suggests is needed, such as: finding a way to stay in touch with reality as objectively as possible; being aware of when thinking deviates from objective reality, or is carried too far; noticing when old rules no longer apply to new circumstances; and avoiding practices that aren’t fully understood.
How will we address the present? How will we help each other recover from this devastating man-made Housing Bubble? And what “New World Order” will develop if this is the “end of a long period of relative stability based on the United States as the dominant power and the dollar as the main international reserve currency”?
With the future being determined by human choices and not being predictable by scientific laws, what kind of a future will we decide to create for ourselves? These questions remain an open book.
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For other perspectives on this book, more book reviews can be found at: Goodreads.com .
