From: believer@telepath.com Subject: IP: SOROS: Must have economic "third way" Date: Tue, 06 Oct 1998 08:56:17 -0500 To: believer@telepath.com Source: The London Independent U.K. Section http://www.independent.co.uk/ 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 America. 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 itself. "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 year. 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 reality. "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. ----------------------- NOTE: In accordance with Title 17 U.S.C. section 107, this material is distributed without profit or payment to those who have expressed a prior interest in receiving this information for non-profit research and educational purposes only. 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