The Day George Soros Broke the Bank of England to Make $1.1B (2021)
historyofyesterday.com
historyofyesterday.com
https://news.ycombinator.com/item?id=30720876 (151 points/55 days ago/175 comments)
But here we are as Crypto Andys are learning the hard way why the financial system is the way it is.
Which is why, in the case of the Soros story, it was the Bundesbank that broke the BoE, not Soros.
The Bundesbank refused to issue DMs to buy up spare GBP liquidity. And that broke the peg.
For a peg to work the currency issuers on both side of the fence need to act in unison, since intervention can only cap, not collar. If both play their part then the peg will be unimpeachable.
Until the Federal Reserve decides to maintain stable coin pegs by buying them up in return for new dollars when the dollar strengthens against them, then the whole concept is doomed.
It's not the market that decides whether a peg survives. It's the currency issuer on the strengthening side.
Emphasis on liquid money. You know, the reason why central banks started QE is that banks don't want to invest into long term assets and just keep their reserves at the central bank. QE effectively turned a fixed term asset like treasuries into a short term overnight asset that you can sell and buy instantly.
Looking at the history of markets to try to understand the difference between pegs that can withstand the shifting tides of market sentiment vs those that cannot is a useful exercise. I am pleased to see this article on the HN front page.
Many of the NGO:s have been actively working for mass-immigration, color revolutions in eastern Europe, drug-liberalization and a stronger EU.
If you are against any of those things, you may very well think that Soros influence on the world is a net-negative.
And he has been criticized for it, long before the first Russo-ukrainian war in 2014.
Though as Soros is normally acting as a gray cardinal through his money, the criticism of him tends to become abstract and stupidly conspiratorial.
That definitely creates a lot of enemies.
It seems to resemble in use the term "political correctness", just even more so and snappier. It's very useful if you want to denigrate something without an actual discussion of why you're unhappy with it.
It's pretty specific.
I don't know enough about those other topics to ask similar questions, but my educated estimate is at least as much disparity between the origins and typical teaching of those topics compared with the politicized version. It really impedes practical communication on these topics when one side decides to run away with their own definition unmoored from consensual reality.
This is completely incompatible with individual based rights that the western world grew on for the last 50-100-150 years. And by west I mean a broad amount of countries not just the US.
Furthermore, one of the main concepts it uses is intersectionality, which is that all of us belong to multiple categories, e.g. while I’m in a local majority for being white (of skin, and sadly now also a few hairs), I’m also bi, left handed (that used to be seen as sinister, and is literally the etymological origin of the term), and a few other things.
This is pretty much the opposite of what you’re saying it is. However, what you say it is, is what I think most opponents of CRT think it is.
“Gender theory”… well, I googled, and that seems to be a non-standard term for both (a) gender studies, and (b) the anti-gender movement. The latter appears to be a catch-all for various otherwise disconnected groups whose only commonality is their opposition to the former. And I have no idea which one of these (if either) you’re criticising.
At some point he formed an opinion that Hungarian society would be better off if vaguely political organisations had more printers and copiers. (An local organisation to oppose tearing down an old building counts as political in this context. Really anything to do with civil society.)
So he bought several thousand laser printers/copiers and gave them to ~everyone. Several of the thousands went to fairly nasty organisations.
Sure had the pound sterling been sound, that would not have been enough. But it was at the time a lot of money, and it's unclear what would have happened had he not done it.
A lot of people lost a lot of money that day. Not just speculators or stock-traders, but many home-owners lost their homes, a lot of businesses defaulted and many people became unemployed as a consequence of what happened that day.
So, there's some motivated resentment against him.
- 10 billions is nothing for a currency.
- I don't think there has ever been proof of a collusion, if you have one I'm happy to read through it ; besides, some other people bought the currency, you don't sell to nobody ; had they be right in buying it and benefiting from a subsequent deflationary crisis, they still wouldn't be responsible for it, would they ?
- A currency weakening is actually good for asset prices (btw Soros bought UK stocks and shorted DE and FR stocks at the same time as part of this trade), in particular from in-debt people (most home-owners) ; the fact that some lost their homes have to do with the recession which caused the collapse of the currency in the first place, NOT Soros' trade. In fact, the consequent inflation actually helped the UK to recover after that.
- Besides, people losing their homes is always bad but it also makes for a good headline and it's always good to have a bad guy to point at, but pegging the currency meant spending all of the CB reserves for years and nobody (amongst those unfairly blaming Soros) seem to be questioning that, whereas it's actually the core issue at hand here.
"Our total position by Black Wednesday had to be worth almost $10 billion. We planned to sell more than that. In fact, when Norman Lamont said just before the devaluation that he would borrow nearly $15 billion to defend sterling, we were amused because that was about how much we wanted to sell."
It seems to prove both collusion and that $10 billion was a lot of money for pound sterling at the time.
I think the fact he seems to suggest that "we" were trading more than their position ($15 billion vs. $10 billion) does suggest that there was another company or financier involved. May be my misreading, but then again, I don't believe that there is any real controversy in that this was discussed and coordinated between several trading firms.
Money supply isn't GDP (although there are relationships but that's beyond the scope of this discussion). The government isn't the central bank. And the UK was facing a recession making the peg really hard to maintain, that's about it.
I think Soros in this quote was "mocking" the 15 B part for how pathetic their effort was. You can't save (or destroy) a currency with that kind of money. I don't see any evidence of a coordination although it's clear that some other people were involved, just like a bunch of people took advantage of the GFC, or of oil going negative in 2020, but that doesn't mean those people were involved in provoking it or "coordinating". You have to understand that hedge funds compete against each other, we've seen that many times in history.
It was not enough to maintain the exchange rate and one of the reasons for that was the gigantic short-sale of pounds by Soros and friends.
if the UK had stayed in the ERM it would have joined the euro and exiting would have been impossible
Soros is very, very much against brexit, to such an extent he funded numerous remain campaigns and continued to fund campaigns dedicated to overturning the result (Trump style)
Actually impossible, or just really bad for everyone’s economies? Because every time I saw the suggestion that Brexit would be bad for the British economy (or indeed anything British), I saw someone dismiss the suggestion as “project fear”, while any suggestion it might be in any way bad for anyone else was met with the response that this was a reason the UK “would get a good deal”.
Sometimes I even witnessed both of these responses from the same person in successive sentences in contexts where it would be illogical for both to be true.
to be blunt: this is your misunderstanding
fundamentally leaving the currency/monetary union and leaving the economic/political union are completely different things, so obviously they would have different outcomes
Greece was considering the former, the UK carried out the latter
the latter (brexit) is at worst is predicted to do some minor damage to growth over a long period of time, which your average person won't even notice
ignoring the practical problems of re-introducing a currency (eg. prevent people hoarding physical euros), even the suggestion that leaving the euro is going to happen would immediately trigger a massive exodus of capital, and at the point it happens you have a massive devaluation that immediately wipes out the savings accounts of everyone in the country as the speculators pile in
and then inflation goes crazy (making today look harmless)
as the Greeks discovered: it is politically impossible, especially when the EU's position is that "the Euro and the EU are linked: leaving one means leaving the other", which would have triggered the situation above in a UK with that adopted the euro
Ironically, you seem to have misunderstood me, because:
> fundamentally leaving the currency/monetary union and leaving the economic/political union are completely different things, so obviously they would have different outcomes
Is something I’m aware of and I wasn’t contradicting.
I was saying potential negative consequences specifically of Brexit were near-simultaneously used by the same person both were not going to happen at all and yet simultaneously that they were a reason the EU would give the UK a good deal.
In one case, the pause between these two claims being made by the same person was literally only just long enough for me to say “no” without actually justifying why I was disagreeing with him. So please, don’t just say I’m misunderstanding.
And that makes me think that in a parallel world where the UK has been in the Euro but still voted to leave the EU, the government may well have dismissed any and all concerns about the economic consequences, left, and then blamed all the harm that did happen on “remoaners” and “saboteurs” and “the jealous EU”, just like they did for the much milder difficulties they faced in the real world.
> it is politically impossible, especially when the EU's position is that "the Euro and the EU are linked: leaving one means leaving the other"
First, “Politically impossible” doesn’t seem to be in the vocabulary of current UK politicians right now.
Second, I get the impression many of the louder Leave campaigners hated both the currency and the EU, so I don’t actually see how your claims are evidence makes it more politically channeling in the UK than Brexit was all by itself. Economically more challenging, sure (though you’ve still not convinced me it would have been impossible). Politically more challenging? I don’t see it.
re: the pertinent points:
brexit was politically easy[1] as the core of the conservative party has wanted it for 20 years, as have the electorate
and economically it was a non-event
leaving the euro would be neither (as previously described)
[1]: other than during the period May screwed up by losing her majority with the fixed terms parliament act that prevented her calling another election (but the subsequent election fixed that, and now that act has been rescinded, so this will never be repeated)
edit - this is why left wing groups try to shut down all discussion of him by screaming antisemitism, and why right wing groups are convinced he is the root of all evil.
I think he funds some groups that advocate criminal justice reform.
There is a case to be made that the sky-high incarceration rates are indicative of a wider problem.
Oh come on :) You can't tell me you haven't heard of this?
So... Two medals?
and using the media in exactly the same way Trump did
the phrases were different ("Russian interference", "non-binding referendum", "people didn't understand what they were voting for"), but the intended outcome was the same: overturning a legitimate result conducted fairly
and this went on for years
the only difference is the people trying to overturn the referendum result were considered "the good guys", so it's acceptable
whereas for Trump, it's unacceptable because he's the bad guy
All political campaigns try to get their message across through a variety of media. Can you be specific?
The remainer objections you quote are at least arguable (some more so than others). Many remainers wanted the result overturned through legal or political mechanisms (typically, a second referendum). But Trump pressured officials to modify vote tallies and literally told followers the election was "stolen". There is a distinction.
It really wasn't. Trump is claiming widespread electoral fraud. Big difference.
I don't think the Bank of England was having fun, they were under political pressure.
> This is so evil on so many levels, that few people in suits can have such an impact of whole country finances.
Absolutely, it's immoral for central banks to manipulate currency markets. It only strengthens the argument for central banks to have defined mandates and be free from political interference.
> We all believe in a dream that it’s competition and market prices that drive economy, and then this happens.
Well, the BoE tried to enforce its will on the market and predictably failed. Once the charade ended, inflation came down over the next years the British economy recovered from the recession it was in before the event.
Wait, you don't actually blame Soros for this, do you?
Because it's the Bank of England that was fixing the price. By breaking the peg, Soros introduced competition.
It really is competition and market prices that drive the economy... controlled by a few people in suits. And money itself is part of the market.
In 2009 Financial Times published an essay by George Soros, where he describes his general philosophical theory "reflexivity", that he applies to life and investing. Reflexivity is an extension of Poppers ideas and are very well grounded.
They explain very well the reasoning that led to breaking of the Bank of England.
https://www.ft.com/content/0ca06172-bfe9-11de-aed2-00144feab...
There is lots of investments based not on the belief of somethings intrinsic value, but on the belief on other investors belief of somethings value. In fact, I would say that the majority of trades happen due to "making investment decisions based on your belief that the value [of X would Y]" as you say. So trades at discrepancies on value beliefs. If this is a good thing or not is debatable, but it is the reality and how would that be related to market manipulation.
I get the distinct feeling that you are trying to say something between the lines but it is hard to know. Can you elaborate on your points?
Rich people and politicians get insider trading information all the time. It may be hard to prove (or effectively impossible to investigate in the case of US politicians due to Obama), but such speculations usually don't fall out of the sky.
It was widely believed at the time that Sterling had been pegged at an unsustainably high value. Based on this belief Soros and the other speculators put large amounts of money on Sterling depreciating, which happened and they earned massive profits.
There was no "insider information".
If the speculators had never made their bets the exchange rate still would have collapsed because foreign banks were selling their GBP far faster than the BOL could buy it (or had the capacity to buy).
At the time the Bank of England had committed itself to maintaining the value of Sterling at a rate that was widely considered to be too high.
Soros and a bunch of other large funds and banks decided to take on a coordinated short position. So they...
- borrowed very large sums of Sterling
- exchanged the Sterling for Dollars (or maybe DeutschMarks?)
- waited for Sterling to depreciate
- Sterling now being much cheaper they then used the Dollars to buy back the original loan amount of Sterling and have plenty of Dollars left over
- repaid the loans
The large amounts of Sterling that they were selling would have increased the downward pressure on the price of Sterling, forcing the Bank of England to sell foreign currency reserves to keep the value within the narrow limits it had committed to as part of the ERM.
Due to the open nature of the market other currency speculators would have been aware that all this was going on, and they too started shorting Sterling, further increasing the pressure and forcing the BoE to sell more reserves.
At some stage it became apparent that this was unsustainable and Britain exited the ERM and devalued the currency, creating massive profits for the speculators.
This article (https://www.investopedia.com/articles/forex/08/greatest-curr...) talks about going short, going long, strangle and straddle, it also talks about a couple of illustrative events, including Soros v. British Pound.
In 2009 Financial Times published an essay by George Soros, where he describes his general philosophical theory "reflexivity", that he applies to life and investing. Reflexivity is an extension of Poppers ideas and are very well grounded.
This essay explains very well the reasoning that eventually led to breaking the Bank of England as well.
https://www.ft.com/content/0ca06172-bfe9-11de-aed2-00144feab...
The theoric ideas to resist this for a country is either:
to let your currency fluctuate freely, as the free market theory wants. But this is basically selling your small and medium business production to companies that can do faster arbitrage than them. I know this is the liberal way, but when you think about it, this is not viable if you have any industry and free trade agreements with a countries with richer banks/companies. This would be economic suicide for Mexico if you want an example.
Other way to resist this is to have a lot of dollar/eu bonds and sell them. If you have more bonds than the attacker money, you "win" (the attacker doesn't loose much either). I'm pretty sure some money can be capted during an attack for HFT firms, but don't quote me on that, and i'd like confirmation from someone actually working with HFT systems here
And the last way is having one of the strongest currency in the world. Dollar, Euro, Yuan basically. Pound and Yen "waste" their respective central bank millions each year
At that point there is no patsy in the market, and liquidity constraints will deal with the situation. For every seller there has to be a buyer
Couple it with the occasional 100% margin calls if the price moves too much and the risk of getting caught naked becomes very high indeed.