The Trade of the Century: When George Soros Broke the British Pound | Hacker News Reader

The Trade of the Century: When George Soros Broke the British Pound

priceonomics.com

238 pointsnols182 comments

Politicians always like to blame speculators when their attempts to fight the market inevitably end in failure, and this instance is no different. Soros didn't "break the GBP," it was already broken and the British government's guarantee to prop it up was never sustainable in the first place.

Someone was going to a lot of make money when the British government's scheme unraveled. Soros just happened to make a lot more than anyone else. Reminds me of a good Rhett Butler quote: "Opportunists have always been held in disrepute. Especially by those who had the same opportunities and didn't take them."

It was going to happen anyway, so there's nothing wrong with benefiting from it, yes?

If a man with diamond cufflinks and a fat wallet is passed-out drunk on the sidewalk at midnight in a bad neighborhood, he is definitely going to get robbed. Does that mean I should go ahead and rob him myself with a clear conscience?

I guess, according to you and Rhett Butler, I'm just jealous because I didn't pickpocket the last drunk I met.

Well, no. Robbing a passed out drunk is a crime; you should feel bad for committing crimes, even if it's clear that if you didn't somebody else would.

Shorting a stock (or a currency) is not a crime; it's an acceptable thing to do in a market.

I was under the impression that we frown on screwing innocent people because it's a shitty thing to do, not because it happens to be designated as a crime.

I'm not saying that what Soros did should be illegal, mainly because overregulation can wind up screwing innocent people in all sorts of different ways that I'm not wise enough to predict. But I surely don't understand why he's being held up for praise.

We do frown on screwing innocent people, and it is a shitty thing to do.

Who screwed Britain? If you're going to tell me that it was George Soros, I'd like to hear why you're holding him more responsible than e.g. Helmut Schlesinger, or the reporter who paraphrased Schlesinger's quote and sent the market into a panic?

edit: Or as loso pointed out in a comment above mine, is George Soros more responsible than the members of the British government who put the pound sterling in the terrible position to begin with?

Most (or at least some) of the politicians likely acted in good faith, believing they were doing the best for their country. Soros knew he would leave the people devastated but didn't care.

That may be true, but I don't think it's relevant. The politicians still made bad decisions that led the country to ruin; you can say they didn't mean it, but that doesn't make it not their fault, nor does it mean it wouldn't have happened if Soros hadn't shorted the pound.

And to rephrase the second sentence: Soros knew that the bad policy decisions of the politicians would leave the people devastated, but didn't care. Again, I'm not convinced that's relevant; Soros didn't make the situation, he just profited by it. That doesn't make it his fault.

I agree with CocaKola that this isn't relevant - I'd vote against having people acting in good faith, if the end result is getting screwed.

As to your other point, this is how markets are supposed to work. Soros in effect helped show the incompetency of the government, which was a net good. People got screwed, certainly, but the situation was terrible and no one did anything about it until Soros stepped in.

You could say that he is similar to Snowden or other whistleblowers in many ways. They through the government into chaos, likely endangered a lot of the economy and possibly lives, and they did it all because exposing the bad things the government was doing was more important.

Of course, I'm not arguing that it's the same, as the whistleblowers do this despite the fact that it ruins their lives, and Soros did it to make money. What I am saying is, it's great we've setup a system where people like Soros are incentivized to uncover government screwups, so we can do better next time.

> As to your other point, this is how markets are supposed to work. Soros in effect helped show the incompetency of the government, which was a net good. People got screwed, certainly, but the situation was terrible and no one did anything about it until Soros stepped in.

> You could say that he is similar to Snowden or other whistleblowers in many ways. They through the government into chaos, likely endangered a lot of the economy and possibly lives, and they did it all because exposing the bad things the government was doing was more important.

Grotesque. Soros certainly didn't give a damn about the public good. A better comparison would be somebody blowing a nuclear power plant to make a point that the security measures are insufficient. Should we congratulate terrorists next, because we can "do better" next time in terms of security?

> Of course, I'm not arguing that it's the same, as the whistleblowers do this despite the fact that it ruins their lives, and Soros did it to make money. What I am saying is, it's great we've setup a system where people like Soros are incentivized to uncover government screwups, so we can do better next time.

Really? Let me ask you, why was the situation terrible exactly? Because the pound was overvalued and exposed to the same predatory behaviour Soros demonstrated? Oh, right...

I think a £3.3b loss is hardly devastating.

GDP in 1994 was £693bn

Govt. spending was £4,687 per capita and this loss was about £54 per capita.

Not zero but hardly devastating.

http://www.ukpublicspending.co.uk/piechart_1994_UK_total

£3.3b in 1994 would be £6bn today.

As a comparison, in 1999 Gordon Brown sold the UK's gold before the market moved up, the equivalent of a £9b loss, £13b in today's money. He did this to give the banks an under the radar bailout by manipulating the markets.

http://blogs.telegraph.co.uk/finance/thomaspascoe/100018367/...

It's less about the total loss of money and more about the valuation of the currency. The mid-nineties saw the pound drop even further in value and it's only recently begun to grow stronger again.

Not sure I agree that it has been 20 years of straight recovery. In the late 2000s it was 2:1 with USD for a time.

Gold doesn't pay interest, whereas the cash raised from the gold sale was used to buy (mostly) long term US treasuries to replace the gold in the BoE's asset portfolio. These have performed very well as an investment over the intervening years (look at, eg the BTTRX fund for a rough equivalent in the private sector) so the net loss is much smaller than you'd think.

> Who screwed Britain? If you're going to tell me that it was George Soros, I'd like to hear why you're holding him more responsible than e.g. Helmut Schlesinger, or the reporter who paraphrased Schlesinger's quote and sent the market into a panic?

As I said elsewhere, there's plenty of blame to go around. Lots of people were complicit, some of them more so than Soros. But Soros is the only one who's commonly held up as some sort of heroic capitalist ubermensch, so he's the one I went after.

Soros profited off of a screw up by the British government. And not just one screw up, many if you look at the full history of what happened. I think the British government screwed their people way more than Soros did.

The British government might be the least "innocent" institution in existence.

I was referring to the British taxpayers, not the government.

You think the British government is the "most guilty" institution in existence? Unless you cling to the idea that eradicated institutions (such as the Third Reich) don't count this seems more than a little harsh.

Well, the British Empire certainly has blood-stained hands, but that's sort of irrelevant to the discussion here (and what country/empire doesn't?)

Well just to clarify, I wasn't counting the 3rd Reich since it is "dead", similar for Ghengis Khan and the Romans.

To me, guilt is what you've done, innocence is what you haven't done. The British government has done pretty much everything.

Doesn't the phrase "in existence" by definition disqualify institutions which are eradicated and thus don't exist?

And selling bad credit default swaps wasn't a crime either.

So, according to your theory, the perpetrators of the last downturn should have sold as many bogus CDS packages as possible, right? Regardless of the damage?

I'm happy most people don't subscribe to the same law-defined morals that you seem to.

If Soros's bet had gone against him, he would have lost all of his investors' money and been left penniless. There would have been no bailout waiting in the wings.

The guys selling CDSs they couldn't pay out had none of their own skin in the game, and were profiting from the presence of then implicit (now very EXPLICIT) government backstops. When they lost money, the public was forced to pay through devices like the AIG bailout, TARP, ZIRP, etc.

There's no legitimate comparison between the two.

> If Soros's bet had gone against him, he would have lost all of his investors' money and been left penniless. There would have been no bailout waiting in the wings.

Well, no. This is explained in the article: If Soros' assumption (that the exchange rate would plummet) hadn't been realised Sterling would've stayed at the lower bound of the ERM and Quantum wouldn't have lost much at all.

We can have reasonable confidence in that assessment in hindsight. At the time, I would have been unwilling to gamble my net worth against the possibility of some unforeseen event causing a spike in the value of the pound. It was a non-zero risk.

Soros clearly had confidence in it. That's why he's the player that won the pot.

There was a lot of fraud involved in the banks and mortgage brokers who made hundreds of thousands of liar's loans: the fact that nobody was prosecuted for that fraud is a failure of the justice and regulatory systems..

I have regularly argued that much of it was, in fact, illegal. At a minimum there was a lot of negligence with regard to fiduciary responsibility. I would also argue that there was a fair amount of fraud from borrowers, mortgage brokers, banks, and so on all the way up to the top financial levels.

> you should feel bad for committing crimes, even if it's clear that if you didn't somebody else would

i don't think edward snowden should feel bad for what he did, even if it's considered a crime.

as for robbing a drunk guy in the gutter, you could argue that you are teaching him a lesson, and that the price of this lesson is the cash he has in his wallet now. it would be a rather aggresive marketing strategy, but hopefully the guy does learn from it.

likewise, you could argue that soros breaking the bank of England is him teaching the people of the world a lesson - you can't prop up a currency indefinitely. people like him - folks with lots of money and more desire to earn money than to support practices they think are unsustainable - will prevent governments from pegging rates indefinitely, just as muggers will prevent people from wandering carelessly through parts of town where no one is watching them.

i'd like to live in a world where people were more interested in gaining a positive reputation by passing on the chance to profit from destruction, even if it's legal. that wish is exactly like wanting to live in a world where nobody gets mugged: both of those situations are inevitable if omnipresent surveillance takes off. if being caught is a certainty, nobody's going to pick a wallet anywhere. if databases of people's responses to your actions are publicly available, many supporters of government-backed monetary policy - as well as the friends and families of those who suffered from his actions - will shun soros and anyone else who helps knock a tower over because 'it was going to fall anyhow.'

I have no idea what you're saying. You're bringing up Edward Snowden, who has literally nothing to do with the conversation at hand. Then you're proposing some form of defense for the idea of mugging the drunk guy. Then you're shifting right to omnipresent surveillance, which again has nothing to do with what we're talking about. Your comment is utterly incomprehensible to me; I know what all the individual words mean, but I can't put them together into a cohesive thought that's relevant.

Can you rephrase yourself in a way that's more understandable?

> You're bringing up Edward Snowden, who has literally nothing to do with the conversation at hand.

That was pretty clearly a response to the line he quoted directly above, i.e. rebutting the notion that an action's morality is solely determined by whether or not that action is classified as a crime.

Ah; I must have missed the part where somebody stated that an action's morality is solely determined by whether or not that action is classified as a crime. I agree that that's a silly metric to use as the sole determination of the morality of an action, but can you do me a favour and point to where that was stated? I'm having trouble finding it.

A ways upthread, you said:

> Well, no. Robbing a passed out drunk is a crime; you should feel bad for committing crimes, even if it's clear that if you didn't somebody else would. Shorting a stock (or a currency) is not a crime; it's an acceptable thing to do in a market.

If you didn't intend to imply that robbing the drunk is bad because it's a crime, and what Soros did is acceptable because it's not a crime, then you weren't communicating very clearly.

some ideas i got while reading your interesting post, sketched them out and think are interesting and useful for someone to consider but not important enough for me to bother arranging into cohesive structure (and so potentially asis contain some nonsense, lol):

consider/distinguish/define innocence vs unawareness vs incompetence

innocent of what ?

is it ok to eat cows ? distinguish from unconscious / unaware / stupid / mentally challenged humans at a biological level - self reflection in another person ? empathy ? isn't that really selfish.. (is selfishness wrong anyways)

yes law | crime != justice | morality

however internal sense of justice, morality - some forms of it (internalised socialism/communism) are a heavy burden and disadvantage, objectively wrong

because

thoroughly exploited by weak / lazy / unlucky people and groups, and various degrees of sociopaths and most of all exploited by the great unaware masses - innocents ? - muppets ?

otoh social cooperation beneficial to all (if that is _the_ goal) only if driven by free will in a way that benefits each member according to his own estimate of his own needs & desires and willing sacrifices to trade .. (benefits vs costs)

is morality guided by relative quantity of beneficiaries/victims & 'quality' of some definitions and scopes of benefit vs harms relative harm or good, does an objective 'detached' harm / goodness exist without context. (harm / goodness are not nouns, not objects, just results from actions) no 'cold' objective guidelines ..offtopic philosophising

self sacrifice without self benefit = self destruction for someone else's benefit, or no benefit at all - just stupid

re reputation - an external motive, essentially hunger for reward + fear of punishment, at a social level :. potentially a form of hypocrisy, not 'real' internal morality

re omnipresent monitoring - fucking creepy kafkaesque horror show... lol, i think population will creep out waay before it ever happens, privacy awareness is already entering mainstream (snowden, visible hackings, internet driven mainstreamising of countercultures)

..re soros et al: foregoing opportunities to appease the incompetent (or unaware, stupid) is a form of self sacrifice - for people who don't deserve it / appreciate it / fucked over by their own government and muppetry / there's really no reward / stupid and futile

Since I don't agree with your premise that successful speculations are morally equivalent to robbery, your entire analogy seems ridiculous to me.

He was attacking your statement: "Someone was going to a lot of make money when the British government's scheme unraveled."

I think the point is clear, morality has nothing to do with whether something is definitely going to happen or not. If you're taking advantage of a situation and you deem it immoral, whether the end result would have been the same even if you hadn't participated is irrelevant, it's still an immoral action.

Whether robbery and speculation are equivalent is a different point from the one being made. Obviously analogies aren't perfect, I think most people here realize that from the very definition that analogous situations aren't the same. But it's still a useful tool to make an argument with.

If trading currency is immoral then the british government is no more moral than Soros, like tango trading takes two.

To introduce another bad analogy in to the conversation, eating cheese is not immoral but forcing a 10kg block of cheddar into somebody's mouth is.

Black Wednesday still has political and economic consequences more than 20 years later - the UK is not a member of the Euro and the Right may potentially pull us out of the EU altogether. The (de)merits of both positions notwithstanding, Black Wednesday certainly still has a huge psychological effect on our relationship with the rest of Europe.

Just a FYI, some of us feel that eating cheese is immoral.

Hmm, true. I had forgotten about veganism, sorry.

Another way of looking at it is this: had the pound remained on the ERM, Britain would have remained on-track to join the Euro. Assuming no devaluation of the pound (the incident that caused Britain to leave the ERM), the pound would have become part of the Euro at a ruinously high exchange rate relative to the Deutschmark. In the financial collapse of 2008, Britain would not have been able to lower interest rates or run quantitative easing. This is basically the predicament that Spain, Italy and Greece are in (though Greece has other problems). They have been forced to carry out "internal devaluation" by cutting spending and wages, and due to the sticky prices effect this basically means making very large numbers of people unemployed.

Of course, you could argue another counter-factual, that Britain within the Euro would have tipped the balance of power in the ECB in favour of a much more doveish monetary policy from 2008, and thus saved Europe from calamity. It's really hard to speculate about these kinds of reflexive dynamics.

Except Great Britain is the sole maker of cheese, and forces under threat of violence the citizens of the UK to pay their taxes and other debts in cheese, and it costs Britain nothing to make cheese.

They didn't force a 10 kg block down any ones throat, they choose of their own volition to buy 10 kg of cheese at price they knew to be outrageous, to maintain their manipulated price of cheese because they are the sole maker of cheese.

So as the sole supplier of cheese they fucked up the market by flooding it with cheese, then realizing what they had done bought fuck loads of cheese that costs nothing to produce to maintain their inflated price of cheese. Fuck them.

His premise is something similar to what I was going to write and then didn't for brevity - the general justification touted for Soros doing what he did is that the British government were incompetent and deserved what they got - it's equivalent to saying the drunk deserves everything he gets because he should have known better. A third party's incompetence isn't a moral justification for your proactive exploration of their incompetence.

So in your mind, there's no difference between engaging in a transaction that both parties enter into willingly, fully in control of their faculties, and robbing a drunken, passed out individual? Because that analogy holds those two things to be equal.

If a car dealer knowingly sells you a lemon, is it a consensual exchange? I don't think was Soros did was absolutely unethical, but its ridiculous to pretend that it was squeaky clean. One party thought this to be an ordinary transaction; the other party knew it would debase the currency.

I think the poker analogy is a better one.

Two parties took a bet, as in a poker game. They each though they were doing the right thing. Turns out, one of them had a winning hand and one of them didn't.

But since everyone knew the nature of the game, and everyone knew they were making bets, why is it unethical?

Really, I would think more anger should be placed on the politicians who got monetary policy so drastically wrong. Or maybe anger is wrong - maybe I should say "learn from this". Because heaping anger on someone who outplayed you is a great way to mask the fact that you need to learn.

Its not that I think Soros should be "blamed" per say, it just doesn't speak highly of his character. He put profits before the wellbeing of the British people. Clearly he doesn't feel an ethical obligation to them. I would have.

But you're right. Judging Soros gets us nowhere, drawing lessons from this does.

Except it was the BoE that was selling lemons. Sorros knew they were and exchanged them for oranges while he could.

As a Brit, this comment made me smile because of how accurate it was.

Black Wednesday was probably topped only by http://en.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999%... in the buffoonery stakes.

Fellow Brit

Some think the gold selloff was an under the radar bailout

http://blogs.telegraph.co.uk/finance/thomaspascoe/100018367/...

Great link.

In this analogy, what are the lemons and who is the car dealer?

Keep in mind that the dealer was making the offer to sell, so it's like a push pull or drag sale.

So dealer makes an offer saying "We will give you $10,000 for any clunker, no quantity restrictions, if it has wheels and starts we'll give you $10,000" so Mr. Soros thinks to himself, this is a rediculous offer and starts buying everything on craigslist for less than $10,000. He rolls up with 100 lemons and the dealer buys them, then has a press conference saying he has $15 billion dollars on hand an will buy all the lemons in the world for $10,000 a piece.

So George Soros goes and finds $30 billion lemons and it turns out that the gov't couldn't (or didn't want to) come up with $15 more billion for lemons. Yes, the tax payer got fleeced, but the transactions were made in good faith by people who thought buying lemons for $10,000 was a good fucking idea, and was elected on a fucking platform of buying lemons for $10K.

When we abstract away the situation, then it all seems simple - we assume both parties (the BoE and Soros) are willing, aware and self-motivated actors in control of themselves.

However, there WERE other parameters. George Soros clearly believed the government to be incompetent/incapacitated (up against a wall), and took full advantage. It's also a zero-sum game where the loser isn't a single, self-motivated individual - it's a body of taxpayers who aren't explicitly consulted or perhaps even aware of the transaction, which calls into question the "willing, self-aware" parameter. Idealised financial transactions end with "win/lose", whereas ruining a whole economy like that results in years of decreased quality of life for other individuals, which has a moral implication. Soros was undoubtedly aware that his transaction would disadvantage a huge number of people, but did it anyway. He could have acted in such a way that netted him lots of money (a million, 10 million, 100 million) whilst still minimising taxpayer losses, but he didn't at all.

So in pure, simplified transactional terms, yeah fair game. In "big picture" we-are-all-human-beings terms, there's a huge moral hole here.

Sure; I won't argue that it was a jerky thing to do. However, being jerky doesn't make it criminal, and when you say "this is analogous to mugging a passed out rich man in the gutter", you are saying that it's criminal.

Was the British government up against a wall? Yes, but only because they put themselves there. They said "We will buy British Pounds, all you want to sell to us". George Soros said "Well, damn; I bet I can get a lot of pounds. Let's do this." and it turned out that George Soros's ability to borrow pounds was greater than the government's ability to buy them. How is an entity, full of ostensibly smart people, who continually say "Bring it on, I'm not done yet" the same or even similar to a drunken, passed out man? How is somebody who says "You will buy British Pounds? I have some pounds right here; would you like to buy them? Oh, you would? Well hold on, I'll be right back; I bet I can get some more!" the same or similar to somebody who sees a passed out man and slips off the dude's watch?

Robbing a drunk man in the street: Illegal + Immoral

What Soros did: Legal + Immoral.

Indeed. A much better analogy is that a rich sucker sits down to play poker in a casino and gets fleeced by the pros.

If a person leans up against a well and it falls over, do you blame the person or the people who built the wall so shoddy?

Any wall will topple with enough force. And Soros's $10 billion bet was a hell of a lot of force.

If the person is actively pushing the wall over, knowing full well that the wall is structurally unsound, and that there are innocent people behind the wall...yeah, I'd blame the pusher.

If someone takes out a concrete wall with a five-pound sledge, I'm gonna have harsh words for the guy who build the shoddy wall and the guy who deliberately vandalized it.

People always underestimate how valuable information is. When you short a stock or a currency, you are not "screwing" someone, but providing information to others saying "this thing is screwed". If you believe something is wrong, you should announce that to everybody, loud and clear. In a marketplace this "announcement" is carried out by a big short, because that's the only kind of message people are able to hear.

And borrowing from your example, if there is a big group of drunk men marching to an abyss and no one would listen to a word you say ( well they are drunk), then maybe the moral thing to do is punch them in the face and run the other way.

I think the just behavior would have been to explain to the government what was going to happen, and then to leverage the fund's wealth and financial influence to help solve the greater problem. I know, businesses exist to make money. But I can't help but feel like these people who profit off of the missery of the people are just awful, awful humans.

You do realize that most people do not take the same opportunities because they consider them ethically and morally disgusting? That maybe we're not just a bunch of fools floundering around bumping into just enough money to survive?

I'm always amazed how opportunists think they are the only ones who thought of their schemes.

What was morally or ethically disgusting about Soros profiting greatly at the expense of the British Government?

Do you think it's morally or ethically wrong that you paid $3 for a hamburger that McDonald's only paid $2 to produce?

Opportunities and tradeoffs exist all around us. It's simply how our world works.

I'm not going to debate whether there is a general morality to his actions or many actions of those in finance. What I was stating was that many people do not go into these lines of work and/or do things, not because they are incapable or because they do not see the same opportunities but because they think they are unethical and immoral.

This may help you, and the original gentleman I responded to in understanding that its not necessarily a case of having the stronger ability but sometimes a case of having a weaker conscience.

The thing about McDonals, a company making profits in a consensual trade is a total non-sequitur.

What I assume is disgusting is that the British Government's money actually belong to British taxpayers, who contributed it in the first place. Those taxpayers have reasonable expectations that this money will be used to indirectly benefit them or for the good of the British people at large, and not end up squandered.

Now other people correctly pointed out that the pound would have devaluated with or without Soros, so I don't think his actions where all that unethical. But as it happened so suddenly instead of the usual drawn-out game of rumors, some politicians clearly felt the burn.

It WAS a consensual trade between the British government and Soros, in effect.... the gov could have at any time earlier in the process stopped buying obviously over priced pounds, but they didn't.... yes, the gov was spending tax payers money in doing those deals, but the tax payers had selected John Major, and he was quite clear on his position in terms of monetary policy.

Yes it was, but that's nitpicking. I think you get my point: buying burgers and trying to manipulate the market are two rather different separate things.

But who was trying to manipulate the market? Soros? Well, yes, he was. The British government? They also were.

Why do you find one morally repugnant and not the other?

Well, they contributed it certainly but it belongs to the British Government in right of the crown.

Both parties were engaged in currency manipulation of their own free will, no one forced the british government to take their currency position.

Go back and read the article again. Soros was able to make as much as he did because most of the market was convinced, incorrectly, that the British government would succeed in propping up the pound. This was not some trade that everyone saw the chance to make and just passed on it out of the goodness of their hearts. Big successful trades are always obvious to everyone in hindsight.

I suppose one's perspective on the whole affair depends a lot on whether you think governments should be using the public treasury to manipulate markets and try to muscle asset prices in one direction or another. Since I think that is arrogant folly, and destined to end in costly failure regardless, better to have some speculator come along and put a stop to it before it can drag on and result in even more losses to the public.

Actually it was you who misunderstood. He made money because everyone saw the writing was on the wall, and that the pound was going to plummet; Soros became the triggering event. He had a first-mover's advantage.

If everyone thought the pound was going to be just fine, they'd happily buy his sterling and nothing would have happened. But the expectation was that the pound was overvalued and would soon nosedive. So when Soros' sales began to apply downward pressure to the price, everyone bandwagoned because that was what they were going to do anyway.

Yes, but the issue people are taking is that the will of parliament/government was not absolute. England guaranteed they would do this, signed an international treaty, then refused to do it.

Like today with Ukraine. NATO's primary goal was to protect member nations territorial integrity against Russian incursion. Who here still believes NATO will do that, even if Russia just annexes the entirety of Ukraine and Poland ?

The big issue people are having here is that it's an instance of clearly the government not being in control. What use is democracy if the government isn't in control ? What use is NATO if it doesn't respond to territorial incursions ?

> NATO's primary goal was to protect member nations territorial integrity against Russian incursion. Who here still believes NATO will do that

There's a big difference between annexing (parts of, or even all of) Ukraine (which isn't a NATO member), and Poland (which is not only in NATO, but also the EU)

1st, trades like this don't ever EVER happen out of the blue; there is always corruption - insider information and insider trading ..and market manipulation involved(just based on the leaks and medialised information during the past 2 years its pretty safe to say that all major markets are rigged). This trend of idealizing sociopathic individualism and white-collar criminals that are destroying the lives and feeding on the wealth of millions, disguising it as some acts of genius is making me mad(Wolf of Wall Street? seriously?). We are being robbed and a lot of money is being spent on promoting this the way you just did..

UA is not in NATO, this alone renders your "notion" a little misleading at best. Shouldn't NATO been dissolved after the Warshaw Pact ended? Who is really the "bad guy" in this complicated matter? Is the corrupt oligopolistic Russia(that was literaly taken apart 2 decades ago) the real aggressor?[1] But since this is not about UA I'll leave it here.

I do agree with your 3rd paragraph though. We're experiencing a play on democracy - a oppressive global regime with its equivalent of kings, aristocracy, vassals, the dirt in between and slavery, packed in golden toilet paper.. with a lot of democracy-stickers on it..

[1] http://www.youtube.com/watch?v=nntB872pJ20

The BoE was the one trying to manipulate the market and the market reacted.

Your example is misleading. Ukraine is not a part of NATO (unlike Poland you have mentioned) and alliance cannot start military actions there legally, unless it threatens one of the member countries directly. Such actions would surely provoke a war with Russia and no sane west politician would want that.

As opposed to all of the opportunists on the other side of the trade betting the currency would go the other direction and they'd profit off of that instead.

Except in this case there weren't any opportunists on the other side of the trade. The only entity crazy enough to take the other side was the British government. That's what made it such a sure thing.

I guarantee you that the average guy trying his hand at the market doesn't care about what people on the Internet might preach about their decisions later. The fact of the matter is most people don't take those opportunities because most people are very bad at speculation.

Among people who have Soros-level financial power and moxie, they generally are current with economic thought, in which fixed currencies in developed countries are considered a very bad thing by just about everyone. The British government was not doing the world any favors by fixing the pound. The sooner its fixed rate was broken, the better.

It is convenient to tell yourself that smart people like you are not rich because you are too good to be rich, but this doesn't align with reality, not in this particular case nor in general.

To be fair, their aims were lophty even if their methods were crude.

>You do realize that most people do not take the same opportunities because they consider them ethically and morally disgusting? That maybe we're not just a bunch of fools floundering around bumping into just enough money to survive?

If most people are so ethical and moral as to not take a bet against another entity, in this case the government, how do they reconcile significant moral and ethical issues such as the following with themselves:

- The fact that a vast quantity of consumer electronic goods are made under conditions that have been documented to be absolutely horrendous in Asia? In factories whose employees are so stomped upon, that there has been a significant issue with employee suicide on the job?

Those morals and ethics certainly haven't prevented "most people" from pushing demand for these consumer electronics in the West.

- Industrial fishing / trawling and the sheer damage it has done to the oceans. There is sustained demand for fish caught using these methods, yet it is these methods that are destroying fish stocks so frequently that they're having trouble replenishing / breeding again. Fish we don't eat, or mammals caught in the activity, end up being tossed back into the water, dead over nothing.

How do most people, being moral and ethical, not just allow this to continue but push demand for it by asking for cheaper and cheaper fish to be available?

- Oil. How are most people, being honest and moral, still fueling demand for oil - and putting pressure in place for cheaper oil (thus increased quantity must be found) - when these activities are polluting oceans, destroying habitats etc. and whose proceeds are propping up very brutal, very oppressive regimes in some oil producing countries in the Middle East?

I could continue listing these absolutely unethical, absolutely immoral activities that we, "most people", continue to support on a daily basis but I believe the point should be clear.

"Most people" do not take advantage of economic / financial opportunities because such opportunities generally require:

i - Significant capital for significant returns

ii - Risk aversion, as one must risk significant capital and may have hugely negative returns, if any at all.

So let us not pretend that most people took the ethical and moral high ground here.

Don't hate the player, hate the game?

Love the game, the sheep handed it to the wolves that day.

The british people made a huge bet and lost, if you don't like losing on trades don't make trades. They blinked to a guy who didn't even have a bank, let alone an army or a navy.

Soros simply had more gumption than the British Empire.

Whenever I hear the word gumption I think of old people with dentures. Great word!

The British people didn't make any kind of bet, the few politicians in power at the time took it, lost hard and still ended up as Lords.

Well, why don't British people do something about those Lords? It's up to them.

Believe me - plenty of us have choice opinions about the Lords.

It is difficult to do much about them when you have a duopoly on elected government, and a big part of both parties' power-broking is doling out lordships to a) their former notable MPs/ministers and b) their mates. The lords suit the commons just fine. Even more so since Blair's reforms, which increased the number who were purely cronies, relative to the decrepit remnants of the landed aristocracy (which only benefited the Tories).

Well, poor you. You don't own yourself, Lords own you. Why blame Soros? Praise him that he didn't help Lords sell you for organs.

For alternatives, see Ukraine with its Maidan.

Where did I blame Soros?

I even own a t-shirt that says "don't hate the player, hate the game."

GP did.

It's interesting that the loss to the Bank of England is attributed almost entirely to Soros. If you accept that the fixed rate was unsustainable then even without Soros the Bank of England would have been forced to defend an untenable position, and eventually would have lost enough to give up. It's reasonable to assume that the acceptable losses for the Bank of England would have been similar whether they were sustained in one day or over the period of weeks or months.

Soros' brilliance was to see the inevitable and take almost the entire opportunity for himself.

I wouldn't call myself a Soros fan, but I don't think people generally blame him (alone, at least). Most people I've heard from on this recognize the gross incompetence of those running the Bank of England, and the biggest problem anyone has with Soros is on moral grounds more than anything (exploiting incompetence to essentially take money from British taxpayers without providing them anything in return).

The article's first sentence:

> In 1992, George Soros brought the Bank of England to its knees.

You're right that many well-informed people don't blame Soros alone, but the sentence above pretty well encapsulates the mythology surrounding this story. It would be more accurate to say: "the day George Soros hastened the collapse of the ERM."

The big question is whether the Bank of England would have sold so much GBP if this was allowed to happen gradually rather than overnight. The real problem is still political incompetence, but there's no guarantee that the losses of the British taxpayers would have been equally large if Soros's fund had not made such a spectacular short which sparked a political pissing match.

Definitely. It's plausible that without Soros the losses would have been much smaller. On the other hand, it is possible that a slower burn would have enabled political inaction and therefore more losses!

Can someone explain to me what the effects of China's artificial devaluation of the yuan vs the dollar are? I understand that they are doing this to make themselves more competitive as an export economy, but can they really keep it up? I mean, to maintain this valuation, they have to constantly sell yuan and buy dollars, but they can't do that forever, right?

So when the yuan finally increases in value, will the dollar's value crash?

Maybe the dollar's value will crash relative to the Yuan. If you make a bet like George Soros that the Yuan is going to rise in value, what would that bet look like?

One of the problems with the bet is that you are betting in the opposite direction from Soros. China can just print more Yuan, and suddenly Yuan decrease in value. Add to this the ridiculous levels of pointless internal investments, seemingly done to inflate China's GDP. And finally, there are severe problems with Chinese equity markets that make it scary to bet on Yuan against USD.

I think at some point in the future, China will stop having an export economy, because advances in manufacturing technology and automation will obviate the need for cheap labor. And at some other point, China will start investing sensibly in internal matters. I have no idea how to translate this into USD or CNY, but if I were in China, I would want the transition to happen gradually. A gradual transition avoids destroying the manufacturing sector overnight.

I don't know if this is related directly, but seeing as Soros is in on the largest gold mining company in the world and other gold companies related etf's[0], doesn't that speak somewhat to the type of bet he's making in this landscape?

[0]: http://www.reuters.com/article/2014/05/15/hedgefunds-filings...

Very good observation.

Note that this follows a massive reduction of Soros' gold investments last year: http://www.bloomberg.com/news/2013-05-19/gold-bear-bets-reac...

Looks like he's simply playing the markets.

Yuan to Dollar peg was maintained because the currency is not freely trade-able, and it does not follow market economics.

Chinese government has been easing control and letting Yuan slowly inch upward in the past 10 years or so, and nothing catastrophic seems to have happened yet.

> I mean, to maintain this valuation, they have to constantly sell yuan and buy dollars, but they can't do that forever, right?

In that direction, yes they can do it forever because they can keep printing yuan. The dynamics of the Soros' bet was in the other direction: The Bank of England needed to expend foreign reserves in order to buy pounds, and the supply of foreign reserves is finite.

The other interesting dynamic in yuan/dollar: China owns a sizeable amount of treasuries (since the US keeps running a trade deficit, they turn around and invest in interest-bearing bonds). The treasuries are denominated in dollars: If China decided to dump all the treasuries on the market at once (driving US interest rates through the roof, and the price of the T's down), the US gov't would just buy it's debt back for pennies on the dollar. There would no doubt be chaos, but it would be a very different dynamic than the BoE fiasco.

"The treasuries are denominated in dollars: If China decided to dump all the treasuries on the market at once (driving US interest rates through the roof, and the price of the T's down), the US gov't would just buy it's debt back for pennies on the dollar."

Buy with what? With more printed dollars? When someone so large as China starts dumping cheap U.S. bonds (dollars) on the wild pulling down currency's value, it won't be the only acting player. Nobody wishes to loose value by holding to a rapidly depreciating currency, so expect a shopping spree all over the world. It all comes down to faith. Small players can't trigger such big events, but China could. It won't matter that U.S. debt problem gets solved if its currency looses monopoly.

The expected effects are the large foreign cash reserves and strong exports.

The unexpected effects have been the massive growth of China's underground banking system and the housing bubble. To keep exchange rates low China needed to keep interest rates low. They did this by legislating Banks' deposit account interest rates. In turn this caused everyone to look elsewhere to invest their life's savings.

Thus we get large ghost towns and ship yards acting as unregulated banks. I expect this tactic to burn China bad at some point in time.

Bank of England thought they could achieve the Impossible Trinity [1] and failed:

1. http://en.wikipedia.org/wiki/Impossible_trinity

I wonder how much money soros fans lost when they tried to do the same in the previous years, trying to speculate on the end of the euro.

I love the paragraph saying "there was no way the sterling would go up". Those are really the kind of reasonning you can do 20 years later. You never know that there really "is no chance".

I personally lost a little over 9 months salary. The missus was not pleased :-)

To be honest, the entire gambit rested on the results of the Greek election [1]. If Tsiparis (Syriza) had of won then everyone who shorted would have made a killing as they pledged to cease any repayments.

Exit polls had them possibly winning at 7pm with the possibility lessened by 05.% at 8pm. As it happened, the result was 26.9% to Syrizas and the winners (ND/DISY) with 29.7%; the markets already started climbing that evening and within a few days the majority of short positions were untenable incurring substantial losses.

Most media outlets agreed that a Tsiparis win would have resulted in a Greece exit from the Eurozone with the currency plummeting. Foreign Affairs stated that ...the election determined whether Greece would exit the eurozone and decide the fate of the entire postwar European project. [2]

The entire issue came down to just 170,475 votes (>2% of the voting population).

[1] http://en.wikipedia.org/wiki/Greek_legislative_election,_Jun...

[2]http://www.foreignaffairs.com/articles/137710/stathis-n-kaly...

Because you think that it's up to a greek political party to endanger the whole eurozone ? Even if they had won, them leaving was really less than certain. Most political parties tend to change a lot once they actually have to take the decisions, and believe me, in that case there were a lot of things other euro countries could have done to prevent any kind of greek disastrous initiative.

Where did I say I believed it was up to a Greek Political Party to endanger the whole Eurozone?

I said I believed they would. I didn't say that it was up to which implies moral positioning.

Them leaving was absolutely certain. Tsiparis was quite clear in his intentions and he had the popular mandate. There was very few things the other European countries could have done to prevent Syriza following through on their pledge.

The precedent already existed with Iceland. If you refuse to pay out monies owed, very few nations or trade bodies can compel you to actually cough up. No one was proposing a land invasion of Greece and the fire-sale of assets was practically complete.

You have strayed into several massively complex issues with your response.

[1] Should a sovereign nation be allowed to enter and exit treaties when they wish/populace demands it?

[2] If sovereign nations vote not to honour an agreement can external nations compel them to do so?

[3] Does Greece have a larger responsibility to the unity of the European Union?

[4] Would Tsiparis have followed through on his claims?

I believe the answer to 4 is yes. My description of my trading activity did not talk about points 1-3 so I have no idea why you have brought those issues up. Either way, we will never know and I lost money. <shrug> Personally I still think the Euro is doomed but if I am honest that is because of what I read, not really any great insight of my own. I have no PHd in Economics.

How do you stay informed on economics? Any tips or recommendations?

Nothing beyond the mainstream, plus I lost. I am not the best place to ask for advice ;-)

Saying that - I didn't sink any money into Mt. Gox so not all bad.

Sorry for the expression. English isn't my primary language. I meant it in a different meaning : "because you think a greek political party has the power to endanger..."

As for your other point. I believe that it's all a matter of power relationship. Moral isn't really effective. Your trading activities ignored the fact that a country like greece has all kinds of binds and ties to other eurozone countries, and thus aren't completely free to do whatever they want ( at least not without dealing with a lot of hostile behaviors).

No worries - I never downvoted. Your comment makes sense now.

You are right that sovereign nations cannot do completely as they wish but when it comes to economic developments, history sides with demonstrating that countries will and do default on debts to other sovereign nations.

Almost every nation on earth, since 1500 has defaulted on a national debt.

I personally believe, given the conviction of the political party, the outrage of the populace and the crippling economic cuts that Greece absolutely would have defaulted under Tsiparis and the Euro would have faced an extremely damning future.

Precedents --

[1] During the last week of 2001, the Rodriguez Saá government of Argentina defaulted on the larger part of the public debt, totalling US$132 billion. The amount approximately represented one seventh of all the money borrowed by the Third World.

[2] A chart of all sovereign debt defaults since 1980 http://4.bp.blogspot.com/_pMscxxELHEg/TDfkTfwd8LI/AAAAAAAAIw...

If the bet had gone your way, how many months' salary would you have made?

It would have been depending on how long I let it run but somewhere in the region of 36-40 months. Maybe more TBH.

> The missus was not pleased :-)

She should have been just as 'not pleased' had your bet paid off. Going on the assumption that one should not bet such sums without full consent of one's partner...

Nothing you have stated there is untrue.

This is a post-facto rationalization. It's no wonder you lost.

...que? Elaborate how the majority of the world's press and a fair substantial amount of financial analysts and traders predicting an item is post-rationalizing?

Do you even know what it means?

Post-Rational Purhcasing otherwise known as Buyer's Stockholm Syndrome, is a cognitive bias whereby someone who has purchased an expensive product or service overlooks any faults or defects in order to justify their purchase.

I am not rationalizing anything. I bet with a number of other shorters (estimates were around 30% of the trades were shorts) and I lost.

You need to check your bias at the door I think.

In some ways, this was a comparatively cheap way for the UK to discover that fixed exchange rates between economies must force the pressure into current account deficits instead; such as has happened to Portugal/Ireland/Greece/Spain. Falling out of ERM kept the UK out of the Euro, which was beneficial in the long run.

>Falling out of ERM kept the UK out of the Euro, which was beneficial in the long run.

Perhaps. That's certainly conventional wisdom, but we have no way of knowing what the political or economical landscape would have been if the UK stayed in the ERM and was now in the Eurozone. 20+ years is a long time.

Were it not for Brown, we might have joined the Euro.

The PIGS countries would be much worse off outside the eurozone than inside, to see this, just compare the recent economical dips to the massive increase in activity following the introduction of the Euro in 2002. And to say that a country without any industry is even remotely in a good position (implied by “beneficial in the long run”) is a rather curious thing, too.

country without any industry

This description does not match the UK, no matter how many "manufacturing is dead" articles you read in the papers.

So what is the play today? The US is backed into a corner. Interest rates are near zero (Fed fund rate) and they're buying $75Billion in bonds a month to keep interest rates low. That was $85B and was supposed to taper, but as soon as they dropped a little bit mortgage rates rose and home sales dropped again - the housing market is at another peak with the low interest rates with nowhere to go but down. They keep hoping to get some inflation going by pushing on that rope and it's just not happening. All the money is going into stocks. If we do get significant inflation they'll have to raise rates and destroy the housing market (worse than last time). So we're on the brink. It's hard to short stocks when they're rising so fast - one who could time this thing could make Soros' gain look like lunch money. What is the play?

One thing to remember is that the Soros bet was available because the currency was pegged. Everyone (in the west) has learned that to be a bad thing, in part because of this particular bet.

The US has not pegged their currency. They've made other currency policy decisions under the hope that the US currency can handle the debasement (and so far they have proven true).

Remember that when you short a currency, you also are taking a position about all the other currencies in the world. So rather than say you don't like US dollars you need to say, I prefer X to US dollars and think they aren't currently trading at the right ratio (and if you are shorting you have to account for a very expensive transaction cost).

So rather than asking what the play against the US dollar is, ask which currency you prefer. The international markets do this everyday and so far they haven't found a very compelling alternative.

Their gamble was also time-based. This shift was imminent. No such thing is nearly as critical today. You can be edging into such a play, but having all the stars align - being in the right place with the right amount of capital leverage, and sitting at the precipice of an actionable event happens maybe once every 10-20 years.

You can be right about the problem, but being able to enter and exit a market to benefit from such prescience requires a lot of timing. If the wreck is slow motion, you can lost most of the utility of your insight by transaction fees, interest, and the contrarian, emotional whims of the market you play in. It's better to have other peoples' money at your disposal. Hedge fund managers are in a great spot.

Why is it that taking advantage of loopholes and incompetent bureaucracy to take things from innocent people is monstrous if you do it on a small scale, but heroic on a national scale?

Why is it no one ever puts the blame on the incompetent bureaucracies that are actually responsible for losing their countries' money?

Don't you think there's plenty of blame for everybody? If I leave my keys in the ignition with the window down and my car gets stolen, it's my own fault for being careless, but that doesn't mean the thief is innocent.

There was neither a thief nor a theft. The equivalent would be if you declared you would attempt to fix the price of all Camrys. You buy a huge number of them to prop up the price. Some third party thinks this is stupid, borrows some Camrys and sells them for dollars. Eventually you run out of money and the price falls. There is no theft- it was simply a bad position for you to take in the first place.

Baring any ethics, should governments be immune from loses in open markets? Who would participate?

An elite few wealthy politicians decided how millions of people's money would act in the global economy. They made a bad call, obviously. But Soros and company weren't forced to "go for the jugular." They could have effectively "taught the British government a lesson" by making a few hundred million dollars and leaving the currency in tact, rather than completely decimating it. It's just greed. And the fact that so few people can see that is alarming.

I see a lot of comments like this, presumably from UK citizens, and it looks like 99% income tax never taught you something. Alarmingly socialist world views for someone in the middle of Planet's biggest bank.

But see, a few hundred million would not have taught them any lesson. They would have accepted that as the price of maintaining the pound in the range that the ERM said it needed to be in, and continued to do so. It was only when the losses became unacceptable that the politicians stopped acting foolishly.

I remember hearing a quote from someone who used to work at a fairly high level in the UK Civil Service - they described someone saying "Incompetence shouldn't be a barrier to a chap having a good career" - and it wasn't a joke.

"As it turns out, Margaret Thatcher was right: the UK had no business trying to artificially prop up its currency in an era when a handful of hedge funds could assemble more capital in a few hours than the Bank of England had at its disposal."

Unfortunately, power-lust and ideology usually trump reason when politicians are involved.

I'm interested to hear people's reactions to the article and the Soros trade.

I'd also like to know what the HN crowd thinks about opinions like this recent New Yorker article that asks how hedge funds "get away" with charging such high fees without producing superior returns:

http://www.newyorker.com/online/blogs/johncassidy/2014/05/ho...

How do you connect these articles? The Soros funds gave high returns along their life.

One reason the article didn't mention is that investors want their portfolio managers to be highly incentivised. If a hedge fund manager is paid 2% of the AUM after growth and 20% of the profits each year, then they have a golden opportunity.

Incentives for traditional mutual fund management are not as exciting and to the investor, the actual performance is almost an afterthought compared to the initial asset allocation decision.

The trouble is, assuming that returns are essentially random and that hedge fund managers cannot beat the market except through luck - which seems to be more or less true - it doesn't matter how much you incentivise them. Giving them a bigger cut of the profits just means you come out worse on average. Now, it's certainly in the interest of hedge fund managers to convince investors that giving the managers a bigger cut is in the investors' interest, but that doesn't make it true.

But if you truly believed that returns are random then you definitely wouldn't be investing in a hedge fund anyway, so I'd say that's a moot point.

Sounds like Soros has produced superior returns.

http://www.news.com.au/finance/markets/george-soros-quantum-...

Probably either insider information or selection bias.

I believe the 20% cut that the manager make is after they clear a benchmark like the S&P 500 to ensure they get paid when they produce a superior return compared to what an index fund could deliver.

This is not a very meaningful hurdle, though.

For example, let me pitch you on the Patio11 Hedgehog Fund. It uses complicated financial alchemy to produce market-beating returns, and you only pay if we beat the market. The fund has never lost money. Care to invest $10 million? You pay 2% per year and 20% of returns above the S&P 500.

Hypothetically suppose the S&P is up 10% next year. I deliver 20% returns. Alchemy, what can I say. You make $1.6 million, I make $0.4 million (from you), and since I did this in parallel with 100 other people life is pretty grand for me.

Now just between HN and me, my strategy is simple: I buy the S&P 500 as an index but I use 2X leverage.

What would have happened if the market went down 5% next year? Well, we would have lost 10%. That certainly sucks, and you need to make your $1 million back. Which is great, because I am now accepting new money on the Patio11 Chinchilla Fund. It uses complicated financial alchemy to produce market-beating returns, and you only pay if we beat the market. The fund has never lost money.

Well to be fair, it's also not the real hurdle than any investor in Hedge funds use. It's more of a marketing term than anything else (and often funds don't target the S&P as their benchmark, but something else closer to their trade category).

Almost all investors in hedge funds will want to see the portfolio of all previous funds you've managed as well as how much of your own money you have in the fund, how much leverage you are doing, alpha, beta, risk adjusted metrics etc.

That said, the Hedge Fund industry is going through a consolidation. Lots of small funds were essentially S&P indexes with leverage/hedges and execution ability. The rise of ETFs, the decrease in execution costs, and the creation of a true history of performance has made those funds pretty obviously useless and they are (rightly, I believe) dying.

A pretty good documentary from the BBC about Black Wednesday. Shows more from the government side and the mistakes they made than Soros part but still gives you a good understanding of what happened. http://m.youtube.com/watch?v=K_oET45GzMI

Yet again, Thatcher showed her intelligence and foresight by opposing the ERM. There's a reason many people in Britain referred to it as the Eternal Recession Mechanism.

It is a shame bordering on a national disgrace that so many people don't know of actions like that, or indeed, her being one of the biggest proponents of lean-burn technology that would yield several times the fuel efficiency of modern cars but has since been all but abandoned[1]. She saw climate change as a future issue before any other politician, but was unable to act given the conditions of the time. Instead, she is best remembered for the collapse of the coal industry, something that was inevitable in any case, but she simply refused to subsidise it to keep it staggering along for another couple of years.

Not only this, but she was responsible for Britain winning one of the few post-WW2 wars fought by the West against anything close to an equally well equipped foreign power.

[1]http://iaindale.blogspot.co.uk/2009/02/margaret-thatcher-cli... http://conceptual-reflections.w43w.com/1036/unleaded-paintin...

Without getting into the pluses/minuses of Thatcher's leadership, saying that she "simply refused to subsidise" the coal industry papers over a lot of very anti union activities.

You can argue for or against these activities, but the reason she is despised so widely has nothing to do with subsidies and everything to do with criminalizing non-violent Union protests.

Here is the take away. "As it turns out, Margaret Thatcher was right..."

It's interesting timing to post this, since the New Yorker explored the data available on hedge funds' returns just yesterday, and found them lacking...

http://www.newyorker.com/online/blogs/johncassidy/2014/05/ho...

I am really curious what would have happened if the British Government bought DM as well during this period (and maybe not disclose it?) Then they would exit the ERM, and the pound would fall and they would exchange all their money back to sterling and would be rich... :/ I know my logic has a mistake in it... it can't be that simple :P

The British Government had DMs, that's what they sold trying to keep their currency at fixed rate. You say they should have kept Deutschmarks to sell them later for what? For depreciated sterling pounds? It doesn't make sense, the only thing that a government has plenty of is its own currency. Governments are "rich" in their own printed stamps, the challenge is to keep those stamps valuable. That's what the British Government was trying to do.

One aspect in stories of this kind always seems to be somebody trying to artificially inflating the value of some stock (or currency) by buying lots and lots of it. In this case, the bank of England. (I've read the same thing about Indonesia, and the Barings Bank incident).

That seems so silly - I mean here are these supposedly highly trained financial experts, and all they can do is try the most primitive stock manipulation imaginable?

What would have happened if the Bank of England wouldn't have tried to artificially inflate the pound by buying lots of it? Would it have had the same cost to the tax payer? Obviously there would have been a cost because of the devalued pound (less buying power for foreign goods), so perhaps the question is did it even make any difference? Either they lose because of the diminished buying power, or they lose directly because of the buying spree of the Bank of England?

The thing is that you only see the failures. Propping up a currency like that works fine until it doesn't.

Not buying up pounds would have meant dropping out of the ERM immediately. In the short term that would have saved money. In the long term, depends on your view of how similar or different the UK and German economies are.

Free markets always win. The markets have a very good history of correcting themselves and it just happens to be that corrections are always rough to most people, and highly profitable to a few. Ex. the 2009 housing bubble in the US. A few people made a ton of money of this. Same with gold coming off its all time highs.

If you see an online service whose online security is terrible, do you (a) notify the company (b) hack them and privately inform them off the exploit or (c) hack them, steal all the data, sell it on the open market and make a million pounds, simultaneously disadvantaging millions of average customers?

LOL, I can just imagine the scene now:

INTERIOR, HER MAJESTY'S TREASURY OFFICE

PHONE RINGS

SOROS: Hi, my name is George Soros, I'm a hedge fund manager and international speculator. I noticed that you're trying to prop up the British pound, but rather than try to profit from this, I figured I'd just call and give you guys the heads up that it's not going to work.

TREASURY OFFICIAL: Oh my God, you're right! We'll issue a public statement right away, admitting that we've been wrong and that we're putting an immediate end to the policy. Thanks so much for the warning, kind sir!

Hahaha, they'd just say sorry a thousand times the mutter something about immigrants.

"In light of this development, we're starting a Fiscal Policy Bug Bounty program...."

A better comparison would be: You find an online blackjack service that uses pRNGs, and can reverse the state of their decks in real time. Do you (a) notify the company or (b) play a bunch of blackjack and clean out the house?

George Soros didn't hack anything or steal anything; he made use of publicly accessible information to make a gamble and he won big. The consequences of that win were certainly crummy for a whole bunch of people and it's terrible that a lot of innocent people were put in that position, but to compare Soros to a criminal is pretty disingenuous.

So this is basically the worst case scenario of activist monetary policy by governments, right?

Wrong. Worst case scenario, they'd double down and keep fighting the market until the country was completely bankrupt.

I don't know that much about finance, so can somebody explain to me why I never hear anybody censuring Soros over this? I only hear congratulations for bamboozling the incompetent British government.

He made billions at the expense of an entire country.

I'm not saying it was illegal, and maybe people like Soros are needed to help deter governments from artificially manipulating their currency like the British did. However, when it comes down to it, he benefited by executing a bet meant to enrich himself, compound the problems of the pound, and diminish the wealth of a nation. It seems like a plainly immoral thing to me.

He played the game according to the rules. You can't fault a winner when he wins on a even playing field.

In fact, Soros won on a playing field tilted against him. He went up against a sovereign country with taxing power, and won.

Using these kind of game metaphors just shallowly rationalizes something of far more importance, IMO. Legal or not, a country was worse off because of his direct and deliberate actions.

No, the country was worse off because of its government's decision to prop up the currency in an unsustainable way. Soros just happened to be the instrument by which the market finally clobbered England over the head. It could have been some other speculator or group of speculators, and it could have played out over a longer time period (possibly at even greater loss to the British public), but it would have happened sooner or later.

> Legal or not, a country was worse off because of his direct and deliberate actions.

You're talking about the Chancellor of the Exchequer who decided it was rational to keep pouring money into the other side of the trade Soros was making, I hope.

"a country was worse off because of his direct and deliberate actions"

The country was worse off because its fiscal policy, determined via politics, amounted to a completely untenable long term position. An epic disaster was the only possible conclusion.

Well I'm glad someone made the entire country pay for the Chancellor of the Exchequer's decisions.

Didn't you, I don't know, elect them? Who is there to blame?

Would it have been better if the British treasury continued to buy pounds for months (or years) before finally realizing they couldn't prop up the sterling? You could argue that Soros making such a significant bet all at once forced the government to concede earlier than it would have otherwise, and saved them money. He did what speculators do best -- price discovery.

At worst Soros did Britain a favor. They should send him a thank you card. He helped expedite and lessen what otherwise would have been an even bigger crash had the Bank of England been able to continue their guaranteed-to-fail scheme for a longer period of time.

That's a previous century.

This century's trade of the century so far might be John Paulson shorting various mortgage securities during the financial crisis.

So it seems that everyone knew the pound was mis-valued, the only thing stopping them from just revaluing was politics and the egos of politicians.

They were a bleeding man in water and Soros was a shark; I don't praise or like him for what he did but he was not the main cause, he just acts as you would have expected him to.

Hardly the trade of the 1900's. In fact Soros has had much better deals. Also, on the notion that the pound was inherintly broken, one should probably checkout adam curtis mayfair set.

Funny that he now uses profits derived from the incompetence of one government to purchase elections in another.

| 2.78 DM to 3.13 GBP.

I think they mean between 2.78 and 3.13 DM per GBP.

world finance is brutal

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