In a crisis call George...

... and they don't mean Eddie. Michael Lewis explains why Soros is now more influential than top officials

THE ASIAN financial crisis is interesting for all sorts of reasons, but the best of them is the role being played by George Soros.

In case you missed it - which, if you are an investor in South Korea you most certainly didn't - Mr Soros met two weeks ago with South Korean president-elect Kim Dae Jung. After their dinner, Mr Soros emerged and called for "a reorganisation of the entire Korean economy".

He explained that the world's 11th-largest economy needed to remake itself more in the image of a Western economy: shore up its financial institutions, permit foreigners to control Korean companies, pass laws to make it easier for companies to fire their workers. If Korea did these things, he said, his Quantum Fund would be willing to invest up to $1bn (pounds 613m) in the country.

The next day, the beleaguered South Korean stock market rose. Foreigners bought more South Korean shares than they sold. Anyone who had wondered why the president-elect of South Korea wanted to dine with a New York hedge fund manager stopped wondering.

Until now, Mr Soros has described himself as a "stateless statesman". It has taken the Asian financial crisis to show that he is something more interesting than that. He is the closest thing there is to a head of state of the Financial World.

The news of Mr Soros's visit to South Korea, according to Bloomberg's internal statistics, was far more widely read in the money culture than any similar visits or remarks by officials of Western governments. That is, the people who make decisions about capital flows were more interested in the views of Mr Soros than those of the people they elected - or those appointed by those they elected - precisely to manage just this kind of crisis.

On the one hand, it is appalling that a private citizen accountable to no one has acquired this kind of power. It sticks a wrench into the system of rewards and punishments that governs a democracy. Because financial people want to hear what Mr Soros has to say, US Treasury Secretary Robert Rubin and IMF managing director Michel Camdessus, to take just two cases, have less influence on the crisis. How can we judge their performance if Mr Soros is the guy telling South Korea what it must do?

Of course, it is not so simple. The Clinton administration still has influence, but not nearly as much as it would in a Soros-free world. On the other hand, there is about as much point complaining about Mr Soros's power as there is in complaining that the sky is blue. It is another step in the inexorable decline in the prestige and power of the state, compared with the prestige and power of wealthy individuals.

There are good reasons why the citizens of the financial world look to Mr Soros for their understanding. First, they suspect that he understands markets better than government officials. Second, they assume that even if he is wrong in his diagnosis, he is wrong in the way an investor would be wrong. If he turns bullish on South Korea, a lot of other people will follow. His predictions will be self-fulfilling.

Most important, they know that Mr Soros is more or less unconstrained by politics from saying what he thinks. When Bob Rubin is asked about South Korea and Japan, he must insist they present no threat to the US economy. When Mr Soros is asked the same question, he can say that we are on the brink of global deflation. Unlike Mr Rubin, Mr Soros has no reason to lie. Everyone, even Mr Rubin, knows this is the case. So Mr Soros's credibility and influence rise and Mr Rubin's fall. And come the next crisis, Mr Soros plays an even bigger role.

Democratic governments have a talent for discrediting themselves in financial up-heavals. You can already see the early signs of panic this time around. Late last week, the US Commerce Secretary asked his deputies to phone around to ask business leaders what they thought would happen next. American businessmen were asked to guess, for the benefit of the Commerce Department, what would be the likely effect of the crash on the US economy.

"You're asking me?" was one surprised response. The effect was to confirm the executive's suspicion first, that the government was worried about a crash, and second, that it had no idea what it was doing.

q Michael Lewis is the author of "Liar's Poker", the best-selling novel on life on Wall Street.

Copyright: IOS & Bloomberg

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
News
i100
News
Budapest, 1989. Sleepware and panties.
newsDavid Hlynsky's images of Soviet Union shop windows shine a light on our consumerist culture
News
In humans, the ability to regulate the expression of genes through thoughts alone could open up an entirely new avenue for medicine.
science
News
Williams says: 'The reason I got jobs was because they would blow the budget on the big guys - but they only had to pay me the price of a cup of tea'
arts + ents
Arts and Entertainment
A sketch of Van Gogh has been discovered in the archives of Kunsthalle Bremen in Germany
arts + ents
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee