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
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

The secret CIA Starbucks

The coffee shop is deep inside the agency's forested Virginia compound
Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

How the Establishment closed ranks over fallout from Nessie 'sighting'

The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
One million Britons using food banks, according to Trussell Trust

One million Britons using food banks

Huge surge in number of families dependent on emergency food aid
Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

2,500 years of history in 3,000 amazing objects

Excavation at Italian cafe to fix rising damp unearths trove
The Hubble Space Telescope's amazing journey, 25 years on

The Hubble Space Telescope's amazing journey 25 years on

The space telescope was seen as a costly flop on its first release
Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

Did Lord Ashcroft quit the House of Lords to become a non-dom?

A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
Apple's ethnic emojis are being used to make racist comments on social media

Ethnic emojis used in racist comments

They were intended to promote harmony, but have achieved the opposite
Sir Kenneth Branagh interview: 'My bones are in the theatre'

Sir Kenneth Branagh: 'My bones are in the theatre'

The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
The sloth is now the face (and furry body) of three big advertising campaigns

The sloth is the face of three ad campaigns

Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
How to run a restaurant: As two newbies discovered, there's more to it than good food

How to run a restaurant

As two newbies discovered, there's more to it than good food
Record Store Day: Remembering an era when buying and selling discs were labours of love

Record Store Day: The vinyl countdown

For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Usher, Mary J Blige and Will.i.am to give free concert as part of the Global Poverty Project

Mary J Blige and Will.i.am to give free concert

The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
10 best tote bags

Accessorise with a stylish shopper this spring: 10 best tote bags

We find carriers with room for all your essentials (and a bit more)
Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

Paul Scholes column

I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
Jessica Ennis-Hill: 'I just want to give it my best shot'

Jessica Ennis-Hill: 'I just want to give it my best shot'

The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...