To understand how George Soros is different from other financial speculators, just ponder this: Enron's whiz kids, once considered the acme of high-finance innovation, named one of their infamous off-balance sheet partnerships "Chewco" -- after the "Star Wars" character Chewbacca. Soros chose to name his primary vehicle for earning billions of dollars "the Quantum Fund."
He was alluding, says his biographer, Michael Kaufman, to Werner Heisenberg's theory of "indeterminacy": the impossibility of knowing simultaneously both the position and velocity of any atomic particle. As applied to markets, the implication was that you can't invest in something (especially on a Soros-ian scale) without affecting its prospects, for good or ill.
"Soros's choice," writes Kaufman, "was both an ironic wink and a gesture of homage to notions of fallibility, reflexivity, and his own convention of incomplete determinism."
OK, so Soros is like, really smart, and those Enron guys, despite the Harvard MBAs, now look kind of dumb. But the two did have some things in common.
Soros is credited with being the chief developer of the hedge fund -- a strategy for investing that, at its simplest, maximizes an investor's ability to pick winners (and losers) and yet at the same time insures against larger market trends that could be completely unpredictable. So, for example, at the same time you are buying one company's stock because you think its stock price will rise, you are selling another's short, because you think it will fall. By balancing your long and short positions, if something unexpected happens, like a terrorist attack, that drives all stock prices up, or down, across the board, you are insured against losing your shirt. Some of your bets will win, no matter what. And if nothing unexpected happens, all of your bets might win.
As Enron mutated away from being a natural gas trader into a financial derivatives player, it advanced the concept of hedging beyond the sublime and the ridiculous straight to the land of pure idiocy. Enron, the biggest bankruptcy of all time, even bet on bankruptcy protection! In this, Enron's derivatives traders were descendants of Soros; as financial speculators intent on beating the system by being really, really smart, they attempted to hedge against every possible eventuality.
Soros and the latter-stage Enron both strove to make money chiefly by manipulating money. The difference is that Soros rarely lost a bet, while Enron's executives, blinded by greed and hubris, took themselves to the cleaners.
Are financial speculators parasites profiting off the people and companies who do the real work, or do they in any way produce value themselves? Michael Kaufman's intriguing biography of Soros never fully addresses this question -- one of the few flaws in an otherwise eminently readable book on the enigmatically fascinating Soros. And Soros himself neatly sidesteps the conundrum, by virtue of what he has done with his winnings.
Soros, a "revolutionary plutocrat," would-be philosopher king and one-man Marshall Plan, set out to change the world -- to use his billions to fund the spread of "open societies." He became a one-man conduit of funds from West to East, from affluent to non-affluent.
Which raises another question that Kaufman's bio never delves too deeply into. When an ordinary individual donates money to charity, it's easy to respect that as a personal choice. But when the individual involved can spend billions -- when he's the kind of person who can casually say, "Tell me about the health of the king of Thailand ... I happen to own 5 percent of the Thai stock market this week" -- then you start to wonder, is this really kosher? Who is this man accountable to?
One of Soros' nicknames is "The Man Who Broke the Bank of England," in reference to a famous multibillion dollar bet his fund made that John Major's Conservative government would not be able to prop up the value of the British pound. The phrase is usually used admiringly -- what a paragon of financial expertise this Soros guy is!
But what if, say, Osama bin Laden was doing the betting? What if such manipulation was pursued on behalf of "the closed society" as opposed to the open?
Liberals love to shower Soros with respect, ignoring his Wall Street background, because his motives are so obviously honorable, and the money he is spending so clearly is going to "good" causes. But his life raises some troubling questions about the autonomy of capital in the era of globalization. Make enough money, and you don't have to obey anyone's rules.
As one might expect from the first "authorized" biography of Soros, "Soros: The Life and Times of a Messianic Billionaire" is flattering to its subject. But it's never fawning, and the psychological portrait it draws is convincing and illuminating.
Soros' life, no matter how you slice it, has been extraordinary. The first several chapters of the biography -- which deal with the teenage Soros' efforts to avoid the depredations of first the Nazis and then the Soviets in his native Hungary -- read like a thriller. As Kaufman notes, this background makes it easy to understand how Soros was able to cope with the pressures involved with high-stakes investing: When your formative experiences include watching friends and colleagues get rounded up and shipped off to Auschwitz in the waning days of World War II, it's likely that little else will ever be able to frighten you.
Soros' early experiences with fascism and totalitarianism also illuminate his motives, later on, in helping Eastern European and Soviet dissidents. Kaufman excels at dissecting and explaining Soros' psychological makeup. As just one data point -- can you imagine a Rockefeller or Carnegie or Gates frankly talking about insights gained from psychoanalysis, if they ever even admitted to seeing a therapist at all?
Kaufman gets Soros to open up -- about his analysis, about his family, about his dreams. A picture emerges of a man who was not only intensely self-critical but also sought out criticism from others. And his obsession with being an actual philosopher, along with his grandiose visions of single-handedly changing the world, make him come off as more than slightly neurotic.
Few neurotics, of course, are able to dispense about a half a billion dollars a year to whomever they choose. Is that really a good thing?
During the Asian financial crisis of 1997, the prime minister of Malaysia, Mahathir Mohammad, accused Soros of destabilizing his country through currency speculation. According to Kaufman, Soros was not involved in currency trading in Malaysia at the time, but his response, at a conference held in Hong Kong that year, is instructive.
"Dr. Mahathir's suggestion yesterday to ban currency trading is so inappropriate that it does not deserve serious consideration. Interfering with the convertibility of capital at a moment like this is a recipe for disaster. Dr. Mahathir is a menace to his own country."
Never mind that the stringent restrictions on currency flow that Malaysia did impose are now widely considered to have worked spectacularly well. What's important isn't whether Soros was wrong or right, but the arrogance implicit in Soros' categorization of Mahathir as a "menace."
If you or I were to think that Mahathir is a neo-authoritarian despot who is fundamentally anti-democratic, that's one thing. But Soros can get peeved at a leader and decide to bankroll a popular movement aimed at destabilizing a government. He's done it before! If I were a Malaysian citizen aware of what Soros had done in Poland and Czechoslovakia and the former Soviet Union, I'd be a little worried when he started calling my leader bad names. Who could stop him? Who could censure him?
Soros has stated that he doesn't do philanthropy in countries where he is involved as a trader, and vice versa. He has also noted that he considers his philanthropy moral and his money-management business "amoral." But is it really possible to make such distinctions? If the consequences of a billion-dollar bet on a currency change "anomaly" destabilizes a given country's economy, boosting unemployment and inflation, does that balance out the good karma that accrues from connecting all of Russia's universities to the Internet?
We should all be grateful that deep down, George Soros appears to be a good guy, at least as judged according to liberal Western values. His commitment to "openness" is sincere; his dedication to improving people's lives is unquestionable. He is the ultimate meddling, bleeding-heart liberal do-gooder, and for that, let's give him a cheer.
But at the same time, a guy like George Soros can't be voted out of office if you disagree with him. And when his billions of dollars can affect public policy, not just in his own country but in any country of his choosing, there is good reason to be a little bit nervous. Maybe Prime Minister Mahathir is indeed a menace to his own country. But on a bad day, a grumpy George Soros could be a menace to any country.