索罗斯金融市场和金融泡沫.docx

索罗斯金融市场和金融泡沫.docx

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索罗斯金融市场和金融泡沫

Soros:

FinancialMarkets

索罗斯演讲：

金融市场和泡沫内容

2009年10月，乔治·索罗斯在位于匈牙利布达佩斯的中欧大学发表了共分五个部分的系列演讲。

本文是他关于金融市场和泡沫的演讲的全文。

FinancialmarketsprovideanexcellentlaboratoryfordemonstratingandtestingtheideasthatIputforwardinanabstractformyesterday.Thecourseofeventsiseasiertoobservethaninmostotherplaces.Manyofthefactstakeaquantitativeform,andthedataarewellrecordedandwellpreserved.Theopportunityfortestingoccursbecausemyinterpretationoffinancialmarketsdirectlycontradictstheefficientmarkethypothesis,whichhasbeentheprevailingtheoryaboutfinancialmarkets.Thattheoryclaimsthatmarketstendtowardsequilibrium;deviationsoccurinarandomfashionandcanbeattributedtoextraneousshocks.Ifthattheoryisvalid,mineisfalse—andviceversa.

Iamnotinagoodpositiontocriticizetheprevailingparadigmdirectly.Iwentintothefinancialmarketsinordertomakemoney,andtodothatIdidnotneedtoknoweithermodernportfoliotheoryorthetheoryofrationalexpectations.Idevelopedmyowninterpretationoffinancialmarketsandputitforwardasaclearalternativetotheprevailingview.WhenIpublishedTheAlchemyofFinancein1987Ifranklyadmittedmyignoranceofthegenerallyacceptedtheories.Nowonderthattheeconomicsprofessionreciprocatedbyignoringmyinterpretation.TheGovernoroftheBankofEngland,MervynKing,didmethehonorofexplicitlydismissingmytheory,butmostothereconomistssimplyignoredit.

Allthishaschangedinthewakeoftherecentfinancialcrisis.Eventshaveconclusivelydemonstratedtheinadequacyoftheefficientmarkethypothesis.Itneitherpredictednorexplainedwhathappened.Atthesametime,mywritingsprovidedaconceptualframeworkintermsofwhicheventscouldbebetterunderstood.Theybegantobetakenseriously,bothbyothers–likeMervynKing–andbymyself.Ibegantothinkthatmyinterpretationdoesprovideanewandbetterparadigm,andIputitforwardassuchinabookIpublishedearlyin2008,wellbeforethebankruptcyofLehmanBrothers.

Andyetthetheoryofreflexivityisstillnotacceptedinacademiccircles.Thefailureoftheefficientmarkethypothesisisgenerallyadmitted,butinsofarasanewparadigmisemerging,itisbasedonbehavioraleconomics.Behavioraleconomicsiscompatiblewithreflexivitybut,asIwilltrytoshow,itexploresonlyonehalfofthephenomenon.

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Letmestatethetwocardinalprinciplesofmyconceptualframeworkasitappliestothefinancialmarkets.First,marketpricesalwaysdistorttheunderlyingfundamentals.Thedegreeofdistortionmayrangefromthenegligibletothesignificant.Thisisindirectcontradictiontotheefficientmarkethypothesis,whichmaintainsthatmarketpricesaccuratelyreflectalltheavailableinformation.

Second,insteadofplayingapurelypassiveroleinreflectinganunderlyingreality,financialmarketsalsohaveanactiverole:

theycanaffecttheso-calledfundamentalstheyaresupposedtoreflect.Thatisthepointthatbehavioraleconomicsismissing.Itfocusesonlyononehalfofareflexiveprocess:

themispricingoffinancialassets;itdoesnotconcernitselfwiththeimpactofthemispricingontheso-calledfundamentals.

Therearevariousfeedbackmechanismsatworkwhichmayvalidatethemispricingoffinancialassets,atleastforawhile.Thismaygivetheimpressionthatmarketsareoftenright,butthemechanismatworkisverydifferentfromtheoneproposedbytheprevailingparadigm.Iclaimthatfinancialmarketshavewaysofalteringthefundamentalsandthatmaybringaboutaclosercorrespondencebetweenmarketpricesandtheunderlyingfundamentals.Contrastthatwiththeefficientmarkethypothesis,whichclaimsthatmarketsalwaysaccuratelyreflectrealityandautomaticallytendtowardsequilibrium.Therearevariouspathwaysbywhichthemispricingoffinancialassetscanaffecttheso-calledfundamentals.Themostwidelytravelledarethosewhichinvolvetheuseofleverage—bothdebtandequityleveraging.Thesepathwaysdeservealotmoreresearch.

Mytwopropositionsfocusattentiononthereflexivefeedbackloopsthatcharacterizefinancialmarkets.Therearetwokindsoffeedback:

negativeandpositive.Negativefeedbackisself-correcting;positivefeedbackisself-reinforcing.Thus,negativefeedbacksetsupatendencytowardequilibrium,whilepositivefeedbackproducesdynamicdisequilibrium.Positivefeedbackloopsaremoreinterestingbecausetheycancausebigmoves,bothinmarketpricesandintheunderlyingfundamentals.Apositivefeedbackprocessthatrunsitsfullcourseisinitiallyselfreinforcing,buteventuallyitisliabletoreachaclimaxorreversalpoint,afterwhichitbecomesselfreinforcingintheoppositedirection.Butpositivefeedbackprocessesdonotnecessarilyruntheirfullcourse;theymaybeabortedatanytimebynegativefeedback.

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Ihavedevelopedatheoryaboutboom-bustprocesses,orbubbles,alongtheselines.Everybubblehastwocomponents:

anunderlyingtrendthatprevailsinrealityandamisconceptionrelatingtothattrend.Aboom-bustprocessissetinmotionwhenatrendandamisconceptionpositivelyreinforceeachother.Theprocessisliabletobetestedbynegativefeedbackalongtheway.Ifthetrendisstrongenoughtosurvivethetest,boththetrendandthemisconceptionwillbefurtherreinforced.Eventually,marketexpectationsbecomesofarremovedfromrealitythatpeopleareforcedtorecognizethatamisconceptionisinvolved.Atwilightperiodensuesduringwhichdoubtsgrow,andmorepeopleloosefaith,buttheprevailingtrendissustainedbyinertia.AsChuckPrince,formerheadofCitigroupsaid:

wemustcontinuedancinguntilthemusicstops.Eventuallyapointisreachedwhenthetrendisreversed;itthenbecomesselfreinforcingintheoppositedirection.

[Chart]

Togobacktomyoriginalexample,theconglomerateboomofthelate1960s:

theunderlyingtrendisrepresentedbyearningspershare,theexpectationsrelatingtothattrendbystockprices.Conglomeratesimprovedtheirearningspersharebyacquiringothercompanies.Inflatedexpectationsallowedthemtoimprovetheirearningsperformance,buteventuallyrealitycouldnotkeepupwithexpectations.Afteratwilightperiodthepricetrendwasreversed.Alltheproblemsthathadbeensweptunderthecarpetsurfaced,andearningscollapsed.Asthepresidentofoneoftheconglomerates,OgdenCorporation,toldmeatthetime:

Ihavenoaudiencetoplayto.

Typically,bubbleshaveanasymmetricshape.Theboomislonganddrawnout:

slowtostart,itacceleratesgraduallyuntilitflattensoutduringthetwilightperiod.Thebustisshortandsteepbecauseitisreinforcedbytheforcedliquidationofunsoundpositions.Disillusionmentturnsintopanic,reachingitsclimaxinafinancialcrisis.

Bubblesthatconformtothispatterngothroughdistinctstages:

inception;aperiodofacceleration,interruptedandreinforcedbysuccessfultests;atwilightperiod;andthereversalpointorclimax,followedbyaccelerationonthedownsideculminatinginafinancialcrisis.Thelengthandstrengthofeachstageisunpredictable,butthereisaninternallogictothesequenceofstages.Sothesequenceispredictable—buteventhatcanbeterminatedbygovernmentinterventionorsomeotherformofnegativefeedback.

Thesimplestcaseisarealestateboom.Thetrendthatprecipitatesitisthatcreditbecomescheaperandmoreeasilyavailable;themisconceptionthatturnsthetrendintoabubbleisthatthevalueofthecollateralisindependentoftheavailabilityofcredit.Asamatteroffact,therelationshipbetweentheavailabilityofcreditandthevalueofthecollateralisreflexive.Whencreditbecomescheaperandmoreeasilyavailable,activitypicksupandrealestatevaluesrise.Therearefewerdefaults,creditperformanceimproves,andlendingstandardsarerelaxed.Soattheheightoftheboom,theamountofcreditinvolvedisatitsmaximumandareversalprecipitatesforcedliquidation,depressingrealestatevalues.

Yet,themisconceptioncontinuestorecurinvariousguises.Theinternationalbankingcrisisof1982revolvedaroundsovereigndebtwherenocollateralisinvolved.Thecreditworthinessofthesovereignborrowerswasmeasuredbyvariousdebtratios,likedebttoGDPordebtservicetoexports.Theseratioswereconsideredobjectivecriteria,whileinfacttheywerereflexive.Whentherecyclingofpetrodollarsinthe1970sincreasedtheflowofcredittocountrieslikeBrazil,theirdebtratiosimproved,encouragingfurtherinflowsandstartingabubble.

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Notallbubblesinvolvetheextensionofcredit;somearebasedonequityleveraging.Thebestexampleis,ofcourse,theInternetbubbleofthelate1990s.WhenAlanGreenspanspokeaboutirrationalexuberancein1996hemisrepresentedbubbles.WhenIseeabubbleformingIrushintobuy,addingfueltothefire.Thatisnotirrational.Andthatiswhyweneedregulatorstocounteractthemarketwhenabubbleisthreateningtogrowtoobig,becausewecannotrelyonmarketparticipants,howeverwellinformedandrationaltheyare.

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Bubblesarenottheonlyforminwhichreflexivitymanifestsitself.Theyareonlythemostdramaticandthemostdirectlyopposedtotheefficientmarkethypothesis;thereforetheydeservespecialattention.Butreflexivitycantakemanyotherforms.Incurrencymarkets,forinstance,theupsideanddownsidearesymmetricalsothatthereisnosignofanasymmetrybetweenboomandbust.Butthereisnosignofequilibriumeither.Freelyfloatingexchangeratestendtomoveinlarge,multi-yearwaves.

Themostimportantandmostinterestingreflexiveinteractiontakespla