George Soros is one of the most iconic financiers of the century. He is the man who in 1992 “broke” the Bank of England, the philanthropist who has given away $32 billion to promote open societies, the political pugilist who has sparred with Donald Trump and Viktor Orban. And yet, sitting in his private flower garden at his home in Long Island, and looking ahead to his imminent 90th birthday, Soros has one lingering uncertainty: “people do not know me”, he confides.
His doubt is understandable. Few people have been more subject to conspiracy theories, many of them absurd. Soros’s parents survived the Gestapo in his native Hungary and yet he has been called a Nazi; he has been falsely accused of being the architect of the 2007/9 financial crisis; of being a Jew of “flexible morals”, and even of being the Antichrist. He is claimed to be masterminding a project to wipe out Christianity in Europe by organizing the large-scale immigration of Muslims from Africa
All fantasies, and the list could go on. Soros has mysteriously become a symbol of the utter confusion, ignorance, and fear that dominates the digital world today, with attacks coming both from the left and the right. Even the Five Star Movement in Italy, a grass roots leftist movement set up by a comedian, has identified him as an enemy.
None of this seems to worry Soros. We are sipping tea in a shady courtyard cooled by the breeze coming in from the Atlantic Ocean, with a plastic partition between us in observance of the COVID-19 distancing rules. He has a rational explanation for the unusual viciousness of some of the attacks on him. “There are several strands of these conspiracies”, he says quietly. “One is that I have built a foundation that actually covers most of the globe. That fits the idea of what was at the time called a Judeo-Bolshevik global conspiracy. Now it’s just called a Jewish conspiracy”.
He wants to make clear that he is not a politician but a man of conviction engaging in many causes all over the world, and that proponents of those causes find it convenient to share the same enemy internationally. This explains one simple truth, he says “there is an actual, genuine international conspiracy against me. So, when I am challenging the same issues for an Open Society throughout the world, like discrimination, racial exclusion, totalitarian regimes, I am not conspiring, I am openly bringing forward the mission of my life. And my enemies learn from each other. And they attack together using similar techniques”.
That is why, in the midst of so much fake news about him, Soros feels the urge to tell who he is. And so, his story begins: “I was born in 1930 into a middle-class Jewish family in Budapest. Like so many other Jews I could have perished in March 1944 when Nazi Germany occupied Hungary, if my father hadn’t understood better than most people what was going to happen”.
His father, Tivadar and mother, Elizabeth had deep roots in Hungary, but in 1936, when antisemitism and nationalism were growing across the country, they decided to change the original German Jewish family name Schwarz to Soros, to become less visible as Jews. His father was managing buildings, and when the Nazis arrived he arranged false identity papers and hiding places, for his family and a fairly large number of others. Some would pay, if they could; those with fewer means would be helped for free.
“It was my father’s finest moment” says Soros with a touch of emotion in his voice and eyes. For over an hour he goes back to the years of his childhood in Hungary. And goes further back in time: to his father Tivadar’s adventures, running away from a prisoner’s camp in Siberia, in 1918, in the midst of the Bolshevik Revolution.
During long afternoons at a public swimming pool in Budapest, he and his brother Paul would hear these stories. When he was in the concentration camp in Siberia, Tivadar learned Esperanto. Later Tivadar wrote a book, Crusoes in Siberia, about his Russian experiences and his timely and adventurous escape from the camp.
In another book, Masquerade, Tivadar writes how he his community were dancing around death in Nazi-occupied Germany and how he managed again to escape, this time saving his family and his immediate circle. It is clear that those stories about the dangers of communism, totalitarianism and discrimination made an impression on young George, who learned a key lesson that would become a mantra throughout his life: to anticipate the course of events is a matter of survival. A lesson well learned.
In 1947 it was George’s turn to bite the bullet and escape from USSR- occupied Hungary. He travelled first to an Esperanto conference in Switzerland. From there, at 17, he went to England where he attended the London School of Economics. It was at LSE that he met Professor Karl Popper, a Vienna-born philosopher, who wrote The Open Society and Its Enemies. “I chose him as my mentor, my tutor. I came under his influence, his thinking. I became a great believer in an open society. I developed a conceptual framework based on the twin pillars of fallibility and reflexivity which remains the guiding philosophy of my life. In fact, it is a tool to anticipate events and it also helped me with success in the financial markets. And I made a lot of money”.
He did make a lot of money. After giving away $32B in philanthropy, Soros retains a personal fortune of about $8B.
His financial career started in 1954 at the merchant bank Singer and Friedlander in London. In 1969, in New York, he set up a very small fund called Double Eagle with a $4MM investment – one of the first hedge funds. And the rest is history.
Double Eagle became the Soros Fund in 1973 and later the Quantum Fund. In 1992 came his biggest coup, a bet of $10B shorting the British Pound. At the time Germany borrowed huge quantities in the market to finance reunification, creating enormous pressures on the then European Monetary System. Eventually, the Pound collapsed and Soros made $1B.
The victory was bittersweet as in that deal there was an evident contradiction: the man who had already started a foundation to support Europe was also willing to deliver a blow to the Union he cherished for his own gain. This is a charge that he rejects completely. “In 1992” he says, “I saw an opportunity where the risk was limited, but the reward much bigger in case of success. It was an asymmetric bet in my favour. I was willing to risk my entire capital in betting on this. And I was not the only one doing it either. I was an important factor, but if the inefficiency was in the market then other people also speculated. Perhaps I did it on a larger scale than others did relative to my wealth”.
To explain his point about taking a risk, Soros goes back to 1979, when he made another important bet. He was under a great deal of pressure. As he recalls it, he was walking down Leadenhall Street in the city of London looking for financing for the bet he had taken. “The strain was so big that I thought I was going to have a heart attack. It was a false alarm. But it made me think that if I had died, I would have been a loser because I would have lost my life trying to make money”. Eventually his bet failed.
It was around that time that Soros decided to start his foundation. Making money was not enough; he understood the need for a mission of the common good. He focused on Europe, still at the forefront of his worries.
His mission was to further develop his old mentor’s idea for an Open Society, strengthening the pillars of democracy, civil rights, education. That he was successful is clear from the attacks he receives online from the forces of nationalism. As he turns ninety, it is sad to witness that, 76 years after he was escaping deportation in his native Budapest, those same forces of nationalism, prejudice and racism are back. That’s why his mission is still alive and well: it is true that history repeats itself. It’s also true that something can be done about it.
INTRO TO Q&A:
George Soros, is just back from a tennis game. At 90 he still plays three times a week. Granted, he is less mobile on the court now, but he still manages to poach points at the net with impeccable timing, and when he commits a double fault while serving, he gives an intimidating roar of complaint. Days before turning 90 he is in perfect form and more determined than ever to continue his fight for an Open Society. As we sit down for a long interview, I ask him how he sees the current situation now that the novel coronavirus has disrupted the life of every person on earth.
A) We are in a crisis, the worst crisis in my lifetime since the Second World War. I would describe it as a revolutionary moment when the range of possibilities is much greater than in normal times. What is inconceivable in normal times becomes not only possible but actually happens. People are disoriented and scared. They do things that are bad for them and for the world.
Q) Are you also confused?
A) Perhaps a little less than most people. I have developed a conceptual framework that puts me slightly ahead of the crowd.
Q) So how do you see the situation in Europe and the United States?
A) I think Europe is very vulnerable, much more so than the United States. The United States is one of the longest-lasting democracies in history. But even in the United States, a confidence trickster like Trump can be elected president and undermine democracy from within.
But in the US you have a great tradition of checks and balances and established rules. And above all you have the Constitution. So I am confident that Trump will turn out to be a transitory phenomenon, hopefully ending in November. But he remains very dangerous, he’s fighting for his life and he will do anything to stay in power, because he has violated the Constitution in many different ways and if he loses the presidency he will be held accountable.
But the European Union is much more vulnerable because it is an incomplete union. And it has many enemies, both inside and outside.
Q) Who are the enemies inside?
A) There are many leaders and movements that are opposed to the values upon which the European Union was founded. In two countries they have actually captured the government, Viktor Orbán in Hungary and Jaroslaw Kaczyński in Poland. It so happens that Poland and Hungary are the largest recipients of the structural fund distributed by the EU. But actually my biggest concern is Italy. A very popular anti-European leader, Matteo Salvini, was gaining ground until he overestimated his success and broke up the government. That was a fatal mistake. His popularity is now declining. But he has actually been replaced by Giorgia Meloni of Fratelli d’Italia, who is even more of an extremist. The current government coalition is extremely weak.
They are only held together to avoid an election in which the anti-European forces would win. And this is a country that used to be the most enthusiastic supporter of Europe. Because the people trusted the EU more than their own governments. But now public opinion research shows that the supporters of Europe are shrinking and the support for remaining a member of the eurozone is diminishing. But Italy is one of the biggest member, it is too important for Europe. I cannot imagine a EU without Italy. The big question is whether the EU will be able to provide enough support to Italy.
Q) The European Union has just approved a €750B recovery fund…
A) That’s true. The EU took a very important positive step forward by committing itself to borrow money from the market on a much larger scale than ever before. But then several states, the so-called Frugal Five – the Netherlands, Austria, Sweden and Denmark and Finland – managed to make the actual agreement less effective. The tragedy is that they are basically pro-European, but they are very selfish. And they are very frugal. And, first, they led to a deal which will prove inadequate. The scale back of plans on climate change and defense policy is particularly disappointing. Secondly, they also want to make sure that the money is well spent. That creates problems for the southern states that were the hardest hit by the virus.
Q) Do you still believe in a European perpetual bond?
A) I haven’t given up on it, but I don’t think there is enough time for it to be accepted. Let me first explain what makes perpetual bonds so attractive and then explore why it is an impractical idea at the present time. As its name suggests the principal amount of a perpetual bond never has to be repaid; only the annual interest payments are due. Assuming an interest rate of 1%, which is quite generous at a time when Germany can sell thirty year bonds at a negative interest rate, a €1 trillion bond would cost €10 billion per year to service. This gives you an amazingly low cost/benefit ratio of 1:100. Moreover, the €1 trillion would be available immediately at a time when it is urgently needed, while the interest has to be paid over time and the longer out you go the smaller its discounted present value becomes. So what stands in the way of issuing them? The buyers of the bond need to be assured that the European Union will be able to service the interest. That would require that the EU be endowed with sufficient resources (i.e. taxing power) and the member states are very far from authorizing such taxes. The Frugal Four – the Netherlands, Austria, Denmark, Sweden (they are now five because they were joined by Finland) – stand in the way. The taxes would not even need to be imposed, it would be sufficient to authorize them. Simply put, this is what makes issuing perpetual bonds impossible.
Q) Can’t Chancellor Merkel who is determined to make the German presidency a success do something about it?
A) She is doing her best but she is up against a deeply engrained cultural opposition: the German word Schuld has a double meaning. It means debt and guilt. Those who incur a debt are guilty. This doesn’t recognize that the creditors can also be guilty. It is a cultural issue that runs very, very deep in Germany. It has caused a conflict between being German and European at the same time. And it explains the recent decision of the German Supreme Court that is in conflict with the European Court of Justice.
Q) Who are the enemies of Europe on the outside?
A) They are numerous but they all share a common feature: they are opposed to the idea of an open society. I became an enthusiastic supporter of the EU because I considered it an embodiment of the open society on a European scale. Russia used to be the biggest enemy but recently China has overtaken Russia. Russia dominated China until President Nixon, understood that opening and building up China would weaken Communism not only but also in the Soviet Union. Yes, he was impeached, but he, together with Kissinger were great strategic thinkers. Their moves led to the great reforms of Deng Xiaoping.
Today things are much different. China is a leader in artificial intelligence. Artificial intelligence produces instruments of control that are helpful for a closed society, and represent a mortal danger for an open society. It tilts the table in favor of closed societies. Today’s China is a much bigger threat to open societies than Russia. And in the US there is a bipartisan consensus that has declared China a strategic rival.
Q) Coming back to the novel coronavirus, is it helpful or harmful to open societies?
A) Definitely harmful because the instruments of surveillance produced by artificial intelligence are very useful in bringing the virus under control and that makes those instruments more acceptable even in open societies.
Q) What made you so successful in the financial markets?
A) As I mentioned before, I have developed a conceptual framework that gave me an advantage. It is about the complex relationship between thinking and reality, but I have used the market as a testing ground for the validity of my theory. I can sum it up in two simple propositions. One is that in situations that have thinking participants the participants’ view of the world is always incomplete and distorted. That is fallibility. The other is that these distorted views can influence the situation to which they relate and distorted views lead to inappropriate actions. That is reflexivity. This theory gave me a leg up, but now that my “Alchemy of Finance” is practically compulsory reading for professional market participants I have lost my advantage. Recognizing this, I am now no longer a market participant.
Q) Does your framework tell you to worry about the perceived disconnect between market valuations and the weakness of the economy? Are we in a bubble fueled by the huge liquidity made available by the Fed?
A) You hit the nail on the head. The Fed did much better than President Trump who criticized it. It flooded the markets with liquidity. The market is now sustained by two considerations. One is that it expects an even larger injection of fiscal stimulus than the $1.8 trillion CARES Act in the near future; the other is that Trump will announce a vaccine before the elections.
Q) You recently donated US$220MM to the cause of racial equality and black causes. How do you assess the Black Lives Matter movement?
A) It really matters, because this is the first time that a large majority of the population, other than black people, recognizes that there is systemic discrimination against blacks that can be traced back to slavery.
Q) Many say that after COVID-19 and the remote working experience, the future of cities and metropolitan areas is doomed.
A) Many things will change but it is too early to predict how. I remember that after the destruction of the Twin Towers in 2001, people thought that they will never want to live in New York and in a few years, they forgot it.
Q) In this revolution, statues are coming down and political correctness is becoming paramount.
A) Some call it the cancel culture. I think it’s a temporary phenomenon. I think it’s also overdone. Also political correctness in universities is way exaggerated. As an advocate of open society I consider political correctness politically incorrect. We should never forget that a plurality of views is essential for open societies.
Q) If you could send a message to the people of Europe what would it be?
A) SOS. While Europe is enjoying its usual August vacation, the traveling involved may have precipitated a new wave of infections. If we look for a parallel, the Spanish Flu epidemic of 1918 comes to mind. It had three waves, of which the second was the most deadly. Epidemiology and medical science have made great strides since then and I am convinced a repeat of that experience can be avoided. But first the possibility of a second wave has to be acknowledged and immediate steps taken to avoid it. I am not an expert in epidemiology but it is clear to me that people using mass transportation should wear facemasks and take other precautionary measures.
Europe faces another existential problem: it does not have enough money to deal with the twin threats of the virus and climate change. In retrospect it is clear that the in-person meeting of the European Council was a dismal failure. The course on which the European Union has embarked will yield too little money too late. This brings me back to the idea of perpetual bonds. In my opinion, the Frugal Four or Five need to recognize this; instead of standing in the way they should turn into enthusiastic supporters. Only their genuine conversion could make perpetual bonds issued by the EU acceptable to investors. Without it, the European Union may not survive. That would be a grievous loss not only for Europe but for the whole world. This is not only possible, but may actually happen. I believe that under pressure from the public, the authorities could prevent it from happening.