Tags: Jason Simpkins

Soros: "We Have Not Yet Seen the Full Effect of Possible Recession"

By , Money Morning •

By Jason Simpkins
Associate Editor

George Soros first made a name for himself with The Quantum Fund, a hedge fund that's often described as the first real global investment fund, which he and partner Jim Rogers founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor's 500 Index climbed about 50%.

Now, at the age of 77 Soros is making the rounds to promote his new book, "The New Paradigm for Financial Markets," which goes on sale next month. And while he travels the media circuit he's taking the opportunity to speak his mind on the country's current financial crisis, which Soros considers the "biggest financial crisis" of his lifetime.
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Last week, he echoed the International Monetary Fund's estimate of more than $1 trillion in losses linked to the collapse of mortgage-backed securities. However, Soros pointed out that losses so far disclosed by financial institutions are related only to the decline in value of those financial instruments.

"I think it's a pretty accurate estimate of the loan losses," Soros said during a conference call with reporters. "But we have not yet seen the full effect of possible recession. It only relates to the decline in the value of the various financial instruments which are held by the banks and other institutions."

They don't "in any way reflect possible decline in the quality of loans that they hold. These are the eventual losses yet to be seen," he added.

Almost 50 of the world's biggest banks have recorded a combined $232 billion in asset write-downs and credit losses since the beginning of 2007, according to Bloomberg data.

Soros described the $45 trillion market in credit swaps - which gives investors the opportunity to place bets on the likelihood that companies will default on bond payments - as the "Sword of Damocles."

"This $45 trillion market is unregulated," he said. "That's more than five times the entire government bond market of the United States. It's almost equal to the entire household wealth of the United States."

As far as accountability is concerned, Soros blames regulators and the current U.S. administration, which he says "failed to perform their job."

"This is a man-made crisis and it's made by this false belief that markets correct their own excesses," he said. "It will take much longer for the full effect of the decline in the housing market to be felt."

He continued: "I think the situation is more serious than the authorities admit or recognize. They claim that there will be a pickup in the second half of the year. I cannot believe that."

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