Open Society Reforming Global
Capitalism Reconsidered by George
Soros
The Hobo Philosopher
The renowned financier reconsiders the state of the world economy, and
the arguments he made in his New York Times and Wall Street Journal
bestseller The Crisis of Global Capitalism. Lauded by the New York
Times as brilliant and persuasive, and published in more than thirty-five
foreign editions, George Soross The Crisis of Global Capitalism became
an instant classic. A must read for anyone concerned with the complex
market forces that rule our global economy and that have thrust us into a
state of financial flux and international economic insecurity. Now Soros
takes a whole new look at the arguments he made in that book,
incorporating the very latest in global economic and political
developments. He shows how the recovery following the economic
meltdown of 1998 may have been a false dawn, leaving us in a much
more precarious position than we realize. He also explores surprising

connections between events like the war in Kosovo and the economic
wealth of nations. And he offers new insights into the fates of Russia,
Asia, Europe and the United States. Demonstrating that our still
unquestioning faith in market forces blinds us to crucial economic
instabilities, Open Society provides an inspiring vision of how to fix the
flaws in the system - suggestions that have already influenced leaders at
the IMF, the World Bank, and in many national governments.
Personal Review: Open Society Reforming Global Capitalism
Reconsidered by George Soros
Reflexivity, is the two way interaction between thinking and reality. Reality
is not separate from thinking. Reflexivity is acceptance that there is a
reality and we are a part of that reality. Reflexity, strength of its statement
is contingent on their impact.
Fallibility means there is a lack of correspondence between the
participants thinking and the actual state of affairs. When one recognizes
a fallible belief, he can correct for error, this is another name for learning.
All human designs are bound to be defective. In finance the value of a
hypothesis is measured in money. Money accumulation measures the
degrees of success in a belief system and the exploitation of observed
fallacy. No fertile fallacy is likely to last forever and eventually, it will be
replaced with a new fallacy that will occupy people's imagination. There
are two ways to deal with deficient design, one, to look for an escape and
two, to look for improvement. Marxist philosophy and economics is not
scientific provable.
Karl Popper's theory of scientific method involves predicting a specific
phenomena then testing and explaining the phenomena. Therefore,
prediction and explanation are reversible. Testing is comparing the initial
and final conditions and establishing whether they conform to the
hypothesis. One should accept the hypothesis provisionally, until is can
be falsified. This approach allows the hypothesis to provide predictions
and explanations without insisting on verification. The predictions can be
either deterministic or probabilistic. However, generalizations made about
reflexive events cannot be tested.
Equilibrium in supply and demand means there is exists no unsatisfied
sellers and buyers. Economics is the study of the relationship between
supply and demand, not the conditions. All markets have radical fallibility
and are liable to be flawed. Economic theory has misrepresented how
markets behave. The conditions of supply and demand are unknowable
because financial markets are discounting the future contingent on how
they discount the present.
Rational expectations of price are based on fundamentals, such as, future
earnings, dividend, and the prospect of future transactions. Therefore, it
would be irrational for an investor to believe they can outperform the
market.

Self-interest is the best explanation why free markets succeed. Different
people work with different bias. A sequence of events occurs and these
events affect a person's bias. Rational expectations philosophy contents
that markets are always right. However, in reality financial markets are
almost always wrong, but have the ability to validate them selves to a
point. Divergence from outcomes and expectations can be taken as bias.
For example, credit expansion and contraction are followed by a boom or
bust, in the business cycle. Collateral value depends on the amount of
money the bank is willing to lend. Investors had sought fast per-share
growth rates and certain companies had exploited this bias using their
high-priced shares to acquire companies with lower multiple of earnings
and producing higher shares and growth earning increases, for which, the
investors appreciated. These companies become bestowed with higher P/
E multiples far from the mean and reality cannot sustain these
expectations.
The turning point formed because there were size limits and the company
could not sustain momentum. Investors got carried away with
expectations. The moment of truth occurred when reality could not support
investor expectation. People only increased their pain by continuing too
play the game when they, themselves no long believed, hoping a greater
fool would arrive and bail them out. The crossover point would be followed
by a downward trend and eventual crash. Markets are in constant dis-
equilibrium: Prices do not clear the market and there are dissatisfied
buyers and sellers in the wings, who could not execute order at the last sell
or could not make up their minds.
1972, Citibank enters the market and starts using capital to simulate stock
prices, raise additional capital, and made purchase acquisitions. 1973, Oil
crisis causes a boom and swing into dis-equilibrium. 1982, radical change
caused the international banking crisis. 1989, the Soviet empire collapsed
and robber capitalism emerged, as, management tool control of companies
and private property by cheating workers of vouchers and buying up
companies cheap. State to Private property distribution became the
problem of a free for all. The Russian central government was unable to
collect taxes.
1998, IMF negotiates with Russia, a $22.5 billion rescue plan. Emerging
market Russia's stock had fallen 48% in four weeks. Prior too the bailout,
Russia had $11 billion in hard currency in its reserves, but this was not
enough to cover debts come due. The USSR was on the verge of
breaking up and building a free-market system in the stead. Peoples
exchanging their rubles for dollars had depleted the central bank by $2.4
billion. Russia was too big and too nuclear to fail and IMF bailout
mandated and required. The IMF role in the financial intervention of
Russia would be too help Russia make the transition into a free-market.
Russia lacked many of the components needed in a free-market: viable

commercial banks, stocks and bond markets, and laws to protect private
property and enforce contracts. The IMF used "shock tactic" to dismantle
communist command and control hierarchy and liberalizing price and
markets. Soon after shock tactic private retail shops opened and imports
of foreign goods increased. Bloated budget deficits caused an explosive
rise in Russian money supply and in 1993, inflation topped 843% and
224% in 1994. 1995, Russian reforms acquired a $6.8 billion IMF loan
aimed primarily to tame inflation and inflation subsided. The ruble was
pegged too the dollar ending a slide in currency value. The next stage of
reform was modern banking. By 1997, inflation was 11 %, the ruble stable,
communism vanquished, and portfolio investor were infusing money into
Russia. Portfolio investment surged to $45.6 billion. Russia economy
looked health, but its heavy dependence on short term borrowing
subjected it to heavy costs. Russia had to borrow $1 billion each week by
selling GKO to replace the maturing ones with increase costs of 25%. The
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