The man who bought the world

Liberals love George Soros because he supports good causes. But his life also shows that if you make enough money, you don't have to obey anybody's rules.

By Andrew Leonard

Feb 28, 2002 | 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.

Next Page: Philanthropy is moral, investing is amoral

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