George Soros on market equilibrium

Presently, George Soros is on a book tour promoting his new book.George Soros,  In the book he questions neo-classical economics where markets reach a state of equilibrium where buyers and sellers are content.

His main argument is that the neoclassical economics that postulates that markets tend to equilibrium is nonsense. He founds this view on what he calls the theory of reflexivity, which broadly says that use of scientific methodology in economics is wholly inappropriate, because economic agents cannot avoid influencing the outcomes they forecast.

If markets do not find equilibrium and thus are as likely to overshoot on the way up as they are on the way down, then should governments interfere to avoid the euphoria on the way up (i.e. during the dot com boom the peak, at March 2000 the Nasdaq was 5,132.52 ) and the despair on the way down (i.e. dot com boom collapse, in which by October 2002 the NASDAQ lost 78% of its March 2000 valuation)

However, by interfering in this way governments will limit and reduce the possibility of economic growth and thus vast improvements of standard of living and income are unlikely.

Instead,we would perhaps become a France or Germany, every year we  would just limp along with 1% economic growth. 

Would citizens be happy with this?

Ireland's Reckless Banks

Irish banks have placed themselves into a very difficult position. They have lended so much money to Irish property developers that they will find it difficult to remain solvent if the continued downward trends in the property market continues.

In a note, by Morgan Kelly of UCD, he notes that lending to builders and
developers continues to grow rapidly and now stands at almost €100 billion, an increase of
€20 billion on last October. To put these numbers in perspective, €20 billion is twice the market value of Bank of Ireland shares; while €100 billion is the approximate value of all public deposits with retail banks. Effectively, the Irish banking system has taken all its shareholders' equity, with a substantial chunk of its depositors' cash on top, and handed it over to builders and property speculators.

He adds international experience shows that developers will walk when markets turn down, leaving banks, and often governments, to pick up the pieces.

Therefore, all this money has been thrown recklessly into the irish economy by Irish banks. Creating positions which were completely unsustainable, once the tap was closed off. Thus, the returns for developers will be significantly reduced and perhaps in some cases result in developers holding loans greater than the returns possible in the current market conditions.

There will have to be major movement in the coming months in the economy for us to reach a position where the equilibrium is based on real market fundamentals and not on speculators greed.