Black Wednesday

Black Wednesday

Black Wednesday occurred in the United Kingdom on 16 September 1992, when John Major's Conservative government was forced to withdraw the pound sterling from the European Exchange Rate Mechanism (ERM) after it was unableto keep the pound above its agreed lower limit in the ERM. In 1997, the UK Treasury estimated the cost of Black Wednesday at £3.4 billion.In 2005,documents released under the Freedom of Information Act indicated that the actual cost may have been slightly less, £3.3 billion.At that time, the United Kingdom held the Presidency of the European Communities.

The trading losses in August and September were estimated at £800 million, but the main loss to taxpayers arose because devaluation could have made them a profit. The Treasury papers show that if the government had maintained $24 billion foreign currency reserves and the pound had fallen by the same amount, the UK would have made a £2.4 billion profit on the pound sterling's devaluation

George Soros

Born         - Schwartz György
                           August 12, 1930 (age 88)
                          Budapest, Hungary
Citizenship - Hungary, United States
Education - London School of Economics (BA, MA, DPhil)
Occupation - Investor, hedge fund manager, author, and philanthropist
Known for - Managing Soros Fund Management
                          Founding the Open Society Foundations
                          Advising the Quantum Fund
                         Target of several conspiracy theories
Net worth - US$8.3 billion (November 2018)
Spouse(s) - Annaliese Witschak
                         (m. 1960; div. 1983)
                         Susan Weber
                         (m. 1983; div. 2005)
                        Tamiko Bolton (m. 2013)
Children        - 5, including Jonathan and Alexander
Relatives        - Paul Soros (brother)


George Soros, Hon FBA (born Schwartz György; August 12, 1930) is a Hungarian-American investor and philanthropist. As of February 2018, he had a net worth of $8 billion,having donated more than $32 billion to his philanthropic agency,Open Society Foundations.

Born in Budapest, Soros survived Nazi Germany-occupied Hungary and immigrated to England in 1947. He attended the London School of Economics, graduating with a bachelor's and eventually a master's degree in philosophy. Soros began his business career by taking various jobs at merchant banks in England and then the United States, before starting his first hedge fund, Double Eagle, in 1969. Profits from his first fund furnished the seed money to start Soros Fund Management, his second hedge fund, in 1970. Double Eagle was renamed to Quantum Fund and was the principal firm Soros advised. At its founding, Quantum Fund had $12 million in assets under management, and as of 2011 it had $25 billion, the majority of Soros's overall net worth.

Soros is known as "The Man Who Broke the Bank of England" because of his short sale of US$10 billion worth of pounds sterling, which made him a profit of $1 billion during the 1992 Black Wednesday UK currency crisis.Based on his early studies of philosophy, Soros formulated an application of Karl Popper's General Theory of Reflexivity to capital markets, which he claims renders him a clear picture of asset bubbles and fundamental/market value of securities, as well as value discrepancies used for shorting and swapping stocks.

Soros is a well-known supporter of progressive and liberal political causes, to which he dispenses donations through his foundation, the Open Society Foundations.Between 1979 and 2011, he donated more than $11 billion to various philanthropic causes;by 2017, his donations "on civil initiatives to reduce poverty and increase transparency, and on scholarships and universities around the world" totaled $12 billion.He influenced the collapse of communism in Eastern Europe in the late 1980s and early 1990s,and provided one of Europe's largest higher education endowments to the Central European University in his Hungarian hometown.His extensive funding of political causes has made him a "bugaboo of European nationalists".Numerous American conservatives have promoted false claims that characterize Soros as a singularly dangerous "puppetmaster" behind a variety of alleged global plots, with The New York Times reporting that by 2018 these claims had "moved from the fringes to the mainstream" of Republican politics.

Early life and education

Soros was born in Budapest in the Kingdom of Hungary to a well-to-do non-observant Jewish family, who, like many upper-middle class Hungarian Jews at the time, were uncomfortable with their roots.
Soros has wryly described his home as a Jewish antisemitic home.His mother Erzsébet (also known as Elizabeth) came from a family that owned a thriving silk shop. His father Tivadar (also known as Teodoro Svarc) was a lawyer and a well-known Esperanto-speaker editing a literary magazine ('Literatura Mondo') who had also been a prisoner of war during and after World War I until he escaped from Russia and rejoined his family in Budapest.The two married in 1924. Tivadar was an Esperantist writer.In 1936, Soros's family changed their name from the German-Jewish Schwartz to Soros, as protective camouflage in increasingly antisemitic Hungary.Tivadar liked the new name because it is a palindrome and because of its meaning. In Hungarian, soros means "next in line," or "designated successor"; in Esperanto it means "will soar."

Soros was 13 years old in March 1944 when Nazi Germany occupied Hungary.The Nazis barred Jewish children from attending school, and Soros and the other schoolchildren were made to report to the Judenrat ("Jewish Council"), which had been established during the occupation. Soros later described this time to writer Michael Lewis: "The Jewish Council asked the little kids to hand out the deportation notices. I was told to go to the Jewish Council. And there I was given these small slips of paper ... I took this piece of paper to my father. He instantly recognized it. This was a list of Hungarian Jewish lawyers. He said, 'You deliver the slips of paper and tell the people that if they report they will be deported'."

Soros did not return to that job; his family survived the war by purchasing documents to say that they were Christians. Later that year at age 14, Soros posed as the Christian godson of an official of the collaborationist Hungarian government's Ministry of  Agriculture, who himself had a Jewish wife in hiding. On one occasion, rather than leave the 14-year-old alone, the official took Soros with him while inventorizing a Jewish family's confiscated estate. Tivadar saved not only his immediate family but also many other Hungarian Jews, and George would later write that 1944 had been "the happiest [year] of his life," for it had given him the opportunity to witness his father's heroism.In 1945, Soros survived the Siege of Budapest, in which Soviet and German forces fought house-to-house through the city.

In 1947, Soros immigrated to England and became a student at the London School of Economics.
While a student of the philosopher Karl Popper, Soros worked as a railway porter and as a waiter, and once received £40 from a Quaker charity.Soros would sometimes stand at Speakers' Corner lecturing about the virtues of internationalism in Esperanto, which he had learned from his father.

Soros took a Bachelor of Science in philosophy in 1951, and a Master of Science in philosophy in 1954, both from the London School of Economics.

1992-pound short

Soros had been building a huge short position in pounds sterling for months leading up to September 1992. Soros had recognized the unfavorable position of the United Kingdom in the European Exchange Rate Mechanism. For Soros, the rate at which the United Kingdom was brought into the European Exchange Rate Mechanism was too high, their inflation was also much too high (triple the German rate), and British interest rates were hurting their asset prices.

By September 16, 1992, the day of Black Wednesday, Soros's fund had sold short more than $10 billion in pounds, profiting from the UK government's reluctance to either raise its interest rates to levels comparable to those of other European Exchange Rate Mechanism countries or float its currency.

Finally, the UK withdrew from the European Exchange Rate Mechanism, devaluing the pound. Soros's profit on the bet was estimated at over $1 billion.He was dubbed "the man who broke the Bank of England".The estimated cost of Black Wednesday to the UK Treasury was £3.4 billion.

On October 26, 1992, The New York Times quoted Soros as saying: "Our total position by Black Wednesday had to be worth almost $10 billion. We planned to sell more than that. In fact, when Norman Lamont said just before the devaluation that he would borrow nearly $15 billion to defend sterling, we were amused because that was about how much we wanted to sell."

Stanley Druckenmiller, who traded under Soros, originally saw the weakness in the pound and stated: "[Soros's] contribution was pushing him to take a gigantic position."

In 1997, during the Asian financial crisis, the prime minister of Malaysia, Mahathir bin Mohamad, accused Soros of using the wealth under his control to punish the Association of Southeast Asian Nations (ASEAN) for welcoming Myanmar as a member. Following on a history of antisemitic remarks, Mahathir made specific reference to Soros's Jewish background ("It is a Jew who triggered the currency plunge"and implied Soros was orchestrating the crash as part of a larger Jewish conspiracy. Nine years later, in 2006, Mahathir met with Soros and afterward stated that he
accepted that Soros had not been responsible for the crisis.In 1998's The Crisis of Global Capitalism: Open Society Endangered Soros explained his role in the crisis as follows:

The financial crisis that originated in Thailand in 1997 was particularly unnerving because of its scope and severity ... By the beginning of 1997, it was clear to Soros Fund Management that the discrepancy between the trade account and the capital account was becoming untenable. We sold short the Thai baht and the Malaysian ringgit early in 1997 with maturities ranging from six months to a year. (That is, we entered into contracts to deliver at future dates Thai baht and Malaysian
ringgit that we did not currently hold.) Subsequently, Prime Minister Mahathir of Malaysia accused me of causing the crisis, a wholly unfounded accusation. We were not sellers of the currency during or several months before the crisis; on the contrary, we were buyers when the currencies began to decline—we were purchasing ringgits to realize the profits on our earlier speculation. (Much too soon, as it turned out. We left most of the potential gain on the table because we were afraid that Mahathir would impose capital controls. He did so, but much later.)

In 1999, economist Paul Krugman was critical of Soros's effect on financial markets.

[N]obody who has read a business magazine in the last few years can be unaware that these days there really are investors who not only move money in anticipation of a currency crisis, but actually do their best to trigger that crisis for fun and profit. These new actors on the scene do not yet have a standard name; my proposed term is 'Soroi'.

In an interview regarding the late-2000s recession, Soros referred to it as the most serious crisis since the 1930s. According to Soros, market fundamentalism with its assumption that markets will correct themselves with no need for government intervention in financial affairs has been "some kind of an ideological excess." In Soros's view, the markets' moods—a "mood" of the markets being a prevailing bias or optimism/pessimism with which the markets look at reality—"actually can reinforce themselves so that there are these initially self-reinforcing but eventually unsustainable and self-defeating boom/bust sequences or bubbles."

In reaction to the late-2000s recession, he founded the Institute for New Economic Thinking in October 2009. This is a think tank composed of international economic, business, and financial experts, who are mandated to investigate radical new approaches to organizing the international economic and financial system.


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