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Tuesday, September 28, 2010

George Soros: Zombie Banks Are Drawing The Lifeblood Of Economic Activity

George Soros, legendary currency trader and chairman of Soros Fund Management, talks about the U.S. financial crisis and actions taken by the global governing authorities in response to the crisis. He also shares his perspectives on the dire state of "zombie banks" and on the unsustainability of the current bear market rally.

"We did not succeed in recapitalizing the banks, to the point where they can lend freely to business[es]. They still have to earn their way out of the hole. And that is going to last a long time," says Soros, referring to the root cause of the current crisis which U.S. policymakers have failed to fix. When asked to clarify if he is saying that the steps taken by policymakers so far have not been the right ones to fix the banking system, Soros responds, "That's right. It (The banking crisis) will linger, because we're keeping the banks alive. This talk of 'zombie banks'. Unfortunately, that is where we are now. The banks are alive, but they know that they've got assets which are depreciating and they have to charge extra. So actually, instead of providing lifeblood of credit, they're effectively drawing the lifeblood of [economic] activity, of profit, to themselves, to dig themselves out of the hole and that is the current situation."

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George Soros was born in Budapest, Hungary, in 1930. His father was taken prisoner during World War I and eventually fled from captivity in Russia to reunite with his family in Budapest. Soros was thirteen years old when Hitler's Wehrmacht seized Hungary and began deporting the country's Jews to extermination camps. In 1946, as the Soviet Union was taking control of the country, Soros attended a conference in the West and defected. He emigrated in 1947 to England, supported himself by working as a railroad porter and a restaurant waiter, graduated in 1952 from the London School of Economics, and obtained an entry-level position with an investment bank.

In 1956, Soros immigrated to the United States, working as a trader and analyst until 1963. During that time, he developed his own theory of markets called 'reflexivity', which he has laid out in his recent books THE ALCHEMY OF FINANCE and THE CREDIT CRISIS OF 2008 AND WHAT IT MEANS. In 1967 he helped establish an offshore investment fund; and in 1973 he set up a private investment firm that eventually evolved into the Quantum Fund, one of the first hedge funds, through which he accumulated a vast fortune.