The Trade of the Century: When George Soros Broke the British Pound

http://priceonomics.com/the-trade-of-the-century-when-george-soros-broke/

by nols • 12 years ago

238 182 12 years ago

I'm interested to hear people's reactions to the article and the Soros trade.

I'd also like to know what the HN crowd thinks about opinions like this recent New Yorker article that asks how hedge funds "get away" with charging such high fees without producing superior returns:

http://www.newyorker.com/online/blogs/johncassidy/2014/05/ho...

wslh• 12 years ago

How do you connect these articles? The Soros funds gave high returns along their life.

Tycho2• 12 years ago

One reason the article didn't mention is that investors want their portfolio managers to be highly incentivised. If a hedge fund manager is paid 2% of the AUM after growth and 20% of the profits each year, then they have a golden opportunity.

Incentives for traditional mutual fund management are not as exciting and to the investor, the actual performance is almost an afterthought compared to the initial asset allocation decision.

makomk• 12 years ago

The trouble is, assuming that returns are essentially random and that hedge fund managers cannot beat the market except through luck - which seems to be more or less true - it doesn't matter how much you incentivise them. Giving them a bigger cut of the profits just means you come out worse on average. Now, it's certainly in the interest of hedge fund managers to convince investors that giving the managers a bigger cut is in the investors' interest, but that doesn't make it true.

melling• 12 years ago

Sounds like Soros has produced superior returns.

http://www.news.com.au/finance/markets/george-soros-quantum-...

orbifold• 12 years ago

Probably either insider information or selection bias.

cdk• 12 years ago

I believe the 20% cut that the manager make is after they clear a benchmark like the S&P 500 to ensure they get paid when they produce a superior return compared to what an index fund could deliver.

patio11• 12 years ago

This is not a very meaningful hurdle, though.

For example, let me pitch you on the Patio11 Hedgehog Fund. It uses complicated financial alchemy to produce market-beating returns, and you only pay if we beat the market. The fund has never lost money. Care to invest $10 million? You pay 2% per year and 20% of returns above the S&P 500.

Hypothetically suppose the S&P is up 10% next year. I deliver 20% returns. Alchemy, what can I say. You make $1.6 million, I make $0.4 million (from you), and since I did this in parallel with 100 other people life is pretty grand for me.

Now just between HN and me, my strategy is simple: I buy the S&P 500 as an index but I use 2X leverage.

What would have happened if the market went down 5% next year? Well, we would have lost 10%. That certainly sucks, and you need to make your $1 million back. Which is great, because I am now accepting new money on the Patio11 Chinchilla Fund. It uses complicated financial alchemy to produce market-beating returns, and you only pay if we beat the market. The fund has never lost money.

truantbuick2• 12 years ago

I don't know that much about finance, so can somebody explain to me why I never hear anybody censuring Soros over this? I only hear congratulations for bamboozling the incompetent British government.

He made billions at the expense of an entire country.

I'm not saying it was illegal, and maybe people like Soros are needed to help deter governments from artificially manipulating their currency like the British did. However, when it comes down to it, he benefited by executing a bet meant to enrich himself, compound the problems of the pound, and diminish the wealth of a nation. It seems like a plainly immoral thing to me.

ProAm• 12 years ago

He played the game according to the rules. You can't fault a winner when he wins on a even playing field.

AndrewBissell8• 12 years ago

In fact, Soros won on a playing field tilted against him. He went up against a sovereign country with taxing power, and won.

truantbuick2• 12 years ago

Using these kind of game metaphors just shallowly rationalizes something of far more importance, IMO. Legal or not, a country was worse off because of his direct and deliberate actions.

consz• 12 years ago

Would it have been better if the British treasury continued to buy pounds for months (or years) before finally realizing they couldn't prop up the sterling? You could argue that Soros making such a significant bet all at once forced the government to concede earlier than it would have otherwise, and saved them money. He did what speculators do best -- price discovery.

adventured2• 12 years ago

At worst Soros did Britain a favor. They should send him a thank you card. He helped expedite and lessen what otherwise would have been an even bigger crash had the Bank of England been able to continue their guaranteed-to-fail scheme for a longer period of time.

seizethecheese3• 12 years ago

It's interesting that the loss to the Bank of England is attributed almost entirely to Soros. If you accept that the fixed rate was unsustainable then even without Soros the Bank of England would have been forced to defend an untenable position, and eventually would have lost enough to give up. It's reasonable to assume that the acceptable losses for the Bank of England would have been similar whether they were sustained in one day or over the period of weeks or months.

Soros' brilliance was to see the inevitable and take almost the entire opportunity for himself.

the_watcher2• 12 years ago

I wouldn't call myself a Soros fan, but I don't think people generally blame him (alone, at least). Most people I've heard from on this recognize the gross incompetence of those running the Bank of England, and the biggest problem anyone has with Soros is on moral grounds more than anything (exploiting incompetence to essentially take money from British taxpayers without providing them anything in return).

seizethecheese3• 12 years ago

The article's first sentence:

In 1992, George Soros brought the Bank of England to its knees.

You're right that many well-informed people don't blame Soros alone, but the sentence above pretty well encapsulates the mythology surrounding this story. It would be more accurate to say: "the day George Soros hastened the collapse of the ERM."

marvin• 12 years ago

The big question is whether the Bank of England would have sold so much GBP if this was allowed to happen gradually rather than overnight. The real problem is still political incompetence, but there's no guarantee that the losses of the British taxpayers would have been equally large if Soros's fund had not made such a spectacular short which sparked a political pissing match.

seizethecheese3• 12 years ago

Definitely. It's plausible that without Soros the losses would have been much smaller. On the other hand, it is possible that a slower burn would have enabled political inaction and therefore more losses!

mikecb• 12 years ago

| 2.78 DM to 3.13 GBP.

I think they mean between 2.78 and 3.13 DM per GBP.

AndrewBissell8• 12 years ago

Politicians always like to blame speculators when their attempts to fight the market inevitably end in failure, and this instance is no different. Soros didn't "break the GBP," it was already broken and the British government's guarantee to prop it up was never sustainable in the first place.

Someone was going to a lot of make money when the British government's scheme unraveled. Soros just happened to make a lot more than anyone else. Reminds me of a good Rhett Butler quote: "Opportunists have always been held in disrepute. Especially by those who had the same opportunities and didn't take them."

PhasmaFelis9• 12 years ago

It was going to happen anyway, so there's nothing wrong with benefiting from it, yes?

If a man with diamond cufflinks and a fat wallet is passed-out drunk on the sidewalk at midnight in a bad neighborhood, he is definitely going to get robbed. Does that mean I should go ahead and rob him myself with a clear conscience?

I guess, according to you and Rhett Butler, I'm just jealous because I didn't pickpocket the last drunk I met.

CocaKoala10• 12 years ago

Well, no. Robbing a passed out drunk is a crime; you should feel bad for committing crimes, even if it's clear that if you didn't somebody else would.

Shorting a stock (or a currency) is not a crime; it's an acceptable thing to do in a market.

AndrewBissell8• 12 years ago

Since I don't agree with your premise that successful speculations are morally equivalent to robbery, your entire analogy seems ridiculous to me.

ropman76• 12 years ago

If a person leans up against a well and it falls over, do you blame the person or the people who built the wall so shoddy?

nichtich• 12 years ago

People always underestimate how valuable information is. When you short a stock or a currency, you are not "screwing" someone, but providing information to others saying "this thing is screwed". If you believe something is wrong, you should announce that to everybody, loud and clear. In a marketplace this "announcement" is carried out by a big short, because that's the only kind of message people are able to hear.

And borrowing from your example, if there is a big group of drunk men marching to an abyss and no one would listen to a word you say ( well they are drunk), then maybe the moral thing to do is punch them in the face and run the other way.

zacinbusiness6• 12 years ago

I think the just behavior would have been to explain to the government what was going to happen, and then to leverage the fund's wealth and financial influence to help solve the greater problem. I know, businesses exist to make money. But I can't help but feel like these people who profit off of the missery of the people are just awful, awful humans.

fred_durst2• 12 years ago

You do realize that most people do not take the same opportunities because they consider them ethically and morally disgusting? That maybe we're not just a bunch of fools floundering around bumping into just enough money to survive?

I'm always amazed how opportunists think they are the only ones who thought of their schemes.

GigabyteCoin• 12 years ago

What was morally or ethically disgusting about Soros profiting greatly at the expense of the British Government?

Do you think it's morally or ethically wrong that you paid $3 for a hamburger that McDonald's only paid $2 to produce?

Opportunities and tradeoffs exist all around us. It's simply how our world works.

AndrewBissell8• 12 years ago

Go back and read the article again. Soros was able to make as much as he did because most of the market was convinced, incorrectly, that the British government would succeed in propping up the pound. This was not some trade that everyone saw the chance to make and just passed on it out of the goodness of their hearts. Big successful trades are always obvious to everyone in hindsight.

I suppose one's perspective on the whole affair depends a lot on whether you think governments should be using the public treasury to manipulate markets and try to muscle asset prices in one direction or another. Since I think that is arrogant folly, and destined to end in costly failure regardless, better to have some speculator come along and put a stop to it before it can drag on and result in even more losses to the public.

adventured2• 12 years ago

As opposed to all of the opportunists on the other side of the trade betting the currency would go the other direction and they'd profit off of that instead.

cynicalkane• 12 years ago

I guarantee you that the average guy trying his hand at the market doesn't care about what people on the Internet might preach about their decisions later. The fact of the matter is most people don't take those opportunities because most people are very bad at speculation.

Among people who have Soros-level financial power and moxie, they generally are current with economic thought, in which fixed currencies in developed countries are considered a very bad thing by just about everyone. The British government was not doing the world any favors by fixing the pound. The sooner its fixed rate was broken, the better.

It is convenient to tell yourself that smart people like you are not rich because you are too good to be rich, but this doesn't align with reality, not in this particular case nor in general.

ripb• 12 years ago

You do realize that most people do not take the same opportunities because they consider them ethically and morally disgusting? That maybe we're not just a bunch of fools floundering around bumping into just enough money to survive?

If most people are so ethical and moral as to not take a bet against another entity, in this case the government, how do they reconcile significant moral and ethical issues such as the following with themselves:

- The fact that a vast quantity of consumer electronic goods are made under conditions that have been documented to be absolutely horrendous in Asia? In factories whose employees are so stomped upon, that there has been a significant issue with employee suicide on the job?

Those morals and ethics certainly haven't prevented "most people" from pushing demand for these consumer electronics in the West.

- Industrial fishing / trawling and the sheer damage it has done to the oceans. There is sustained demand for fish caught using these methods, yet it is these methods that are destroying fish stocks so frequently that they're having trouble replenishing / breeding again. Fish we don't eat, or mammals caught in the activity, end up being tossed back into the water, dead over nothing.

How do most people, being moral and ethical, not just allow this to continue but push demand for it by asking for cheaper and cheaper fish to be available?

- Oil. How are most people, being honest and moral, still fueling demand for oil - and putting pressure in place for cheaper oil (thus increased quantity must be found) - when these activities are polluting oceans, destroying habitats etc. and whose proceeds are propping up very brutal, very oppressive regimes in some oil producing countries in the Middle East?

I could continue listing these absolutely unethical, absolutely immoral activities that we, "most people", continue to support on a daily basis but I believe the point should be clear.

"Most people" do not take advantage of economic / financial opportunities because such opportunities generally require:

i - Significant capital for significant returns

ii - Risk aversion, as one must risk significant capital and may have hugely negative returns, if any at all.

So let us not pretend that most people took the ethical and moral high ground here.

morsch• 12 years ago

Don't hate the player, hate the game?

fleitz3• 12 years ago

Love the game, the sheep handed it to the wolves that day.

The british people made a huge bet and lost, if you don't like losing on trades don't make trades. They blinked to a guy who didn't even have a bank, let alone an army or a navy.

Soros simply had more gumption than the British Empire.

PhasmaFelis9• 12 years ago

Why is it that taking advantage of loopholes and incompetent bureaucracy to take things from innocent people is monstrous if you do it on a small scale, but heroic on a national scale?

AndrewBissell8• 12 years ago

Why is it no one ever puts the blame on the incompetent bureaucracies that are actually responsible for losing their countries' money?

PhasmaFelis9• 12 years ago

Don't you think there's plenty of blame for everybody? If I leave my keys in the ignition with the window down and my car gets stolen, it's my own fault for being careless, but that doesn't mean the thief is innocent.

arethuza• 12 years ago

I remember hearing a quote from someone who used to work at a fairly high level in the UK Civil Service - they described someone saying "Incompetence shouldn't be a barrier to a chap having a good career" - and it wasn't a joke.

temuze• 12 years ago

Can someone explain to me what the effects of China's artificial devaluation of the yuan vs the dollar are? I understand that they are doing this to make themselves more competitive as an export economy, but can they really keep it up? I mean, to maintain this valuation, they have to constantly sell yuan and buy dollars, but they can't do that forever, right?

So when the yuan finally increases in value, will the dollar's value crash?

klodolph• 12 years ago

Maybe the dollar's value will crash relative to the Yuan. If you make a bet like George Soros that the Yuan is going to rise in value, what would that bet look like?

One of the problems with the bet is that you are betting in the opposite direction from Soros. China can just print more Yuan, and suddenly Yuan decrease in value. Add to this the ridiculous levels of pointless internal investments, seemingly done to inflate China's GDP. And finally, there are severe problems with Chinese equity markets that make it scary to bet on Yuan against USD.

I think at some point in the future, China will stop having an export economy, because advances in manufacturing technology and automation will obviate the need for cheap labor. And at some other point, China will start investing sensibly in internal matters. I have no idea how to translate this into USD or CNY, but if I were in China, I would want the transition to happen gradually. A gradual transition avoids destroying the manufacturing sector overnight.

cinquemb• 12 years ago

I don't know if this is related directly, but seeing as Soros is in on the largest gold mining company in the world and other gold companies related etf's[0], doesn't that speak somewhat to the type of bet he's making in this landscape?

[0] http://www.reuters.com/article/2014/05/15/hedgefunds-filings...

analyst74• 12 years ago

Yuan to Dollar peg was maintained because the currency is not freely trade-able, and it does not follow market economics.

Chinese government has been easing control and letting Yuan slowly inch upward in the past 10 years or so, and nothing catastrophic seems to have happened yet.

jpmattia• 12 years ago

I mean, to maintain this valuation, they have to constantly sell yuan and buy dollars, but they can't do that forever, right?

In that direction, yes they can do it forever because they can keep printing yuan. The dynamics of the Soros' bet was in the other direction: The Bank of England needed to expend foreign reserves in order to buy pounds, and the supply of foreign reserves is finite.

The other interesting dynamic in yuan/dollar: China owns a sizeable amount of treasuries (since the US keeps running a trade deficit, they turn around and invest in interest-bearing bonds). The treasuries are denominated in dollars: If China decided to dump all the treasuries on the market at once (driving US interest rates through the roof, and the price of the T's down), the US gov't would just buy it's debt back for pennies on the dollar. There would no doubt be chaos, but it would be a very different dynamic than the BoE fiasco.

contulluipeste2• 12 years ago

"The treasuries are denominated in dollars: If China decided to dump all the treasuries on the market at once (driving US interest rates through the roof, and the price of the T's down), the US gov't would just buy it's debt back for pennies on the dollar."

Buy with what? With more printed dollars? When someone so large as China starts dumping cheap U.S. bonds (dollars) on the wild pulling down currency's value, it won't be the only acting player. Nobody wishes to loose value by holding to a rapidly depreciating currency, so expect a shopping spree all over the world. It all comes down to faith. Small players can't trigger such big events, but China could. It won't matter that U.S. debt problem gets solved if its currency looses monopoly.

Danieru• 12 years ago

The expected effects are the large foreign cash reserves and strong exports.

The unexpected effects have been the massive growth of China's underground banking system and the housing bubble. To keep exchange rates low China needed to keep interest rates low. They did this by legislating Banks' deposit account interest rates. In turn this caused everyone to look elsewhere to invest their life's savings.

Thus we get large ghost towns and ship yards acting as unregulated banks. I expect this tactic to burn China bad at some point in time.

the_watcher2• 12 years ago

So this is basically the worst case scenario of activist monetary policy by governments, right?

emiliobumachar• 12 years ago

Wrong. Worst case scenario, they'd double down and keep fighting the market until the country was completely bankrupt.

pjc502• 12 years ago

In some ways, this was a comparatively cheap way for the UK to discover that fixed exchange rates between economies must force the pressure into current account deficits instead; such as has happened to Portugal/Ireland/Greece/Spain. Falling out of ERM kept the UK out of the Euro, which was beneficial in the long run.

M2Ys4U4• 12 years ago

Falling out of ERM kept the UK out of the Euro, which was beneficial in the long run.

Perhaps. That's certainly conventional wisdom, but we have no way of knowing what the political or economical landscape would have been if the UK stayed in the ERM and was now in the Eurozone. 20+ years is a long time.

TazeTSchnitzel• 12 years ago

Were it not for Brown, we might have joined the Euro.

claudius• 12 years ago

The PIGS countries would be much worse off outside the eurozone than inside, to see this, just compare the recent economical dips to the massive increase in activity following the introduction of the Euro in 2002. And to say that a country without any industry is even remotely in a good position (implied by “beneficial in the long run”) is a rather curious thing, too.

pjc502• 12 years ago

country without any industry

This description does not match the UK, no matter how many "manufacturing is dead" articles you read in the papers.

loso2• 12 years ago

A pretty good documentary from the BBC about Black Wednesday. Shows more from the government side and the mistakes they made than Soros part but still gives you a good understanding of what happened. http://m.youtube.com/watch?v=K_oET45GzMI

westiseast5• 12 years ago

If you see an online service whose online security is terrible, do you (a) notify the company (b) hack them and privately inform them off the exploit or (c) hack them, steal all the data, sell it on the open market and make a million pounds, simultaneously disadvantaging millions of average customers?

AndrewBissell8• 12 years ago

LOL, I can just imagine the scene now:

INTERIOR, HER MAJESTY'S TREASURY OFFICE

PHONE RINGS

SOROS: Hi, my name is George Soros, I'm a hedge fund manager and international speculator. I noticed that you're trying to prop up the British pound, but rather than try to profit from this, I figured I'd just call and give you guys the heads up that it's not going to work.

TREASURY OFFICIAL: Oh my God, you're right! We'll issue a public statement right away, admitting that we've been wrong and that we're putting an immediate end to the policy. Thanks so much for the warning, kind sir!

westiseast5• 12 years ago

Hahaha, they'd just say sorry a thousand times the mutter something about immigrants.

fabulist5• 12 years ago

"In light of this development, we're starting a Fiscal Policy Bug Bounty program...."

CocaKoala10• 12 years ago

A better comparison would be: You find an online blackjack service that uses pRNGs, and can reverse the state of their decks in real time. Do you (a) notify the company or (b) play a bunch of blackjack and clean out the house?

George Soros didn't hack anything or steal anything; he made use of publicly accessible information to make a gamble and he won big. The consequences of that win were certainly crummy for a whole bunch of people and it's terrible that a lot of innocent people were put in that position, but to compare Soros to a criminal is pretty disingenuous.

coreymgilmore• 12 years ago

Free markets always win. The markets have a very good history of correcting themselves and it just happens to be that corrections are always rough to most people, and highly profitable to a few. Ex. the 2009 housing bubble in the US. A few people made a ton of money of this. Same with gold coming off its all time highs.

honksillet• 12 years ago

Here is the take away. "As it turns out, Margaret Thatcher was right..."

ryandrake• 12 years ago

Bank of England thought they could achieve the Impossible Trinity [1] and failed:

1. http://en.wikipedia.org/wiki/Impossible_trinity

rurounijones• 12 years ago

So it seems that everyone knew the pound was mis-valued, the only thing stopping them from just revaluing was politics and the egos of politicians.

They were a bleeding man in water and Soros was a shark; I don't praise or like him for what he did but he was not the main cause, he just acts as you would have expected him to.

phkahler• 12 years ago

So what is the play today? The US is backed into a corner. Interest rates are near zero (Fed fund rate) and they're buying $75Billion in bonds a month to keep interest rates low. That was $85B and was supposed to taper, but as soon as they dropped a little bit mortgage rates rose and home sales dropped again - the housing market is at another peak with the low interest rates with nowhere to go but down. They keep hoping to get some inflation going by pushing on that rope and it's just not happening. All the money is going into stocks. If we do get significant inflation they'll have to raise rates and destroy the housing market (worse than last time). So we're on the brink. It's hard to short stocks when they're rising so fast - one who could time this thing could make Soros' gain look like lunch money. What is the play?

kasey_junk3• 12 years ago

One thing to remember is that the Soros bet was available because the currency was pegged. Everyone (in the west) has learned that to be a bad thing, in part because of this particular bet.

The US has not pegged their currency. They've made other currency policy decisions under the hope that the US currency can handle the debasement (and so far they have proven true).

Remember that when you short a currency, you also are taking a position about all the other currencies in the world. So rather than say you don't like US dollars you need to say, I prefer X to US dollars and think they aren't currently trading at the right ratio (and if you are shorting you have to account for a very expensive transaction cost).

So rather than asking what the play against the US dollar is, ask which currency you prefer. The international markets do this everyday and so far they haven't found a very compelling alternative.

pistle• 12 years ago

Their gamble was also time-based. This shift was imminent. No such thing is nearly as critical today. You can be edging into such a play, but having all the stars align - being in the right place with the right amount of capital leverage, and sitting at the precipice of an actionable event happens maybe once every 10-20 years.

You can be right about the problem, but being able to enter and exit a market to benefit from such prescience requires a lot of timing. If the wreck is slow motion, you can lost most of the utility of your insight by transaction fees, interest, and the contrarian, emotional whims of the market you play in. It's better to have other peoples' money at your disposal. Hedge fund managers are in a great spot.

duncan_bayne• 12 years ago

"As it turns out, Margaret Thatcher was right: the UK had no business trying to artificially prop up its currency in an era when a handful of hedge funds could assemble more capital in a few hours than the Bank of England had at its disposal."

Unfortunately, power-lust and ideology usually trump reason when politicians are involved.

bsaul3• 12 years ago

I wonder how much money soros fans lost when they tried to do the same in the previous years, trying to speculate on the end of the euro.

I love the paragraph saying "there was no way the sterling would go up". Those are really the kind of reasonning you can do 20 years later. You never know that there really "is no chance".

ZenPro9• 12 years ago

I personally lost a little over 9 months salary. The missus was not pleased :-)

To be honest, the entire gambit rested on the results of the Greek election [1]. If Tsiparis (Syriza) had of won then everyone who shorted would have made a killing as they pledged to cease any repayments.

Exit polls had them possibly winning at 7pm with the possibility lessened by 05.% at 8pm. As it happened, the result was 26.9% to Syrizas and the winners (ND/DISY) with 29.7%; the markets already started climbing that evening and within a few days the majority of short positions were untenable incurring substantial losses.

Most media outlets agreed that a Tsiparis win would have resulted in a Greece exit from the Eurozone with the currency plummeting. Foreign Affairs stated that ...the election determined whether Greece would exit the eurozone and decide the fate of the entire postwar European project. [2]

The entire issue came down to just 170,475 votes (>2% of the voting population).

[1] http://en.wikipedia.org/wiki/Greek_legislative_election,_Jun...

[2]http://www.foreignaffairs.com/articles/137710/stathis-n-kaly...

bsaul3• 12 years ago

Because you think that it's up to a greek political party to endanger the whole eurozone ? Even if they had won, them leaving was really less than certain. Most political parties tend to change a lot once they actually have to take the decisions, and believe me, in that case there were a lot of things other euro countries could have done to prevent any kind of greek disastrous initiative.

parenthesis• 12 years ago

If the bet had gone your way, how many months' salary would you have made?

jacquesm• 12 years ago

The missus was not pleased :-)

She should have been just as 'not pleased' had your bet paid off. Going on the assumption that one should not bet such sums without full consent of one's partner...

revelation• 12 years ago

This is a post-facto rationalization. It's no wonder you lost.

seanccox• 12 years ago

It's interesting timing to post this, since the New Yorker explored the data available on hedge funds' returns just yesterday, and found them lacking...

http://www.newyorker.com/online/blogs/johncassidy/2014/05/ho...

Vanayad• 12 years ago

I am really curious what would have happened if the British Government bought DM as well during this period (and maybe not disclose it?) Then they would exit the ERM, and the pound would fall and they would exchange all their money back to sterling and would be rich... :/ I know my logic has a mistake in it... it can't be that simple :P

contulluipeste2• 12 years ago

The British Government had DMs, that's what they sold trying to keep their currency at fixed rate. You say they should have kept Deutschmarks to sell them later for what? For depreciated sterling pounds? It doesn't make sense, the only thing that a government has plenty of is its own currency. Governments are "rich" in their own printed stamps, the challenge is to keep those stamps valuable. That's what the British Government was trying to do.

facepalm• 12 years ago

One aspect in stories of this kind always seems to be somebody trying to artificially inflating the value of some stock (or currency) by buying lots and lots of it. In this case, the bank of England. (I've read the same thing about Indonesia, and the Barings Bank incident).

That seems so silly - I mean here are these supposedly highly trained financial experts, and all they can do is try the most primitive stock manipulation imaginable?

What would have happened if the Bank of England wouldn't have tried to artificially inflate the pound by buying lots of it? Would it have had the same cost to the tax payer? Obviously there would have been a cost because of the devalued pound (less buying power for foreign goods), so perhaps the question is did it even make any difference? Either they lose because of the diminished buying power, or they lose directly because of the buying spree of the Bank of England?

lmm• 12 years ago

The thing is that you only see the failures. Propping up a currency like that works fine until it doesn't.

Not buying up pounds would have meant dropping out of the ERM immediately. In the short term that would have saved money. In the long term, depends on your view of how similar or different the UK and German economies are.

jokoon• 12 years ago

world finance is brutal

arbuge• 12 years ago

That's a previous century.

This century's trade of the century so far might be John Paulson shorting various mortgage securities during the financial crisis.

blueskin_• 12 years ago

Yet again, Thatcher showed her intelligence and foresight by opposing the ERM. There's a reason many people in Britain referred to it as the Eternal Recession Mechanism.

It is a shame bordering on a national disgrace that so many people don't know of actions like that, or indeed, her being one of the biggest proponents of lean-burn technology that would yield several times the fuel efficiency of modern cars but has since been all but abandoned[1]. She saw climate change as a future issue before any other politician, but was unable to act given the conditions of the time. Instead, she is best remembered for the collapse of the coal industry, something that was inevitable in any case, but she simply refused to subsidise it to keep it staggering along for another couple of years.

Not only this, but she was responsible for Britain winning one of the few post-WW2 wars fought by the West against anything close to an equally well equipped foreign power.

[1]http://iaindale.blogspot.co.uk/2009/02/margaret-thatcher-cli... http://conceptual-reflections.w43w.com/1036/unleaded-paintin...

kasey_junk3• 12 years ago

Without getting into the pluses/minuses of Thatcher's leadership, saying that she "simply refused to subsidise" the coal industry papers over a lot of very anti union activities.

You can argue for or against these activities, but the reason she is despised so widely has nothing to do with subsidies and everything to do with criminalizing non-violent Union protests.

kyleblarson• 12 years ago

Funny that he now uses profits derived from the incompetence of one government to purchase elections in another.

alexnewman• 12 years ago

Hardly the trade of the 1900's. In fact Soros has had much better deals. Also, on the notion that the pound was inherintly broken, one should probably checkout adam curtis mayfair set.

The Trade of the Century: When George Soros Broke the British Pound

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