Comments: The day the pound died

All the focus about the 1992 crisis has been on the politicians and institutions but not on George Soros and his hedge fund. It’s interesting how George Soros has become a world statesman since 1992 - compared to Major and Lamont. But it’s also a good reminder of the power of hedge funds.

Soros bet the right way, from his point of view, and made a fortune from the crisis he created. But LTCM later bet the wrong way ahead of the Russian bond defaults, lost a fortune and created a global financial crisis as a result. Since the recent fall in stockmarkets the number of hedge funds has… inflated.

Unfortunately the new hedge funds mostly make money from volatility - and one of the few things that have fallen since early 2003 is volatility. As a result hedge funds are today taking huge risks to earn small returns. This is another bubble that could pop spectacularly.

Hedge funds use leverage, betting with borrowed money – just like the UK housing market.

The lesson is that, if you make yourself vulnerable by borrowing too much or trying to maintain too high a price, there are people out there that will get rich by pushing you over the edge, using leverage. In 1992 Lamont found no defence in time against the hedge funds. The forces are even stronger today – it’s best not to be vulnerable.

P.S. “A neat circle”? That remark should bring a full postbag. Surely it’s a vicious circle. And “in it for 15 years”? They will be when they’re trapped – see With Profits Funds investors.

Posted by David Sandiford at February 13, 2005 11:34 AM

'i feel glad that on orange wednesday you can get half price tickets at the cinema itmeans i can go 2 the cinema on a wednesday for half price with a friend i think it would of bin good if on blck wednesday they did this too!!!! maybe you could go back in time and rewrite history so this actually happens your sincerly emily reynard love ya mwah xxxxx'

Posted by Emily Reynard at March 4, 2005 10:59 AM

Enjoying reading this now, in 2010, after the GFC.

"The economy has turned out very well. "

Awesome.

Posted by gaz francis at March 3, 2010 08:07 PM