THE GAME CHANGERBy George Soros 2009-02-04

In the past, whenever the financial system came close to a breakdown,
the authorities rode to the rescue and prevented it from going over
the brink. That is what I expected in 2008 but that is not what
happened. On Monday September 15, Lehman Brothers, the US investment
bank, was allowed to go into bankruptcy without proper preparation. It
was a game-changing event with catastrophic consequences.

For a start, the price of credit default swaps, a form of insurance
against companies defaulting on debt, went through the roof as
investors took cover. AIG, the insurance giant, was carrying a large
short position in CDS and faced imminent default. By the next day Hank
Paulson, then US Treasury secretary, had to reverse himself and come
to the rescue of AIG.

But worse was to come. Lehman was one of the main market-makers in
commercial paper and a large issuer of these short-term obligations to
boot. Reserve Primary, an independent money market fund, held Lehman
paper and, since it had no deep pocket to turn to, it had to “break
the buck” – stop redeeming its shares at par. That caused panic among
depositors: by Thursday a run on money market funds was in full swing.

The panic then spread to the stock market. The financial system
suffered cardiac arrest and had to be put on artificial life support.

How could Lehman have been left to go under? The responsibility lies
squarely with the financial authorities, notably the Treasury and the
Federal Reserve. The claim that they lacked the necessary legal powers
is a lame excuse. In an emergency they could and should have done
whatever was necessary to prevent the system from collapsing. That is
what they have done on other occasions. The fact is, they allowed it
to happen.

On a deeper level, too, credit default swaps played a critical role in
Lehman’s demise. My explanation is controversial and all three steps
of my argument will take the reader to unfamiliar ground.

First, there is an asymmetry in the risk/reward ratio between being
long or short in the stock market. (Being long means owning a stock,
being short means selling a stock one does not own.) Being long has
unlimited potential on the upside but limited exposure on the
downside. Being short is the reverse. The asymmetry manifests itself
in the following way: losing on a long position reduces one’s risk
exposure while losing on a short position increases it. As a result,
one can be more patient being long and wrong than being short and
wrong. The asymmetry serves to discourage the short-selling of stocks.

The second step is to understand credit default swaps and to recognise
that the CDS market offers a convenient way of shorting bonds. In that
market the asymmetry in risk/reward works in the opposite way to
stocks. Going short on bonds by buying a CDS contract carries limited
risk but unlimited profit potential; by contrast, selling credit
default swaps offers limited profits but practically unlimited risks.

The asymmetry encourages speculating on the short side, which in turn
exerts a downward pressure on the underlying bonds. When an adverse
development is expected, the negative effect can become overwhelming
because CDS tend to be priced as warrants, not as options: people buy
them not because they expect an eventual default but because they
expect the CDS to appreciate during the lifetime of the contract.

No arbitrage can correct the mispricing. That can be clearly seen in
US and UK government bonds, whose actual price is much higher than
that implied by CDS. These asymmetries are difficult to reconcile with
the efficient market hypothesis, the notion that securities prices
accurately reflect all known information.

The third step is to recognise reflexivity – that is to say, the
mispricing of financial instruments can affect the fundamentals that
market prices are supposed to reflect. Nowhere is this phenomenon more
pronounced than in the case of financial institutions, whose ability
to do business is dependent on confidence and trust. That means that
“bear raids” to drive down the share prices of these institutions can
be self-validating. That is in direct contradiction to the efficient
market hypothesis.

Putting these three considerations together leads to the conclusion
that Lehman, AIG and other financial institutions were destroyed by
bear raids in which the shorting of stocks and buying of CDS amplified
and reinforced each other. Unlimited shorting was made possible by the
2007 abolition of the uptick rule (which hindered bear raids by
allowing short-selling only when prices were rising). The unlimited
selling of bonds was facilitated by the CDS market. Together, the two
made a lethal combination.

That is what AIG, one of the most successful insurance companies in
the world, failed to understand. Its business was selling insurance
and, when it saw a seriously mispriced risk, it went to town insuring
it, in the belief that diversifying risk reduces it. It expected to
make a fortune in the long run but it was destroyed in short order.

My argument raises some interesting questions. What would have
happened if the uptick rule on shorting shares had been kept, in
effect, but “naked” short-selling (where the vendor has not borrowed
the stock in advance) and speculating in CDS had both been outlawed?
The bankruptcy of Lehman might have been avoided but what would have
happened to the asset super-bubble? One can only conjecture. My guess
is that the bubble would have been deflated more slowly, with less
catastrophic results, but that the after-effects would have lingered
longer. It would have resembled more the Japanese experience than what
is happening now.

What is the proper role of short- selling? Undoubtedly it gives
markets greater depth and continuity, making them more resilient, but
it is not without dangers. As bear raids can be self-validating, they
ought to be kept under control. If the efficient market hypothesis
were valid, there would be an a priori reason for imposing no
constraints. As it is, both the uptick rule and allowing short-selling
only when it is covered by borrowed stock are useful pragmatic
measures that seem to work well without any clear-cut theoretical
justification.

What about credit default swaps? Here I take a more radical view than
most people. The prevailing view is that they ought to be traded on
regulated exchanges. I believe they are toxic and should be used only
by prescription. They could be used to insure actual bonds but – in
light of their asymmetric character – not to speculate against
countries or companies.

CDS are not, however, the only synthetic financial instruments that
have proved toxic. The same applies to the slicing and dicing of
collateralised debt obligations and to the portfolio insurance
contracts that caused the stock market crash of 1987, to mention only
two that have done a lot of damage. The issuance of stock is closely
regulated by authorities such as the Securities and Exchange
Commission; why not the issuance of derivatives and other synthetic
instruments? The role of reflexivity and the asymmetries identified
earlier ought to prompt a rejection of the efficient market hypothesis
and a thorough reconsideration of the regulatory regime.

Now that the bankruptcy of Lehman has had the same shock effect on the
behaviour of consumers and businesses as the bank failures of the
1930s, the problems facing the administration of President Barack
Obama are even greater than those that confronted Franklin D.
Roosevelt. Total credit outstanding was 160 per cent of gross domestic
product in 1929 and rose to 260 per cent in 1932; we entered the crash
of 2008 at 365 per cent and the ratio is bound to rise to 500 per
cent. This is without taking into account the pervasive use of
derivatives, which was absent in the 1930s but immensely complicates
the current situation. On the positive side, we have the experience of
the 1930s and the prescriptions of John Maynard Keynes to draw on.

The bursting of bubbles causes credit contraction, the forced
liquidation of assets, deflation and wealth destruction that may reach
catastrophic proportions. In a deflationary environment, the weight of
accumulated debt can sink the banking system and push the economy into
depression. That is what needs to be prevented at all costs.

It can be done – by creating money to offset the contraction of
credit, recapitalising the banking system and writing off or down the
accumulated debt in an orderly manner. They require radical and
unorthodox policy measures. For best results, the three processes
should be combined.

If these measures were successful and credit started to expand,
deflationary pressures would be replaced by the spectre of inflation
and the authorities would have to drain the excess money supply from
the economy almost as fast as they had pumped it in. There is no way
to escape from a far-from- equilibrium situation – global deflation
and depression – except by first inducing its opposite and then
reducing it.

To prevent the US economy from sliding into a depression, Mr Obama
must implement a radical and comprehensive set of policies. Alongside
the well- advanced fiscal stimulus package, these should include a
system-wide and compulsory recapitalisation of the banking system and
a thorough overhaul of the mortgage system – reducing the cost of
mortgages and foreclosures.

Energy policy could also play an important role in counteracting both
depression and deflation. The American consumer can no longer act as
the motor of the global economy. Alternative energy and developments
that produce energy savings could serve as a new motor, but only if
the price of conventional fuels is kept high enough to justify
investing in those activities. That would involve putting a floor
under the price of fossil fuels by imposing a price on carbon
emissions and import duties on oil to keep the domestic price above,
say, $70 per barrel.

Finally, the international financial system must be reformed. Far from
providing a level playing field, the current system favours the
countries in control of the international financial institutions,
notably the US, to the detriment of nations at the periphery. The
periphery countries have been subject to the market discipline
dictated by the Washington consensus but the US was exempt from it.

How unfair the system is has been revealed by a crisis that originated
in the US yet is doing more damage to the periphery. Assistance is
needed to protect the financial systems of periphery countries,
including trade finance, something that will require large contingency
funds available at little notice for brief periods of time. Periphery
governments will also need long-term financing to enable them to
engage in counter-cyclical fiscal policies.

In addition, banking regulations need to be internationally
co-ordinated. Market regulations should be global as well. National
governments also need to co-ordinate their macroeconomic policies in
order to avoid wide currency swings and other disruption.

This is a condensed, almost shorthand account of what needs to be done
to turn the global economy around. It should give a sense of how
difficult a task it is.

The writer is chairman of Soros Fund Management and founder of the
Open Society Institute. These are extracts from an e-book update to
The New Paradigm for Financial Markets – The credit crisis of 2008 and
what it means (PublicAffairs Books, New York)

谁改变了金融游戏规则?

作者:乔治•索罗斯(George Soros)为英国《金融时报》撰稿 2009-02-04 选择字号: 大 中 小

过去,一旦金融体系濒临崩溃,政府当局就会赶来搭救,

防止其跌落悬崖。这正是我在2008年所期待的,却未能如愿。2008年9月15日星期一,在尚未做好充分准备的情况下,美国投行雷曼兄弟(Lehman
Brothers)获准破产。这是一宗改变整个行业面貌的事件,后果是灾难性的。

一开始,随着投资者寻求避险,信用违约互换(CDS)——一种规避企业债务违约的保险形式——价格暴涨。保险业巨头美国国际集团(AIG)当时持有大量CDS空头头寸,违约风险迫在眉睫。次日,时任美国财长汉克•保尔森(Hank
Paulson)不得不改变姿态,决定拯救美国国际集团。

不过,更糟糕的还在后面。雷曼是商业票据的主要做市商之一,还是这些短期债务的大型发行商。独立货币市场基金Reserve
Primary持有雷曼票据,因没有资金雄厚的机构可以求助,该基金不得不”跌破1美元”——停止按面值赎回其股票。这在储户当中引起了恐慌:到周四,货币市场基金的挤兑便达到高潮。

恐慌随后蔓延至股市。金融体系心跳骤停,不得不进行人工急救。

怎么能放任雷曼倒闭呢?责任明确在于金融当局,特别是美国财政部和美联储(Fed)。它们声称自己缺乏必要的法律权力,这不过是个蹩脚的借口。在紧急情况下,它们能够也应该采取一切必要措施,以预防金融体系崩溃。它们在其它场合都是这样做的。事实是,它们听任了这一切的发生。

从更深层次上讲,CDS在雷曼的终结中也发挥了关键作用。我的解释很有争议,三步论证都会将读者引入陌生的领域。

首先,在股市中做多或做空,存在风险回报率的不对称。(做多指的是持有一只股票,做空指的则是出售自己并不拥有的某只股票。)做多拥有无限上行潜力,而下行风险却是有限的。做空的情况恰好相反。不对称以下述方式表现出来:人们在多头头寸上亏损会降低其风险敞口,而在空头头寸上亏损会增加风险敞口。因此,人们对做多失误的容忍度,会高于做空失误。这种不对称阻碍了股票卖空交易。

其次,要了解CDS,认识到CDS市场为做空债券提供了一条便利途径。在这个市场上,风险回报的不对称性正好与股市相反。通过买入CDS合约来做空债券,风险很有限,利润潜力却是无限的;与之相反,出售CDS只能带来有限的收益,风险却几乎是无穷尽的。

这种不对称助长了对卖空的投机,反过来对基础债券施以下行压力。当人们预期走势会不利时,其负面影响可能会变得势不可挡,因为CDS通常按照权证而非期权进行定价,人们购买CDS不是因为预期债券最终会违约,而是因为预期CDS会在合约期限内升值。

任何套利都无法修正错误定价。这在美英两国国债中都能得到清晰的体现,两国国债的实际价格都远高于CDS所隐含的价格。这些不对称很难与有效市场假说相符——根据该假说,证券价格应准确反映出所有已知信息。

第三步是要认识到”反射性”(reflexivity)——即对金融工具错误定价,可能影响到市场价格本该反映的基本面。这种现象在金融机构中表现得最为明显:金融机构的运营能力基于信心和信任。这意味着压低这些机构股价的”空头袭击”(bear
raids)可以自我验证。这与有效市场假说是截然对立的。

将这三点综合起来,就可以得出结论:雷曼、美国国际集团及其它金融机构都是被空头袭击击垮的,其中,卖空股票和买入CDS彼此放大和增强。2007年”提价交易规则”(uptick
rule)(只有在股价上涨时才允许卖空股票,从而阻止空头袭击)的废除,使无限卖空成为可能。CDS市场为无限卖空债券提供了便利。二者构成了致命的组合。

这正是作为全球最成功保险公司之一的美国国际集团所未能理解的。它的业务是出售保险,在发现定价严重错误的风险时积极承保,相信将风险多样化可以减低风险。它希望最后能赚一大笔,却很快遭到了毁灭。

我的论证提出了一些有趣的问题。如果有关卖空股票的提价交易规则得以保留,但”裸卖空”(交易者没有事先借入股票)和CDS投机均被取缔,情况会怎样?雷曼或许会免于破产,但资产超级泡沫会怎样?人们只能猜测。我的猜测是,泡沫破灭的速度会更慢,后果也没有那么严重,但后续影响持续的时间会更长久。那样会更类似于日本的经历,而不是目前人们所看到的情形。

卖空交易的正确作用是什么?毫无疑问,它提高了市场的深度和连续性,增强了市场弹性,但它并非没有危险。由于空头袭击可以自我验证,它们应处于控制之下。假如有效市场假说有效,放任自流就存在先验理由。实际上,无论是提价交易规则,还是仅允许卖空事先借入的股票,都是有效的实用措施,即使没有任何明确的理论证明,这些措施也似乎很管用。

CDS呢?对此,我的观点比大多数人更为激进。流行观点是,CDS应在受监管的交易所进行交易。我则认为,CDS有毒,只能按处方使用。它们可以用来给实际债券保险,但——鉴于其不对称的特点——不能用来进行针对国家或企业进行投机。

然而,被证明有毒的合成金融工具不只是CDS。债务抵押债券(CDO)的切割和投资组合保险合约同样如此,这只是造成严重危害的两个例子,其中投资组合保险合约是1987年股灾的诱因。股票发行受到当局(诸如美国证券交易委员会(SEC))的严密监管,衍生品及其它合成工具的发行为何不用呢?上述反射性及不对称性的作用,应使人们抛弃有效市场假设,彻底反思监管机制。

雷曼兄弟破产对消费者及企业行为产生了与20世纪30年代银行破产同样的冲击效应,巴拉克•奥巴马(Barack
Obama)政府面临的问题甚至比富兰克林•罗斯福(Franklin D.
Roosevelt)当年遇到的更严重。1929年未清偿信贷余额占GDP的比例为160%,1932年升至260%;2008年则高达365%,而且必定会升到500%。这还没有考虑衍生品比比皆是的情况。20世纪30年代没有衍生产品,而现在这种产品使形势变得益加复杂。有利的方面是,我们经历过20世纪30年代,并且有约翰•梅纳德•凯恩斯(John
Maynard Keynes)的处方可以利用。

泡沫破裂导致可能达到灾难水平的信贷紧缩、资产清算、通缩以及财富缩水。在通缩环境下,累积债务的负担可能使银行业系统沉没,拖累经济陷入萧条。必须全力防止这种局面。

通过有序地创造货币抵消信贷紧缩、向银行系统注资,以及注销或减记累积债务,我们可以做到这一点。这要求采取激进的非常规政策措施。要实现最佳效果,应综合采取上述三项措施。

如果这些措施取得成功,信贷开始扩张,通缩压力将被通胀幽灵所取代,有关政府部门将必须消除经济中的过剩货币供应,速度要像注资时一样快。除非首先激发其反面,然后减轻不均衡,否则难以避免全球通缩和萧条并存的严重不均衡局面。

为防止美国经济陷入萧条,奥巴马必须采取激进的综合性政策措施。除了高瞻远瞩的财政刺激计划,还应包括整个银行系统的强制性资本结构调整,并彻底检修抵押贷款系统——降低抵押贷款成本,减少抵押品赎回权的丧失。

在抗击萧条和通缩的过程上,能源政策也可以发挥重要作用。美国消费者无法再充当全球经济的发动机。替代能源和有利于节能的发展可以充当新的发动机,但前提是常规燃料的价格必须保持在足够高的水平,从而使这些领域的投资变得合理。这要求将化石燃料的价格保持在一定水平之上。具体可以通过确定二氧化碳排放价格,征收石油进口关税等,以使国内石油价格维持在一定水平(比如说每桶70美元)之上。

最后,必须改革国际金融系统。当前系统提供的远不是一个公平的竞争场所,而是对控制着国际金融机构的国家有利,特别是美国,而损及外围国家的利益。外围国家受制于在华盛顿共识下形成的市场纪律,而美国却不受约束。

当前危机起源于美国,对周边国家的损害却更大,这表明了国际金融系统是如此不公平。必须协助保护外围国家的金融系统,包括贸易金融,这要求能迅速提供大笔短期应急资金。周边国家的政府还需要长期资金,以便实施反周期的财政政策。

此外,银行业监管需要国际协作。市场监管也应该是全球性的。各国政府还需在宏观经济政策层面进行协作,以避免汇率大幅波动和出现其它混乱状况。

本文概括简述了扭转全球经济形势需要做些什么,它应能让人明白这是一项多么艰难的任务。

本文作者是索罗斯基金管理公司(Soros Fund Management)董事长、开放社会协会(Open Society
Institute)创立者。本文选自《金融市场新范式》(The New Paradigm for Financial
Markets)电子书修订版(PublicAffairs Books, 纽约)

译者/陈云飞、岱嵩

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