Case Study: George Soros

The world's undisputed king of applying this type of muscle is George Soros. The August 23, 1993 cover story of Business Week entitled "The Man Who Moves Markets" paints the picture of an investor whose manipulation of the press is matched only his ability to manipulate his financial empire. By far, Soros' greatest gains, however, have been destabilizing currencies on the global market. Time and time again, when a nation is in a monetary crisis, Soros is there to give the currency the last nudge, and then profit as it plummets. He bet against Asian currencies in 1997 and the peso in 1994. Perhaps his most brash move was taking on the Bank of England in September of 1992.

England was in a precarious position in 1992. It had an agreement with other European nations to maintain its currency within certain bounds relative to the German mark under the ERM- Exchange Rate Mechanism- system. Economic troubles had reduced the true value of the pound, but still it was held at a rate of roughly three marks to the pound. Increasingly, England was being pressured to devalue the pound, despite treaties to the contrary. But when would they take an action so contrary to national pride? On Wednesday, September 16, Soros leveraged the entire $1 billion value of his fund, and was able to take a $10 billion position against the pound. The $10 billion bet against them was the final blow, causing the government to announce a devaluation. All told, Soros made $2 billion in profits on the trade, tripling the value of his fund, at the expense of the British government. Without a global network and precise timing to rely on, Soros could never have pulled such an extreme trade. The lesson is not to stop the development of global networks or inhibit technology growth, but to be aware of the new opportunities available to the most aggressive investors. Such assaults are clearly not in the best interests of the nations involved (Asia is still recovering from its currency crisis), and some sort of world leadership is needed to prevent individuals from destabilizing governments for their own profit.