This story is particularly relevant because it's about the Bank of England trying to maintain a peg in the face of changing market conditions. Many have treated Tether's peg (to the USD) as immutable or inviolate but it's subject to the same market forces as any other peg. A peg is only as strong as how much money you have to defend it.
But here we are as Crypto Andys are learning the hard way why the financial system is the way it is.
"A peg is only as strong as how much money you have to defend it."
Which is why, in the case of the Soros story, it was the Bundesbank that broke the BoE, not Soros.
The Bundesbank refused to issue DMs to buy up spare GBP liquidity. And that broke the peg.
For a peg to work the currency issuers on both side of the fence need to act in unison, since intervention can only cap, not collar. If both play their part then the peg will be unimpeachable.
Until the Federal Reserve decides to maintain stable coin pegs by buying them up in return for new dollars when the dollar strengthens against them, then the whole concept is doomed.
It's not the market that decides whether a peg survives. It's the currency issuer on the strengthening side.
> A peg is only as strong as how much money you have to defend it.
Emphasis on liquid money. You know, the reason why central banks started QE is that banks don't want to invest into long term assets and just keep their reserves at the central bank. QE effectively turned a fixed term asset like treasuries into a short term overnight asset that you can sell and buy instantly.
It has no relevance to tether. It's strategically trivial to peg 'paper USD' to USD by having full USD reserves and allowing redemption. Pegs between different national currencies has no such solution
The differences being for large states that it was/is a question of how much you want to spend defending something, rather than how much you have, unless you are under attack by another state. And, for a large state run by rule of law it's not a question of going to 0 as for stable coins, instead it's going down by 20% (worst case).
Indeed. A currency peg is effectively an import subsidy/export tax arrangement. If the balance of payments is sound, it's easy to maintain. Otherwise it isn't, as you will gradually run out of export tax to pay for the import subsidy.
The initial claim was that Tether was 100% backed. When it was revealed beyond reasonable doubt that these claims were false, Tether's proponents pivoted to claiming that the peg was defensible. Because the peg was defended for some time, these proponents gained a certain amount of credibility among the gullible.
Looking at the history of markets to try to understand the difference between pegs that can withstand the shifting tides of market sentiment vs those that cannot is a useful exercise. I am pleased to see this article on the HN front page.
Debts held by a company that has refused to be subject to a traditional audit. Only the credulous would have confidence that a high proportion of this debt is good.
If the wider "crypto community" has been so distrustful of Tether, why have they allowed it to become such a systemically important pillar of the whole market?
This has been discussed many times, but there is no responsibility on Soros part ; broadly speaking, he speculated that an event would happen, and it did, thus he benefited from it.
Soros opposed Russian hegemony in Ukraine (2015). Since then he has been the popular target of conspiracy theories. Some even go as far as to call him a Nazi supporter. It mirrors exactly what we see from Russian propaganda because it is exactly that.
How is he a boogeyman? He's already prolonged the pandemic by convincing the vaccine companies not to allow smaller biomedical companies (with markets in poorer countries) access to produce it because it makes more money for him. How is that not insidious?
It is kind of interesting how deeply involved his foundation is in German political "think tanks" as well. Recently a group of intellectuals published an open letter opposing delivery of heavy weapons to Ukraine. Shortly after a different group of intellectuals lead by two former Green-party politicians, that are now heading a think-tank, published an open letter in support of it. Guess who initially provided significant funding to their think tank: The open society foundation. The German public broadcaster regularly interviews experts on Ukraine. Yesterday they ran with the headline "Regime um Putin zunehmend faschistisch” - "Putin's regime is increasingly fascistic". The guy they interviewed was Stefan Meister, employed by dgap.org (Deutsche Gesellschaft für Auswärtige Politik - German Society for Foreign Policy), sounds benign, but they are known for financing luxury trips of >350 parliamentary aides to German weapons manufacturers. The Open Society Foundation is again a major donor: https://de.m.wikipedia.org/wiki/Deutsche_Gesellschaft_für_Au....
The little I've looked at this, the NGOs he's into have been more liberal than far-left. They haven't really been "woke". I mean, Soros himself is of an older generation. Whenever I've listened to him talk, he's just come across as a post-WW2 liberal.
"Woke" is on odd term. It doesn't seem to actually mean anything except whatever the person using it dislikes at that moment. Almost no one refers to themselves as "woke". It seems to be have been adopted by the hard right as a chameleon term of abuse that means anything they want it to mean.
It seems to resemble in use the term "political correctness", just even more so and snappier. It's very useful if you want to denigrate something without an actual discussion of why you're unhappy with it.
Do you mean critical race theory as defined and taught in colleges, on critical race theory as defined and feared among right-wing partisans? They are not the same thing.
I don't know enough about those other topics to ask similar questions, but my educated estimate is at least as much disparity between the origins and typical teaching of those topics compared with the politicized version. It really impedes practical communication on these topics when one side decides to run away with their own definition unmoored from consensual reality.
No, again, it’s pretty specific. The core teaching of CRT and gender theory is that it it’s more important what group you belong to than what you are as an individual.
This is completely incompatible with individual based rights that the western world grew on for the last 50-100-150 years. And by west I mean a broad amount of countries not just the US.
CRT’s core teaching is that “race” isn’t a meaningful biological distinction, i.e. that categorising people by skin colour is arbitrary as categorising by hair colour.
Furthermore, one of the main concepts it uses is intersectionality, which is that all of us belong to multiple categories, e.g. while I’m in a local majority for being white (of skin, and sadly now also a few hairs), I’m also bi, left handed (that used to be seen as sinister, and is literally the etymological origin of the term), and a few other things.
This is pretty much the opposite of what you’re saying it is. However, what you say it is, is what I think most opponents of CRT think it is.
“Gender theory”… well, I googled, and that seems to be a non-standard term for both (a) gender studies, and (b) the anti-gender movement. The latter appears to be a catch-all for various otherwise disconnected groups whose only commonality is their opposition to the former. And I have no idea which one of these (if either) you’re criticising.
At some point he formed an opinion that Hungarian society would be better off if vaguely political organisations had more printers and copiers. (An local organisation to oppose tearing down an old building counts as political in this context. Really anything to do with civil society.)
So he bought several thousand laser printers/copiers and gave them to ~everyone. Several of the thousands went to fairly nasty organisations.
Technically, that is not quite true. He sold $10 billion borrowed pound sterling that day, in collusion with others, which appears to have been the straw that broke the camel's back.
Sure had the pound sterling been sound, that would not have been enough. But it was at the time a lot of money, and it's unclear what would have happened had he not done it.
A lot of people lost a lot of money that day. Not just speculators or stock-traders, but many home-owners lost their homes, a lot of businesses defaulted and many people became unemployed as a consequence of what happened that day.
So, there's some motivated resentment against him.
It is true technically, and you get some points wrong :
- 10 billions is nothing for a currency.
- I don't think there has ever been proof of a collusion, if you have one I'm happy to read through it ; besides, some other people bought the currency, you don't sell to nobody ; had they be right in buying it and benefiting from a subsequent deflationary crisis, they still wouldn't be responsible for it, would they ?
- A currency weakening is actually good for asset prices (btw Soros bought UK stocks and shorted DE and FR stocks at the same time as part of this trade), in particular from in-debt people (most home-owners) ; the fact that some lost their homes have to do with the recession which caused the collapse of the currency in the first place, NOT Soros' trade. In fact, the consequent inflation actually helped the UK to recover after that.
- Besides, people losing their homes is always bad but it also makes for a good headline and it's always good to have a bad guy to point at, but pegging the currency meant spending all of the CB reserves for years and nobody (amongst those unfairly blaming Soros) seem to be questioning that, whereas it's actually the core issue at hand here.
This is what Soros himself said in an interview in New York Times, in 1992:
"Our total position by Black Wednesday had to be worth almost $10 billion. We planned to sell more than that. In fact, when Norman Lamont said just before the devaluation that he would borrow nearly $15 billion to defend sterling, we were amused because that was about how much we wanted to sell."
It seems to prove both collusion and that $10 billion was a lot of money for pound sterling at the time.
So I don't get from this quote, neither who colluded with Soros or how it proves collusion, nor why 10 or 15 billions would be a lot. Daily volume of
GBP was 161 billions in 2001 (source is statista).
British GDP in 1992 was $1.2 trillion. $10 billion was therefore roughly 1% of GDP. That's a damn lot of money for a government and likely way more than daily volume of traded GBP (or GBP used in trade, on an average day).
I think the fact he seems to suggest that "we" were trading more than their position ($15 billion vs. $10 billion) does suggest that there was another company or financier involved. May be my misreading, but then again, I don't believe that there is any real controversy in that this was discussed and coordinated between several trading firms.
Money supply isn't GDP (although there are relationships but that's beyond the scope of this discussion). The government isn't the central bank. And the UK was facing a recession making the peg really hard to maintain, that's about it.
I think Soros in this quote was "mocking" the 15 B part for how pathetic their effort was. You can't save (or destroy) a currency with that kind of money. I don't see any evidence of a coordination although it's clear that some other people were involved, just like a bunch of people took advantage of the GFC, or of oil going negative in 2020, but that doesn't mean those people were involved in provoking it or "coordinating". You have to understand that hedge funds compete against each other, we've seen that many times in history.
The currency was pegged to ECU and so government + central bank was purchasing pounds to maintain the exchange rate (the central bank was not free from government influence at the time.) To do that, they borrowed $15 billion to a war chest, which at the time was > 1% of UK GDP.
It was not enough to maintain the exchange rate and one of the reasons for that was the gigantic short-sale of pounds by Soros and friends.
To remain in the ERM the UK had to raise interest rates to alarming levels causing a deep and unnecessary recession. A lot of negative equity for home owners, unemployment rising back to 3 million. It's was unsustainable. Soros and the other speculators did us a favour ejecting us from it. The UK had about 15 years of low inflation growth after we that so Soros deserved a medal.
the irony is by breaking the UK out of the ERM: Soros enabled brexit
if the UK had stayed in the ERM it would have joined the euro and exiting would have been impossible
Soros is very, very much against brexit, to such an extent he funded numerous remain campaigns and continued to fund campaigns dedicated to overturning the result (Trump style)
Actually impossible, or just really bad for everyone’s economies? Because every time I saw the suggestion that Brexit would be bad for the British economy (or indeed anything British), I saw someone dismiss the suggestion as “project fear”, while any suggestion it might be in any way bad for anyone else was met with the response that this was a reason the UK “would get a good deal”.
Sometimes I even witnessed both of these responses from the same person in successive sentences in contexts where it would be illogical for both to be true.
> Sometimes I even witnessed both of these responses from the same person in successive sentences in contexts where it would be illogical for both to be true.
to be blunt: this is your misunderstanding
fundamentally leaving the currency/monetary union and leaving the economic/political union are completely different things, so obviously they would have different outcomes
Greece was considering the former, the UK carried out the latter
the latter (brexit) is at worst is predicted to do some minor damage to growth over a long period of time, which your average person won't even notice
ignoring the practical problems of re-introducing a currency (eg. prevent people hoarding physical euros), even the suggestion that leaving the euro is going to happen would immediately trigger a massive exodus of capital, and at the point it happens you have a massive devaluation that immediately wipes out the savings accounts of everyone in the country as the speculators pile in
and then inflation goes crazy (making today look harmless)
as the Greeks discovered: it is politically impossible, especially when the EU's position is that "the Euro and the EU are linked: leaving one means leaving the other", which would have triggered the situation above in a UK with that adopted the euro
Ironically, you seem to have misunderstood me, because:
> fundamentally leaving the currency/monetary union and leaving the economic/political union are completely different things, so obviously they would have different outcomes
Is something I’m aware of and I wasn’t contradicting.
I was saying potential negative consequences specifically of Brexit were near-simultaneously used by the same person both were not going to happen at all and yet simultaneously that they were a reason the EU would give the UK a good deal.
In one case, the pause between these two claims being made by the same person was literally only just long enough for me to say “no” without actually justifying why I was disagreeing with him. So please, don’t just say I’m misunderstanding.
And that makes me think that in a parallel world where the UK has been in the Euro but still voted to leave the EU, the government may well have dismissed any and all concerns about the economic consequences, left, and then blamed all the harm that did happen on “remoaners” and “saboteurs” and “the jealous EU”, just like they did for the much milder difficulties they faced in the real world.
> it is politically impossible, especially when the EU's position is that "the Euro and the EU are linked: leaving one means leaving the other"
First, “Politically impossible” doesn’t seem to be in the vocabulary of current UK politicians right now.
Second, I get the impression many of the louder Leave campaigners hated both the currency and the EU, so I don’t actually see how your claims are evidence makes it more politically channeling in the UK than Brexit was all by itself. Economically more challenging, sure (though you’ve still not convinced me it would have been impossible). Politically more challenging? I don’t see it.
not quite sure how some argument you had with some random dude is particularly relevant but hey
re: the pertinent points:
brexit was politically easy[1] as the core of the conservative party has wanted it for 20 years, as have the electorate
and economically it was a non-event
leaving the euro would be neither (as previously described)
[1]: other than during the period May screwed up by losing her majority with the fixed terms parliament act that prevented her calling another election (but the subsequent election fixed that, and now that act has been rescinded, so this will never be repeated)
I'm not sure about 'Q', but he comes up a lot because he is where the 'far left' side of the democrats get most of their funding. He dumps large sums of money into local elections across the US to elect officials who will be soft on crime.
edit - this is why left wing groups try to shut down all discussion of him by screaming antisemitism, and why right wing groups are convinced he is the root of all evil.
Not "Trump style". I have not heard any claim (Soros-associated or otherwise) that the Brexit referendum was "stolen". Plenty of accusations of dishonesty and dodgy campaign finance on the Leave side, but the vote tally isn't really contested.
there were several very well funded attempts in overturning the result using the legal system, in the same way Trump did
and using the media in exactly the same way Trump did
the phrases were different ("Russian interference", "non-binding referendum", "people didn't understand what they were voting for"), but the intended outcome was the same: overturning a legitimate result conducted fairly
and this went on for years
the only difference is the people trying to overturn the referendum result were considered "the good guys", so it's acceptable
whereas for Trump, it's unacceptable because he's the bad guy
> not to mention using the media in exactly the same way Trump did
All political campaigns try to get their message across through a variety of media. Can you be specific?
The remainer objections you quote are at least arguable (some more so than others). Many remainers wanted the result overturned through legal or political mechanisms (typically, a second referendum). But Trump pressured officials to modify vote tallies and literally told followers the election was "stolen". There is a distinction.
…and many normal people have suffered so bankers could have their fun. This is so evil on so many levels, that few people in suits can have such an impact of whole country finances. We all believe in a dream that it’s competition and market prices that drive economy, and then this happens.
I don't think the Bank of England was having fun, they were under political pressure.
> This is so evil on so many levels, that few people in suits can have such an impact of whole country finances.
Absolutely, it's immoral for central banks to manipulate currency markets. It only strengthens the argument for central banks to have defined mandates and be free from political interference.
> We all believe in a dream that it’s competition and market prices that drive economy, and then this happens.
Well, the BoE tried to enforce its will on the market and predictably failed. Once the charade ended, inflation came down over the next years the British economy recovered from the recession it was in before the event.
Wait, you don't actually blame Soros for this, do you?
I think Soros did us a service. He also doesn't seem to be too terrible a person in terms of what has happened to the money he made (legitimately IMO) either.
Soros was a disciple of philosopher Karl Popper, one of the 20th century's most influential philosophers of science. Popper was a big influence on empirical falsification. Popper wrote the book The Open Society and Its Enemies that has greatly influenced political ideals both in the left and the right wing in western democracies.
In 2009 Financial Times published an essay by George Soros, where he describes his general philosophical theory "reflexivity", that he applies to life and investing. Reflexivity is an extension of Poppers ideas and are very well grounded.
They explain very well the reasoning that led to breaking of the Bank of England.
This headline is needlessly aggressive. A massive bet one way or the other on a currency is all that was done and he was right. There's no "breaking" here.
Since open speculation can not be considered manipulation under the legal framework today I suppose you ask about the Bank's role in the problems created for itself. So... Isn't the entire point of Bank of England and other central banks to manipulate the market, so why would they be prosecuted?
What would put him at risk in todays legal climate is his own choice to short sell the GBO, but the coordination with others to make transactions that would cause it to drop. Then you're not making investment decisions based on your belief that the value of the GBP would decrease, but you're asking others to make specific transactions with the purpose of changing the GBP exchange rate so you could benefit from it.
I'm not appointing any responsibility to either side nor am I qualified to do so. I'm just sharing the viewpoint that Soros apparently convinced other investors in private to make certain transactions that affect his own (public and legal) trade, and that that part of his move carries a risk of being labeled market manipulation.
I don't understand your argument here at all unfortunately. Why would private citizens' investment advice be illegal? The entire Reddit community WallStreetBets (not claiming they have sound investment advice, because they don't) should be in jail then, because they effectively say "please invest like we do, because we will both profit".
There is lots of investments based not on the belief of somethings intrinsic value, but on the belief on other investors belief of somethings value. In fact, I would say that the majority of trades happen due to "making investment decisions based on your belief that the value [of X would Y]" as you say. So trades at discrepancies on value beliefs. If this is a good thing or not is debatable, but it is the reality and how would that be related to market manipulation.
I get the distinct feeling that you are trying to say something between the lines but it is hard to know. Can you elaborate on your points?
Rich people and politicians get insider trading information all the time. It may be hard to prove (or effectively impossible to investigate in the case of US politicians due to Obama), but such speculations usually don't fall out of the sky.
It was widely believed at the time that Sterling had been pegged at an unsustainably high value. Based on this belief Soros and the other speculators put large amounts of money on Sterling depreciating, which happened and they earned massive profits.
How did they add to the banks difficulties? My understanding is the BOL tried to maintain the exchange rate. Speculators bet they couldn't do it.
If the speculators had never made their bets the exchange rate still would have collapsed because foreign banks were selling their GBP far faster than the BOL could buy it (or had the capacity to buy).
It was Druckenmiller idea and analysis under Soros fund and management ; also Soros encouraged sizing the bet up, he could have done the opposite and the trade wouldn't be as discussed as it has been, I guess. So yeah, some credit should go to Druckenmiller, I agree, but it makes sense to quote Soros name.
For a financial novice, it's unclear what Soros actually did. It would be useful to explain what "shorting the pound sterling" actually means and the mechanics by which that places pressure on the Bank of England.
At the time the Bank of England had committed itself to maintaining the value of Sterling at a rate that was widely considered to be too high.
Soros and a bunch of other large funds and banks decided to take on a coordinated short position. So they...
- borrowed very large sums of Sterling
- exchanged the Sterling for Dollars (or maybe DeutschMarks?)
- waited for Sterling to depreciate
- Sterling now being much cheaper they then used the Dollars to buy back the original loan amount of Sterling and have plenty of Dollars left over
- repaid the loans
The large amounts of Sterling that they were selling would have increased the downward pressure on the price of Sterling, forcing the Bank of England to sell foreign currency reserves to keep the value within the narrow limits it had committed to as part of the ERM.
Due to the open nature of the market other currency speculators would have been aware that all this was going on, and they too started shorting Sterling, further increasing the pressure and forcing the BoE to sell more reserves.
At some stage it became apparent that this was unsustainable and Britain exited the ERM and devalued the currency, creating massive profits for the speculators.
I've been thinking of this event as soon as I saw the stablecoins collapsing. I happened to be in London visiting friends the week the pound lost the peg and even though I'm not in the biz and in fact back then didn't really pay attention to the financial markets at all this was quite exciting.
Soros was a disciple of philosopher Karl Popper, one of the 20th century's most influential philosophers of science. Popper was a big influence on empirical falsification. Popper wrote the book The Open Society and Its Enemies that has greatly influenced political ideals both in the left and the right wing in western democracies.
In 2009 Financial Times published an essay by George Soros, where he describes his general philosophical theory "reflexivity", that he applies to life and investing. Reflexivity is an extension of Poppers ideas and are very well grounded.
This essay explains very well the reasoning that eventually led to breaking the Bank of England as well.
No. And some currency are particularly weak right now to this kind of attacks[0], like the CHF, as well as the colonial CFA.
The theoric ideas to resist this for a country is either:
to let your currency fluctuate freely, as the free market theory wants. But this is basically selling your small and medium business production to companies that can do faster arbitrage than them. I know this is the liberal way, but when you think about it, this is not viable if you have any industry and free trade agreements with a countries with richer banks/companies. This would be economic suicide for Mexico if you want an example.
Other way to resist this is to have a lot of dollar/eu bonds and sell them. If you have more bonds than the attacker money, you "win" (the attacker doesn't loose much either). I'm pretty sure some money can be capted during an attack for HFT firms, but don't quote me on that, and i'd like confirmation from someone actually working with HFT systems here
And the last way is having one of the strongest currency in the world. Dollar, Euro, Yuan basically. Pound and Yen "waste" their respective central bank millions each year
https://news.ycombinator.com/item?id=30720876 (151 points/55 days ago/175 comments)