Was G. Soros responsible for financial collapse in Thailand?

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Soros' work in absorbing Eastern Europe into the Empire is well-documented.

The court orders the lead attorney for the prosecution not to bring up allegations of Nazi collaboration in the present proceedings. He was a minor in Hungary then, and what he is alleged to have done there will have no bearing on the decision in the present case.

The court further orders the lead attorney for the prosecution never to mix up "who" and "whom" again.




The court orders the lead attorney for the prosecution to clean his diaper, and to furnish credible evidence that George Soros in fact caused (whether deliberately or inadvertently) Thailand to collapse financially. And the court includes within the deifnition of "credible evidence" sources that contain no statements intended to be either left-baiting or jew-baiting.

Soros' work in absorbing Eastern Europe into the Empire is well-documented.

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The wolves, an amorphous group that includes secretive hedge funds as well as groups within banks with names as familiar as Citibank, began tracking the region in earnest in 1994. Economist Paul Krugman piqued speculator interest when he published a prescient article in Foreign Affairs titled "The Myth of Asia's Miracle," in which he argued that the Asian boom owed more to hard work and a shift from farms to industry than it did to investments in productivity. As a speculator put it, "We read this and thought, 'Well, well--Asian growth may have a limit.'"

Attention quickly focused on Thailand, which was being buffeted by a series of external and internal events. China devalued its currency 33% in 1994, allowing it to underprice neighboring economies on low-cost goods. Thai exports further eroded as the Japanese yen weakened, undercutting any Thai advantage in high-value products. With the baht tied to the strengthening U.S. dollar, the kingdom had little room to maneuver. Moreover, despite its large population, Thailand had a relatively small pool of educated, healthy workers, and wage inflation further undermined Thailand's competitiveness with surrounding countries.

Even as exports diminished, the flood of foreign investment continued. On the surface Thailand still looked good, with its open markets and a fiscal surplus, but underneath, the balance sheet was rotting. Foreign reserves remained steady at about $38 billion, but the amount of money Thailand owed to foreigners skyrocketed to $106 billion. By 1996 cash outflow exceeded inflow by 8% of the nation's gross domestic product, and the net foreign assets owned by the Thai government and commercial banks shriveled as the nation covered the outflow with borrowing. While in earlier years most of these loans had gone to build industrial capacity, now the money poured into real estate speculation, the stock market and finance companies, supporting an unproductive boom as consumers bought Mercedes sedans and cellular telephones. The Thai economy had become one big bulging bubble, and late last year the wolves took notice.

Currency speculators love a bubble economy because bubbles always pop. The billion-dollar question is When? Currencies, like the cartoon character Wile E. Coyote, can defy gravity long after they should be plunging to earth. By December 1996, speculators realized that Thailand's policymakers were trapped and bewildered. They had to keep interest rates high to dampen wage inflation and attract the foreign money to which the kingdom had become addicted. On the other hand, the high rates were badly hurting the debt-burdened economy.

One way out was to devalue the baht. This would hurt those who owed money in dollars. A confidential analysis done by a group of speculators estimated that a pre-emptive devaluation would cost the treasury about $10 billion of its $38 billion in reserves, which it would quickly recoup because of the credibility it would earn in the international marketplace. (It should be noted, however, that Indonesia did not oppose an attack on its currency, and its markets still got hammered mercilessly.)

The speculators guessed that the Thais would rather fight than devalue. Devaluation would hurt the elite, who would watch principal and interest payments soar for their dollar-denominated loans. The alternative to devaluation was a further hike in interest rates, but that would produce a flood of bankruptcies and further weaken a banking system that was already in trouble because lax government supervisors had allowed their banker cronies to ignore capital requirements.

Sensing that their prey had been cornered by their own venality, the wolves began to circle in early 1997. The amoral pursuit of profit was about to punish the sins of cronyism and corruption. Drawing from multibillion-dollar war chests, hedge-fund operators such as George Soros and Julian Robertson intensified their attack on the baht. One way the speculators bet against the currency was by entering into contracts with dealers who would give dollars in return for an agreement to repay a specific amount of bahts some months in the future. If the baht rose in value, the seller of the contract made money; but if it fell, the buyer profited because he could repay the contract with cheaper bahts. Demand for such contracts started to drive up interest rates, and the Bank of Thailand began issuing many of these so-called forward contracts itself.

This action turned out to be a fatal misstep that placed in the hands of speculators the perfect weapon with which to attack the currency. "It's as though an unarmed gunslinger walked into town and the sheriff handed him a pistol," remarked a beneficiary of the central bank's unintended largesse. Now speculators had access to an estimated $15 billion in forward contracts issued in February and March that they would not have to cover for as much as a year. An estimated 80% to 90% of these forward contracts ended up in the hands of speculators. By May the central bank realized it was contributing to the baht's undoing and abruptly stopped issuing any more forward contracts.

Sensing blood, traders began moving in for the kill and in mid-May flooded the market with orders to sell bahts. But the government began playing hardball. The central bank invoked a mutual-assistance agreement with monetary authorities in Singapore, Hong Kong and Malaysia and spent more than $10 billion in just a few days buying bahts and selling dollars.

The Bank of Thailand also squeezed the speculators by sharply raising interest rates, which restricted access to bahts that traders needed to cover short-term contracts. Holders of long-term forward contracts, however, knew the government could not pursue this painful course for long, and they emerged unscathed. "When governments resort to these tactics, you know the game is over," said a veteran of many currency battles. Indeed, the government tried ever more desperate measures. Finance officials allegedly used threats and bribes to try to get banks to divulge who owned which contracts, so they could exert strategic pressure. The Interior Minister, Sanoh Thienthong, threatened prosecution of newspapers that spread information damaging to the economy, and the special-branch police were authorized to track down callers to talk-radio shows who voiced the wrong opinions.

These antidemocratic actions turned out to be very expensive. They only served to convince foreign investors that the end was near. But what end would it be? Thai officials were so enraged by the attack that many speculators feared the government would default on its obligations, bringing down the speculators along with the Thai economy. California banks began taking out ads in Bangkok newspapers offering help for those who wanted to get money out of Thailand. Importers settled accounts early in anticipation of the fall of the baht, while exporters hoarded dollars offshore. Both reactions greatly exacerbated the drain of dollars. The government also tried to hide the extent of the damage, estimating that the loss of reserves in May was a moderate $2 billion. The speculators, relying on their own analysis and what they could glean from sources within the central bank, were estimating that the real number was $5 billion.

The question by then was not whether but when there would be a devaluation or default. Many speculators bet that the government would hold out until July so that companies could push losses into the second half of the year. "It's the old Asian idea that if you don't say it, it isn't true," remarked a player, "as if the market couldn't figure it out." And on July 2, the baht was devalued, setting off a chain reaction throughout the region's currency markets and then, last week, around the world's stock exchanges. While no hard number is available, the wolves who started all this turmoil were very well fed, probably with profits in excess of $3 billion.

Soros' part in the economic crisis

January 30, 2001

Thanong Khanthong investigates George Soros' involvement in the 1997 baht crisis.

In August 1997, a month after the baht collapsed, leading to the Asian crisis, a Thai diplomat attached to the United Nations bumped into George Soros at a party in New York. They talked about the ailing Thai economy - and the sick baht.

Soros told the diplomat that it should have been apparent to any student of the Thai economy for six or seven months that the Thai authorities would inevitably have to devalue the baht.

By pegging the baht to the dollar, Thai authorities encouraged banks and big corporates to borrow US dollars unhedged. The dollar was converted into baht for domestic lending, leading to a credit boom and an economic bubble. With an economic slowdown in Japan and a rising US dollar, trade and capital accounts in Thailand had deteriorated. The baht became unstable, eventually leading to the economic bubble bursting.

Soros admitted to speculating on the baht in forward markets, losing money in the first round but taking profits later. Soros would not reveal the size of his speculation or the profit he made.

But a former Bank of Thailand official overheard talk in the financial markets that the Quantum Fund used some US$700 million (Bt29.7 billion) from its total war chest of $12 billion against the baht. Soros' top aides were Stan Druckenmiller and Rodney Jones.

But the central bank's real enemy No 1 during the attacks was Julian Robertson and his Tiger Fund, which bet $3 billion against the baht.

His colleagues were Bruce Kovner and Lee Cooperman. Other operations and dealers speculating in the market included Goldman Sachs, JP Morgan, Citibank, and BZW. Bandid Nijatha, the then director of the Bank of Thailand's Banking Department, also identified Morgan Stanley as getting involved.

During the conversation with the Thai diplomat, Soros expressed his sympathy for the state of Thailand's economy and the hardship being faced by its people. For this reason, he said he had refrained from making any public statements over his speculation.

"But I would not have been able to speculate [against the baht] if the Thai economy or its financial system were not in such bad shape," he said.

Soros argued that hedge funds did not start the crisis, although they played a role in the turmoil.

"If a trend is unsustainable, it is surely better if it is reversed sooner rather than later," he said in his latest book, Open Society: Reforming Global Capitalism.

"For instance, by selling the Thai baht short in January 1997, the Quantum Fund managed by my investment company sent a market signal that the baht may be overvalued. Had the authorities responded to the depletion of their reserves, the adjustment would have occurred sooner and been less painful. But the authorities allowed their reserves to run down; the break, when it came, was catastrophic."

The Thai authorities fiercely defended the baht for fears that a devaluation would destroy the balance sheets of the country's banks and corporates. Thailand's external debt at that time stood at $100 billion. Every Bt1 devaluation would add Bt100 billion to that debt.

The central bank fought the currency war until they had spent all the country's foreign exchange reserves - more than $30 billion in six months. The battle climaxed in mid-May 1997 when on the 14th speculators alone bet $10 billion against the baht, trying to destroy the currency peg system and devalue it.

The following day Thai authorities played hardball by cutting off the links between offshore and onshore baht markets. Speculators got burnt because they could not get hold onto the baht to ease their positions. Baht interest rates in the offshore market shot up 3,000 per cent in one day.

But Soros' fund would not be affected significantly since it had sold the baht short in the forward market, with a maturity of six months and one year.

Shortly after the creation of a two-tier currency system, Druckenmiller came out to admit that his fund's baht speculation backfired.

"They [central bank officials] kicked our butts and they've taken a lot of profit we might have had," he told the International Herald Tribune then. "They did a masterful job of squeezing us out."

Druckenmiller, who must have profited handsomely from his foray into the Asia turmoil, became one of America's major philanthropists in 1997, donating $36 million to Bowdon College in Maine, his alma mater.

But the name of Soros, who gave Russia $530 million and participated in other philanthropist projects during that time, would not visit Thailand until June 23, 1997. The Nation broke the story about his speculative activities on its front page.

"The Bank of Thailand would like to turn the tables on him - and hurt him with the creation of the two-tier currency system," it reported.

But inside the central bank's headquarters, the officials were very nervous, knowing that they were inching closer to the abyss after they had spent all the foreign exchange reserves defending the baht. But their poker faces held firm.

Party politics prevented truce in baht war with Soros

January 31, 2001

Thanong Khanthong describes an attempt to negotiate a ceasefire with George Soros at the height of the battle over the baht in 1997. Second of a two-part series.

In late May 1997, Rerngchai Marakanond, then the governor of the Bank of Thailand, and his deputy, Chaiyawat Wibulswasdi, paid a visit to Amnuay Viravan, then finance minister, to brief him on the latest situation concerning financial institutions and foreign-exchange reserves.

Amnuay told them he had met Malaysian Prime Minister Mahathir Mohamad and his finance minister Anwar Ibrahim. The Malaysian leaders told Amnuay about their experience in dealing with financier George Soros, who had attacked the ringgit.

With the strong support of the prime minister, Anwar was able to reach a deal with Soros, who sold dollars back to the Malaysia in return for getting ringgit to settle his positions.

Anwar advised Amnuay that it would be better to seek a private-sector representative to negotiate with Soros and other hedge fund managers, so that there would be no obligations until a final deal was cut.

At the time, the Thai central bank had locked horns with hedge fund managers after the Thai authorities played hardball by closing down the foreign-exchange swap markets.

The move was aimed at preventing hedge fund managers or speculators from having baht to unwind their positions. If the hedge funds had sold the baht short, they would need to borrow the baht to deliver to their counterparts.

Rerngchai went back to consider the ceasefire. He talked it over with Amnuay again and agreed to approach Olarn Chaipravat, then the president of Siam Commercial Bank, to ask him to become the emissary.

The strategy was that Olarn would head the negotiating team, which could offer Soros the baht at Bt27 to the dollar so that the international financier could unwind his position and agree, on gentlemen's terms, not to turn around and attack the baht again. Soros' cost in attacking the baht was slightly higher than Bt26.

Soros was also making contacts for a ceasefire deal through JP Morgan.

He was losing money on his short-term positions, which were not covered, but subsequently would make money on his medium-term positions. In general he was not in big trouble, unlike other speculators who had attacked the baht in the spot market and were trapped in the guillotine of the two-tier currency system. (The two-tier system made it impossible for speculators to attack the baht from offshore.)

Soros' position was largely medium-term, which would be matured in six months. That was the big chunk of the attack. Rerngchai realised that come August, the Bank of Thailand would not have the dollars on hand to deliver to the speculators, as obligated by the currency swaps.

But Soros also realised that the carry-over, or interest, cost of his baht positions would not be worthwhile due to the abnormally high interest rates on the baht.

Rerngchai reached a broad agreement with his aides that the Bank of Thailand would settle only half of its US$14.8 billion in offshore swap positions, which confronted the speculators face to face.

Paiboon Kittisrikangwarn, then the central bank's chief trader, received several phone calls from speculators through local banks asking for a truce. But his reaction was stern. He would not meet the speculators, but he agreed to cut a deal at an exchange rate of Bt23 to the dollar or the forward rate of 9 per cent.

"Take it or leave it," he said.

The speculators wanted Bt26, meaning that the deal would have left them with a loss of Bt3 for every dollar. The speculators were fuming with rage.

It was evident that strong political backup was necessary if this mission was to be successful. When Chavalit Yongchaiyudh, then prime minister, was informed about this plan to talk it out with Soros, Chavalit agreed.

His tone was conciliatory. "It's alright. Let's do it. I am ready to help," he said.

But the political situation at that time was highly precarious. Engaging in this kind of clandestine operation required a stable administration; otherwise, the slightest jab by the opposition could bring down the government. In the meantime, rumours of ceasefire negotiations with Soros quickly became widespread.

Euromoney wrote in its September 1997 issue: "Undeterred by the freeze, those who needed baht offshore to cover short positions became more inventive. One particular exposed speculator - local gossip-mongers reckon it was George Soros - went cap in hand to the central bank to ask for baht and offered to play the bank's game in return by easing off hammering the currency. The Bank of Thailand declined the offer."

In the end, negotiations with Soros would never take place because the finance minister lacked the political back up. Amnuay was about to fall victim to coalition politics, engineered by the Chat Pattana, which wanted to take over economic management from the New Aspiration Party.

In early June Arminio Fraga, a former deputy governor of the central bank of Brazil, who worked for Soros, contacted the Bank of Thailand to cut a deal. Fraga, who would be appointed his country's central bank governor a year later to save the Brazilian real, was then the managing director of Soros Fund Management.

Fraga, who frequently visited Bangkok to investigate the business climate, came over to talk about the possibility of ending the baht war.

But after Amnuay's resignation in late June, he sensed victory. When one of the central bank officials tried to call him to reach a settlement, he said: "I think we can wait a little bit more".

With that sentence ringing in his ear, Rerngchai realised that the Bank of Thailand was about to lose the currency war.

I find it kind of funny that demagogic personalities on the far right (Inuyasha) and far left (xenon13) both overestimate the power of individual wealthy elites into the realm of evil demigods / demons. Making vast amounts of money by speculating on misery-inducing monetary collapses IS distasteful IMO. But saying that any one individual can deliberately create such a scare all on their own is just hogwash. Even if collective mass sell-offs of a currency by speculators can make a collapse worse than it would have otherwise been (in the short term at least), there still has to be certain preconditions for it to even happen.

Which kind of sides InuYasha with the palestinians, fun?

There are numerous instances when one man is the trigger for some world changing event. World War I might never have happened if 1 man hadn't been assassinated. World War II might never have happened if Adolf Hitler had been killed in World War I. The Soviet Union might not have collapsed so rapidly and with such lack of violence if it had not been for Ronald Reagan. I don't think I'm overestimating anything, I think based on history you are underestimating what one individual can cause massive changes even on the global scale for good or ill.

And that has no bearing on my actual argument. Soros did not actively "cause" any monetary collapse. The conditions already existed before speculators decided to seize on them. The whole scheme wouldn't work if there wasn't a bubble in the first place. I would judge Mr. Soros' activities as morally distasteful, but he alone didn't cause any collapse.

Maybe not for some of his earlier ones, but as he gained money and with it power, it could easily be argued that he set some of the countries up for their economic collapses. Billions of dollars when chump change to someone can have a lot of power to affect small countries and even cause a financial collapse in those countries, if you have control of major media outlets, then that always helps too.

It's funny how the conservatives position is usually that one should be free do whatever the hell they want with their own money, as long as everything is 100% contractual and there isn't any fraud or threat of physical force. With the notion of absolute property rights there is nothing wrong with using your wealth to strong-arm governments. Why suddenly the change of heart? Is it that it's only wrong when a liberal does it? It's okay when wealthy conservatives throw their weight around and buy the entire political system? But it's not okay when unions or liberals do the same.

Using your money to invest and make money is okay in a Conservative's view; using it to maliciously destroy thousands of lives is something totally different, and profitting off of causing hardship of others is even more heinous.

But causing hardship in order to give away tax breaks is okay?

I'd also point out that he didn't "maliciously destroy thousands of lives". That's called slander.