WASHINGTON, Oct 12 (Reuters) - Billionaire investor George Soros predicted on Sunday that the financial crisis would mean the end of a U.S.-led market system that has dominated the global economy with debt and deregulation since the 1980s.
“Globalization, America as the center of the globalized financial markets, was sucking up the savings of the world,” Soros said in a CNN interview.
“This is now over. The game is out. It does mean a very serious adjustment for America,” added Soros, a staunch backer of the Democratic Party.
As world leaders rushed to help banks weather the crisis that has sent stocks into steep decline, Soros blamed the turmoil on the faith in market forces that began under President Ronald Reagan and British Prime Minister Margaret Thatcher a generation ago.
The notion that markets are self-correcting led to a massive expansion of debt financing that culminated in the sub-prime mortgages that epitomized the easy-money mentality at the root of the disaster, he said.
“This belief became the dominant creed. And this, then, led to the globalization of markets, the deregulation of markets and the increased use of leverage and all the financial engineering,” Soros said.
“This whole enormous construct is built on false conceptions,” he added. “You can go a very long way. But in the end, reality rears its ugly head and that’s what happened now.”
Jeffrey Sachs, special adviser to U.N. Secretary-General Ban Ki-moon and director of the Earth Institute at New York’s Columbia University, appeared to agree with Soros.
“The age of Reaganism is over,” Sachs said in a separate CNN interview. “The no-regulation, low-taxes (philosophy) has broken the back of our economy. We now have to get serious about reconstructing normal government that pays its way and a normal financial sector that’s properly regulated.”
Treasury Secretary Henry Paulson’s embrace of the same “market fundamentalist ideology” has made the Bush administration slow to respond to the crisis, said Soros, who blamed Paulson for not saving the Wall Street firm Lehman Brothers from bankruptcy.
“That’s what actually kind of unleashed the current phase of meltdown,” he said.
Soros said U.S. authorities could effectively address the crisis by recapitalizing banks, first with private money, and restructuring home loans to minimize foreclosures. (Additional reporting by David Lawder, Editing by Chizu Nomiyama)