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US-Hungarian businessman George Soros gives a TV interview during the United Nations Climate Change Conference in Copenhagen on December 10, 2009. (AXEL SCHMIDT)
US-Hungarian businessman George Soros gives a TV interview during the United Nations Climate Change Conference in Copenhagen on December 10, 2009. (AXEL SCHMIDT)

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George Soros sees fall of financial system 'as we know it' Add to ...

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Soros sees Act II

Renowned investor George Soros says Europe's financial troubles means the world has "just entered Act II" of the financial crisis. "The collapse of the financial system as we know it is real, and the crisis is far from over," Mr. Soros told a conference in Vienna. "Indeed, we have just entered Act II of the drama, when financial markets started losing confidence in the credibility of sovereign debt. Greece and the euro have taken center stage, but the effects are liable to be felt worldwide."

Among his other comments:

"We find ourselves in a situation eerily reminiscent of the 1930s. Keynes has taught us budget deficits are essential for counter-cyclical policies, yet many governments have to reduce them under pressure from financial markets. This is liable to push the global economy into a double-dip."

"The simplest case of a purely financial bubble can be found in real estate. The trend that precipitates it is the availability of credit; the misconception that continues to recur in various forms is that the value of the collateral is independent of the availability of credit."

"Credit-default swaps (CDS) are particularly dangerous. They allow people to buy insurance on the survival of a company or a country while handing them a license to kill. CDS ought to be available to buyers only to the extent that they have a legitimate insurable interest." Read the full text of the speech in DealBook by The New York Times


Markets, dollar rally

The markets didn't necessarily agree with Mr. Soros today, though investors have certainly had bouts of fear related to Europe's debt crisis. Today, global markets rallied on fresh signs that the economic recovery continues apace. Numbers from the United States, Japan, China and Australia all pointed to a rebounding economy. In the U.S., new claims for jobless benefits dipped, though still showing a labour market in crisis, while Chinese trade numbers showed the world's economic engine is not showing signs of slowing. Japan's freshest reading of economic growth, meanwhile, showed GDP expanded at a 5-per-cent annualized pace in the first quarter.

As expected, the Bank of England and the European Central Bank held interest rates steady.

"The last trading session BWC (Before World Cup) was a humdinger though, with risk most definitely on across the board," said David Watt, senior fixed income and currency strategist at RBC Dominion Securities in Toronto. "Concern about the EU periphery faded, Spain's stocks surged (aided by solid demand for Spain's 3-year bond issue), with the rest of Europe in hot pursuit. N.A. markets started with a lag, but put in a top effort to catch up ... After risk sentiment had been held hostage by fear, growth concerns and the risk of a repeat of the market disruptions of 2008, the fact that markets continue to operate, and that as [Bank of Canada Governor Mark]Carney noted 'there's been a modest impact on financial conditions' from Europe debt woes, and that global growth (so far) seems to be resilient, are helping dampen risk aversion. In fact, measures of risk aversion are at their lowest levels since early May when rating downgrades in the EU periphery and the flash crash caused risk aversion to blow its top."

The Canadian dollar also surged, popping above 97 cents U.S. at one point though it closed just shy of the mark at 96.97 cents, up 1.21 cents. As the loonie was rising, strategists at BNP Paribas SA advised investors to buy into the loonie given Canada's better prospects, according to Bloomberg News, going so far as to say that the country's monetary and fiscal policy suggests "the making of a reserve currency." Said the BNP analysts: "The end benefit for Canada is the rising credibility of the central bank as it correctly anticipated the subprime crisis and presided over a stable banking system. The Harper government is also moving ahead with the removal of emergency G-20 crisis measures."

Read: David Berman's Market Blog

Trade numbers threaten to heighten tension

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  • BP PLC
  • Updated November 24 12:37 PM EST. Delayed by at least 15 minutes.

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