THE SAGES “This page left intentionally blank.” THE SAGES WARREN BUFFETT, GEORGE SOROS, PAUL VOLCKER, AND THE MAELSTROM OF MARKETS Charles R. Morris P UBLIC A FFAIRS New York Copyright © 2009 by Charles R. Morris Published in the United States by PublicAffairs™, a member of the Perseus Books Group. All rights reserved. Printed in the United States of America. No part of this book may be reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles and reviews. For information, address PublicAffairs, 250 West 57th Street, Suite 1321, New York, NY 10107. PublicAffairs books are available at special discounts for bulk purchases in the U.S. by corporations, institutions, and other organizations. For more information, please contact the Special Markets Department at the Perseus Books Group, 2300 Chestnut Street, Suite 200, Philadelphia, PA 19103, call (800) 810-4145, ext 5000, or e-mail
[email protected] Book Design by Timm Bryson Set in 11 point Eldorado by the Perseus Books Group Library of Congress Cataloging-in-Publication Data Morris, Charles R. The sages : Warren Buffett, George Soros, Paul Volcker, and the maelstrom of markets / Charles R. Morris. —1st ed. p. cm. Includes bibliographical references and index. ISBN 978-1-58648-752-2 (hardcover) 1. Finance. 2. Investments. 3. Soros, George—Political and social views. 4. Buffett, Warren—Political and social views. 5. Volcker, Paul A. —Political and social views. I. Title. HG4521.M8447 2009 332.092’273—dc22 2009010292 First Edition 10 9 8 7 6 5 4 3 2 1 CONTENTS Introduction vii SOROS 1 BUFFETT 53 VOLCKER 115 ECONOMICS, MARKETS, AND REALITY 163 Acknowledgments 181 Notes 183 Index 189 v “This page left intentionally blank.” INTRODUCTION America and the world are trapped in the deepest, longest recession in postwar history. That by itself is good reason to reflect on the careers of Warren Buffet, George Soros, and Paul Volcker. Buffett and Soros are among history’s most successful investors, with a record of making money in good times and bad. Volcker is a regulator, one of the greatest of American civil servants, whose entire career has been defined by crises. And all three saw this one coming long ago. That last fact is worth dwelling on. The Wall Street Journal ranked the nation’s leading economic forecasters on the accuracy of their 2008 economic forecasts, using two key data points: 2007– 2008 fourth-quarter to fourth-quarter real GDP growth, and 2008’s ending unemployment rate.1 There are fifty-one economists in the sample. The actual fourth-quarter to fourth-quarter real GDP change was -0.8 percent. Only Goldman Sachs’s Jan Hatzius, who forecasted -0.4 percent—which, given the margin of error in the data, counts as a direct hit—had the right sign of the change. All the others expected positive real growth, with a mean estimate of 2 percent, and the top estimate a giddy 5 per