Planet Money
George Soros vs. the Bank of England
· Summarized
Key takeaways
- In 1992, George Soros' hedge fund took a bold position betting against the British pound, leading to significant market shifts.
- The economic turmoil between the UK and Germany during the reunification led to a misalignment that Soros' fund exploited.
- The phrase 'go for the juggler,' epitomizes the aggressive trading strategy adopted by Soros and his team.
- Black Wednesday highlighted the vulnerability of fixed exchange rates and demonstrated the power of hedge funds in the financial landscape.
- The ethical debate around hedge fund activities underscores the tension between market forces and government policy.
Summary
Introduction to George Soros and Scott Bessent
The episode dives into the financial background surrounding Donald Trump’s pick for Treasury Secretary, Scott Bessent, notably his tenure at George Soros' hedge fund during the infamous 1992 trade against the British pound. The hosts introduce Soros' multi-faceted reputation, from philanthropist to bogeyman, and set up the legendary narrative of an audacious trade that shook the financial world.
The British Pound and Economic Landscape of 1992
Listeners are taken back to 1992, where the UK faced significant economic trouble. The UK had entered the European Exchange Rate Mechanism (ERM), which tried to stabilize currency values, but an economic dissonance began to form when the German economy was booming amidst UK recession. This led to increasing pressure on the British pound as investors sought stability elsewhere.
The Soros Hedge Fund Bet
Rob Johnson recounts pivotal meetings at Soros’ fund, where the decision to short the pound escalated dramatically. Soros encouraged bold moves, saying, 'go for the juggler,' leading to a staggering $15 billion bet. With insights into their predictive analysis regarding the UK’s currency strategy, the fund recognized the impending crisis as the pound floundered.
Black Wednesday: The Unfolding Crisis
On the fateful Black Wednesday, Soros' hedge fund executed their plan amid increasing market pressure. Despite multiple interventions from the Bank of England attempting to support the pound—all failing—the fund continued to rapidly offload pounds. The government's eventual concession to suspend ERM membership marked a sea change in financial governance.
Reflections on Financial Markets and Ethics
Post-trade, discussions evolve to reflect on the ethical perspectives of hedge funds against national economies. While Rob Johnson and others at the fund gained immense profit, reflections stem towards the moral implications of such trades and their effects on regular citizens. Economists weigh in that while the trade seemed opportunistic, the underlying economic reality made it somewhat inevitable.
Sponsors
- Silicon Valley Bank · Backed by the strength of First Citizens Bank, a Fortune 500 company, SVB can deliver the solutions that can help keep you ahead of the curve.
- Merrill · With a dedicated Merrill advisor, you get a personalized plan and a clear path forward.
- LinkedIn Ads · Reach professionals relevant to your business by launching your next campaign with a free $100 ad credit.
- Grammarly · Grammarly’s AI works in over 500,000 apps and websites, making it easy for your team to write clearly and on brand without disrupting workflow.
- Discover · Discover is accepted at 99% of places that take credit cards nationwide, and automatically earns cash back on all purchases.
Show notes
In 1992, Soros' fund set its sights on the British pound, betting that some time in the fall of that year, the pound would plummet in value. Opposing them in this trade was the Bank of England, which was determined to keep its currency stable. The financial battle that followed was intense and proved to be a watershed moment in the balance of power between markets and governments.
On today's show, we speak to Robert Johnson, a former managing director at Soros' fund, for a blow-by-blow account of those fateful days in 1992.
This episode was hosted by Keith Romer and Alex Goldmark. It was produced by Willa Rubin and edited by Martina Castro. It was fact-checked by Sierra Juarez and engineered by Cena Loffredo. Alex Goldmark is Planet Money's executive producer.
Help support Planet Money and hear our bonus episodes by subscribing to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney.
Always free at these links: Apple Podcasts, Spotify, the NPR app or anywhere you get podcasts.
Find more Planet Money: Facebook / Instagram / TikTok / Our weekly Newsletter.
See pcm.adswizz.com for information about our collection and use of personal data for sponsorship and to manage your podcast sponsorship preferences.
NPR Privacy Policy
Follow this show on AudioBrevity and new episodes get summarized for you. Create a free account