Soros Says Financial Crisis Marks End of a Free-Market Model

By Walid el-Gabry

Feb. 21 (Bloomberg) -- Billionaire investor George Soros said the current economic crisis has its roots in the financial deregulation of the 1980s and marks the end of a free-market model that has since dominated capitalist countries.

Liberalization of the financial industry begun by the Reagan administration has led to a series of breakdowns forcing government intervention, Soros told economists and bankers last night at a private dinner at Columbia University in New York. The global recession, triggered by the collapse of the U.S. housing market, has “damaged the financial system itself,” he said.

Regulators are in part to blame because they “abrogated” their responsibilities, Soros, 78, said. The philosophy of “market-fundamentalism” was now under question as financial markets have proved to be inefficient and affected by biases rather than driven by all the available information, he said.

“We’re in a crisis I think that’s really the most serious since the 1930s and is different from all the other crises we have experienced in our lifetime,” Soros said.

Soros, founder of New York-based hedge-fund firm Soros Fund Management LLC, said last month at the World Economic Forum in Davos, Switzerland, that the Obama administration’s plan to buy toxic assets from U.S. banks won’t be enough to get financial institutions to start lending again.

A more effective approach for restarting the economy would be to inject capital directly into the banks and cut minimum capital requirements, Soros, whose firm oversees $21 billion, has said.

Soros’s Quantum Endowment Fund returned 8 percent last year. That compared with an average loss of 18 percent by hedge funds, according to data compiled by Hedge Fund Research Inc. of Chicago.

To contact the reporter on this story: Walid el-Gabry in New York at welgabry@bloomberg.net

Last Updated: February 21, 2009 16:52 EST