May 15, 2007
George Soros and the Future of the World BankBy Ed Lasky
As Paul Wolfowitz struggles to retain his post as President of the World Bank in the face of a trumped up faux scandal engineered by his opponents (the outlines of which have been the subject of various Wall Street Journal exposes (here, here, and here), a grim scenario becomes possible, should he be forced from his position.
Wolfowitz has never been a favorite of the mandarins in the elite diplomatic corps. He will be forever associated and never forgiven for his involvement in the Iraq War. His resolute attitude - a zero-tolerance attitude - toward the corruption that has wasted billions of aid dollars has ruffled too many who have adopted a laissez faire attitude toward bribery and cronyism and indifference to the bleak future of those who never see the aid that is channeled to overseas bank accounts.
Historically, the presidency of the World Bank has gone to an American (the United States is the largest shareholder of the Bank), while the top position at a sister institution, the International Monetary Fund, is traditionally reserved for a European. However, rumors have surfaced that the traditional deference given to America may become an artifact of a happier time.
Apparently, some Europeans and others see the current turmoil as an opportunity to flex their muscles and appoint someone who does not hail from this side of the Atlantic. The Wall Street Journal has touted the possibility that one Mark Malloch Brown, a Brit, but really one of those people who float above the world and are "world citizens," may be next in line to succeed Wolfowitz. This would be a sorry outcome for the world's poor and for the reputation for the World Bank. The break with the past might signal that America will no longer have the influence at the Bank that it once did and this would be a bad state of affairs for America. However, the Wall Street Journal has pointed out, the one person who would indeed be quite happy is George Soros.
Soros has made billions of dollars operating in the murky world of offshore hedge funds. He is famously the man who "broke the Bank of England" by wagering a huge amount of money that Britain would be forced to devalue the pound. Britain weakened its currency; George Soros enlarged his fortune. The offshore nature of his hedge fund has many benefits for Soros. It is exempt from many American security regulations and its investors are invisible to the public. There have been rumors that Arab oil wealth has found an outlet in Soros' funds, since he takes a percentage off the top based on the assets of the fund, and a reportedly substantial percentage of the profits (money which eventually can make its way, cleaned, to America). It is not too much of a stretch to wonder if Arab oil has fueled the rise of Soros.
This situation should be a cause of concern. Soros is a major funder of the Democratic Party, activist groups that aid the Democrats (such as MoveOn.Org), and was a very early and generous backer of Barack Obama. This support could be crucial in the years ahead. Congress has recently been considering increasing the regulation and the transparency of hedge funds. Indeed, some attention has been focused on the role of hedge funds in American politics. The New York Times, for instance, ran an article earlier in the year ("Hedge Fund Chiefs, With Cash, Join Political Fray") that predictably, focused on hedge fund managers who seemed to support the GOP. Unsurprisingly, the article omitted any mention at all of George Soros, whose politics are more compatible with those powers-that-be who are running the New York Times (into the ground). Yet Soros has very important reasons to want influence in Washington. Not just to support his agenda, but also to ensure that he can continue to operate behind a veil of secrecy and avoid any increased scrutiny of his hedge funds.
Soros will not be sated merely by breaking the Bank of England, or exercising outsized influence in Congress, he is also hoping, according to the Times speculation, of having one of his chief allies appointed to head the World Bank - the aforementioned Mark Malloch Brown. After a stint at the United Nations marked by efforts to whitewash the Oil-for-Food scandal, he recently assumed the Vice-Chairmanship of Soros' hedge fund, The Quantum Fund. He is also a former World Bank official, but his career has not been marked by noticeable investment prowess. Instead, the post with the Soros investment vehicle seems a sinecure, a resting spot until a "better position" opens up.
Such generosity would not be a departure for Soros. He previously allowed Brown to live in a Soros-owned apartment while Brown worked at the UN, whitewashing the worst corruption scandal ever to tarnish the international body. He is, in a sense, a kept man.
How would Brown be useful to Soros as President of the World Bank? Soros is an international investor. He knows no borders and he has heavily invested in the developing world. David Horowitz wrote in "The Shadow Party" that Soros' investments in ostensible human rights organizations and political activist groups often have an investment rationale behind them.
Critics have long argued that his philanthropic spending is "merely a smoke screen for empire building" as the New Yorker's Connie Bruck wrote. Horowitz noted "the entanglement of his goals as philanthropist, politicians and profiteer became particularly acute in the chaos of post-Communist Russia". During the Clinton years, Soros had wide latitude for his business ventures in the Soviet Union. He and Harvard economist Jeffrey Sachs exercised enough influence to persuade Russia to administer "shock therapy" to the Russian economy. The resulting chaos opened up investment opportunities for Soros.
His Open Society Institute, for example, has helped to bring down some dictatorships (so far, so good), but the resulting instability and chaos have proved to be chum for Soros, who has swooped in and invested in these lesser-developed nations at favorable terms. He has later reaped rewards as the political situation stabilizes and he is able to cash out his investments. He has reaped the wealth that would have otherwise gone to the citizens of these various nations. All the while, his vanity is satisfied by the praise that comes to him for promoting this dynamic.
Brown, an acolyte of Soros, would be well positioned to be promote a similar dynamic in a wide variety of nations around the world. As President of the World Bank, Brown could direct many billions of dollars in aid to various nations. A hypothetical: Soros invests in a Lesser-Developed nation (either by buying companies, shares of companies, currency, or bonds). The World Bank later announces a major initiative to shower this nation with aid dollars. This sparks asset values to rally in that nation, and Soros cashes out.
Or maybe Soros finds one of his companies or activist groups is suddenly the beneficiary of World Bank largesse. Perhaps, a substantial portion of the huge assets of the World Bank is turned over to Soros or his entitities to manage. The World Bank often requires nations to take dramatic actions in order to receive aid dollars. Often these actions have enormous and sudden financial ramifications (devalued currencies, or a spike in the value of that nation's sovereign debt as aid restores confidence in that nation's economy, for instance). These are precisely the type of sudden and large movements that hedge funds - particularly offshore ones - are ideally positioned to capitalize on.
Will Soros have advance knowledge that the Bank will take these actions? How likely would it be that an audit would ever uncover any acts of malfeasance? Brown, after all, has a great deal of experience ignoring corruption, and exonerating those who are caught in a web of corruption. He has learned his lessons well and will be positioned to put them to bad use.
The scenario outlined above is speculative. However, George Soros is a man of immense ambition. The size of his fortune and the magnitude of his hedge fund requires him to seek huge returns in order to keep up the growth rate of assets under his control. How better to accomplish this goal than to assume control of an international organization with many billions of that elixir that hedge fund manager's love: Other People's Money. The leverage that conceivably could accrue to Soros would be enormous.
A fanciful scenario? Imaginary? Speculative? Yes. But Soros is a speculator and people used to think that it was delusional than anyone could ever "break the Bank of England."
Ed Lasky is news editor of American Thinker.