Chapter 21 Chapter 21 Black Wednesday

I made a profit of $1 billion due to the collapse of the pound. The first quarter broke the bank of england Wednesday, September 16, 1992, at 4:00 pm. Black Wednesday afternoons are getting darker and darker.The UK is in the midst of a sterling crisis and has been forced to withdraw from the currency exchange rate mechanism. Winners, like Soros, are laughing; losers, like Major and Lemon, concede defeat ruefully. Officials from the Bank of England, who participated in a meeting invited by other European central banks, revealed that the British pound will suspend its connection with the currency exchange rate mechanism.

The exchange rate between the British pound and the Mark dropped by 2.7%, and then traded at the exchange rate of 1 British pound to 2.703 Marks in the New York trading market, which was much lower than the minimum limit of the exchange rate mechanism. Wednesday, 5:00 pm. Major convened a meeting of cabinet members, and finally everyone agreed that Britain would withdraw from the currency exchange rate mechanism, and Italy would also withdraw. The British and Italian currencies would float freely, and the central banks of the two countries would not have to buy their respective currencies in the market to maintain their status.

TV crews and journalists gathered outside the Treasury to await the announcement of the decision. Wednesday, 7:00 pm. The decision was finally announced.Lemon appeared on camera, conceding defeat, his face dejected and emaciated. The British Economist called it "disappointment". He put his hands behind his back like a prisoner.He forced a smile, but the smile was fleeting.He pushed the hair on his forehead with his right hand, and then he began to speak: "Today," he said, "is an extremely difficult and chaotic day, with a series of financial events taking place that render the Exchange Rate Mechanism useless... Meanwhile, the Government considers that the only option is to suspend membership of the Exchange Rate Mechanism, the UK's highest interests can be preserved."

Wednesday, 7:30 p.m. The UK implements the free floating pound, and the pound closed at 2.71 marks on Wednesday, a drop of only 3 percentage points. (At the end of September, the pound fell to 2.5 marks) Thursday, September 17, 1992. UK interest rates fell back to 10%. Italy followed the United Kingdom in withdrawing from the currency exchange rate mechanism. Sterling climbed slowly to 2.70 marks again, then stabilized at 2.65 marks, 5% below its previous exchange rate mechanism floor, down from 16% on Wednesday. It wasn't just Britain's currency that lost value, Spain's was also down 28% and Italy's was down 22%.

With Britain withdrawing from the exchange rate mechanism, the exchange rate for the pound was below 2.70 marks in the New York trading market, which was much lower than the minimum limit of 2.7180 marks. Big winner in the second quarter Soros is like a genius. Others have made huge gains in the pound's fall, but those gains have not been record-setting.Bruce Kavanagh and Paul Johns were the two big winners, with Kavanagh earning $300 million and Paul Johns earning $250 million.The firm that holds the head of Bank of America due to its huge foreign exchange transactions, especially J. p.JPMorgan Bank and Chemical Bank also posted profits.The banking system made a total profit of $800 million in the third quarter.exceeding their usual quarterly profits in currency trading.

Soros gambled famously, and Forbes magazine covered it.London's "Daily Telegraph" reported on the binocular front page in October with a huge bold headline, the headline read: "As the pound plummets, I gain a billion dollars". The Daily Telegraph's report was accompanied by a photo of Soros, smiling and holding a wine glass, with the lead line: "International investors profited nearly $1 billion from last month's currency crisis."Anatoly Keris, economics editor of The Times of London, was coming home with his daughter on a Saturday morning when they stopped in front of a shop to buy chocolates.Shocked by the headlines, Kerris bought a newspaper and read it.When I got home an hour later, the phone rang, and it was Soros.

"What's going on?" Kerris asked, hearing commotion on the phone. "I'm in London," Soros replied.His voice was very excited. "I don't know if you read the Daily Telegraph." "Looked".Kelly was puzzled. "My house is full of journalists. I want to go out and play tennis. I don't know what to do. What should I do? Can you advise?" Kerris had to know one thing before making a suggestion, asking: "Is that report true?" Soros immediately replied: "It is true, obviously." Kerris advised him not to talk to reporters, "If you want to report on what you did and didn't do, why don't you write an article or I'll talk to you.

"Okay! I'll think about it." Half an hour later, Soros called and told Kerris that it would be a good idea for someone from The Times to visit him.Kerris went, and Soros told him at length how he had come up with the surprise move against the pound.In Kerris' view, the interview with Soros published in The Times on October 26 was a turning point for him to emerge as a household name, "From that interview on, he became a celebrity in this country, and Nobody had heard of him before that." Kerris' article concluded: "George Soros was a man of great insight, a philanthropist who spent much of his time in Eastern Europe in political and educational philanthropy. He was also the world's largest currency dealer .In the two weeks leading up to Black Wednesday, Soros dealt the British government the most brutal blow in history".Kerris wrote.Soros knew he made $1 billion from the pound's collapse.In describing his pre-Black Wednesday operations, Soros told Kerris: "We did a lot of short selling of sterling, so we made a lot of money. Before the exchange rate mechanism collapsed, we became the most important traders in the market. We had 10 billion dollars in the market before Black Wednesday. We planned to sell most of it. In fact we were delighted when Lemon said before the currency devaluation that he would borrow 15 billion dollars to defend the pound, Because that's what we plan to sell.

"But the development of things exceeded our expectations. Before we had time to occupy a large enough market share, the British pound withdrew from the currency mechanism. The US$1 billion was also the gain we estimated earlier. Although it was US dollars rather than British pounds." Soros had an insight into the market conditions and found that the income of the pound market was close to 950 million US dollars.His earnings are still increasing due to his operations in other currency markets.Of the $950 million in proceeds, Soros personally earned one-third.A long-term share of the interest rate markets in Britain, France and Germany, as well as running a short-term Italian lira business, would make him $2 billion in profits.

Kerris asked Soros why he had invested his money in a policy so stubbornly enforced by Britain that it ended up costing him nothing. Soros said he believed the Bundesbank wanted the lira and sterling to depreciate, not the franc. "I felt it was safer to bet on the Bundesbank. The Bundesbank made it clear that it wanted the lira and the pound weaker, and that it was prepared to protect the franc. In the end, the Bundesbank scored 3:0 and the speculators 2:1. Stand firmly on the side of the Bundesbank and do better than other businessmen." Asked that it might be better if Major raised rates by Wednesday, Soros replied: "That's absolute nonsense, if rates go up, it will encourage us to sell faster, because the market works faster because of higher rates. In fact, we didn't want the currency to depreciate until the end of the week, but when interest rates were raised on Wednesday, we realized we couldn't wait any longer and we had to sell quickly to take our market share."

In conversation, Soros, like a financial analyst, believes that speculation is harmful, especially in currency markets. "But measures to curb such speculation, such as trade controls, are generally more harmful. Fixed exchange rate regimes are also flawed because they eventually fall apart. In fact, any exchange rate regime is flawed the longer they exist, The greater the flaw. Avoiding speculation is not not wanting the exchange rate mechanism, but having only one currency in Europe, as in the United States. It will make it impossible for a speculator like me to operate, but I am willing to sacrifice for it." For Soros, making such a speech is very easy, because he has hundreds of millions of dollars from the collapse of the British pound and other currencies. "In conversations with me," Kerris recalled talking to Soros on a Saturday afternoon in October, he was struck by Soros's seeming composure. Appeared absolutely calm and rational. I didn't feel any obvious mood swings from him... In his view, keeping records is really just a means... He is very proud of his achievements, which is why he decided to go with me The reason for talking about it. ... He was delighted with his intelligence in recognizing what was going to happen, challenging authority and winning".He is also very happy to use publicity, which can make his philanthropic work in Eastern Europe known to the public. To Soros' delight, his approach to the pound challenge is fitting in with his business theories.Soros, who believes that feeling is everything and that a false sense can lead to corresponding trading behavior in the market, recognizes that on the eve of the crisis of the currency exchange rate mechanism, there is a major misunderstanding, that is, the false hope that the Bundesbank will be in any case Both will support the pound.When the Bundesbank made it clear that it would not follow the Bank of England's proposal to cut its interest rates, Soros made his bet. His theories also lead him to believe that speculators always try to make consistently the same trades in the market.He said: "In a relatively free-floating exchange rate mechanism, the volume of speculative transactions gradually increases, and speculation has the characteristics of long-term continuation. This will lead to an increase in the exchange rate rate and eventually lead to the breakdown of the mechanism." This was a turning point in Soros' life. The third quarter Things would not be what they are if the media interest in him had gone so far, if Soros was unknown to anyone but Wall Street and New York. Now, everyone wants to know who is the man who made the pound for the pound.From the moment news of his impact on the pound was announced, Soros became known as "the man who brought down the Bank of England". He didn't actually destroy the Bank of England, but he did consume the wealth accumulated by the Bank of England. For most Britons, Soros became a hero. "There is no xenophobicism here as people think it is," Kerriss said. "Instead, the British public, in the traditional British way, say, bless him, if he gets a billion dollars from our stupid government, he's a billionaire." Rich." Georges Mainius, S. of London G Warburg Securities Research Institute chief economist, he said: "The media is trying to publicize that the businessman's point of view is to invest money in places where it can be easily profitable... and the Bank of England and the British government have no knowledge and no Being criticized for knowing what's going on... On the media side, Soros is being used as an example of a not-so-smart speculator who can profit from the government, which is clearly a double-edged sword." Soros seems to enjoy winning over the public in novel ways. · Now he can liken himself to a torch to attract the public. "I am happy to have this status because it allows me to get what I want. As a market operator, I have reason to shy away from this status because it is harmful; but I am no longer a market operator My voice is also being heard on political issues, and that's what I find useful." Book Four Double Edged Sword A sense of humiliation and impotence hung over Major and Lemon.Lemon believes that the floating pound is unlikely to lead to currency devaluation.Major's Conservative Party was sympathetic to the prime minister, accusing Germany of bombarding the pound with rhetoric. Instead of apologizing, Lemmon defended his decision to float the pound, saying, "What I did yesterday was just a common sense thing before the financial whirlwind." After taking advantage of the financial turmoil in Western Europe, Soros began to analyze the losses caused by this turmoil. "The chain of events will lead to a broken system, instability and a negative impact on the economy, we don't know the scale of the impact, but it will be severe, I mean a deep recession in Europe and business in Germany will suffer It was a huge blow, and things are not good in France... Turmoil is always bad, it might be good for a few people like me, but it's really bad for the economy." In fact, the September 1992 sterling crisis was a boon for countries in Western Europe that were suffering from currency weakness, as they were open to new competition and falling interest rates, so that their exports remained stable for the next few years. Big profits. Of Major and Lemmon, only Major got away with it politically, although his public approval ratings plummeted.By the spring of 1994, it was clear that the government was in crisis. Section 5 Soros True Colors Some in the British media were very uncomfortable with the loss of the UK and the sweeping victory of Soros.They were looking for a scapegoat, and Soros was an extremely convenient one. A British TV reporter declared: "The government's obligation to the exchange rate mechanism should have kept the Bank of England safe, but it failed to realize this. The losses were huge as the bank used up its reserves to preserve the value of the pound. The government Won't say how much we've lost, but it could be in the billions, and we're spending more money protecting the pound this autumn than we're spending on the Gulf War." Roland Thomas, a former French diplomat, said that Anglo-Saxon speculators - referring to British and American currency dealers such as Soros - had dashed Europe's hopes, "You have to see who is coming from this criminal act profit from." But attempts by the British media to make Soros feel guilty about his gains were unsuccessful, with Britain calling October 16 Black Wednesday and Soros calling it a bright day.He shrugged off criticism of him, "I believe there must be a downside, ... but it's not on my side. I wouldn't be a successful speculator if I held back out of moral conscience." "Nor do I regret profiting from the depreciation of the pound. As it happened, the depreciation of the pound proved to be good. But my point is: I am not helping the UK by speculating on the pound, nor am I harming the UK , I'm just making money." The criticism from the British media has not abated. Isn't Soros's gain the UK's loss?Didn't Soros make the British taxpayer, that is, every British man, woman and child, pay an extra £12.50? He admitted it was Britain's loss. "In this case, it is true because I know who the other side is. In trading, some people gain and some people lose. But in normal circumstances, you don't know who the other side is, and you don't know that he is the loser. Still profitable. But at the moment. It's clearly the Bank of England. I have absolutely no guilt. I think you can believe that if I don't trade someone else will." Plus, Soros thinks he's taking a meaningful move by giving more money to help the East, something no one in the West wants to do. He also reminded people that he might also lose money, "Although this is not like we make money. But it is undoubtedly a kind of blessing, a one-way gamble, because the loss will be small and the profit will be large." To be fair, he said, Soros was not alone in speculating on the pound.A trader on the British Stock Exchange said: "The amount of money Soros puts in is huge. But considering that the foreign exchange market trades up to $1 trillion a day, Soros's $10 billion is relatively small. "Jointly speculating on a currency, it might be effective acting alone is hard to say.So it wasn't just Soros who brought down the Bank of England, but market speculation.Soros is just the biggest part of the market." 1992 turned out to be a good year for Soros and Quantum Investments as a result of their successful challenge to the pound. Section 6 The God of Wealth on Wall Street As a result of his success, Soros became the highest paid person on Wall Street in 1992. In 1992, his income was $650 million, more than five times that of 1991.Michelle Milken's 1987 earnings of $550 million will no longer be the record. According to Financial World's list of the highest earners on Wall Street, Soros earned $400 million from earnings recognized by his firm and $250 million in management fees.In fourth place is Stanley Druckenmiller, who earned $110 million in 1992. By the end of the year, Quantum Ventures was the most powerful company with a total wealth of $3.7 billion, an increase of 68.6%.Anyone who invested $10,000 in the company in 1969 when the company was founded and reinvested the interest in 1992 would have received $12,982,827,62 by the end of 1992. In addition, 4 of the 6 best-run companies belong to the Soros Group: Quantum Development Investment Company ranked third, with a wealth increase of 57%; Quasar International Investment Company ranked fourth, with an increase of 56%; Sixth, an increase of 37%.Soros manages $6 billion across four firms. How did he achieve such a brilliant performance? In addition to his profits from the European Currency Exchange Rate Mechanism crisis, in the first half of the year he also made a large profit from the international securities market, especially the Japanese securities market. In addition, he also made profits in the US securities market. In Quantum Investments' 20th annual report, Soros said: "The extraordinary performance of 1992 is attributable to events related to the breakdown of the European Monetary Exchange Rate Mechanism. The short-term market share revenue of the company has received a lot of public attention. Even so, I should point out that the share gain in the pound market is only a small part of this year's total revenue. Without this part of the revenue, this year's revenue will still exceed our Historical Average Income Levels... "Quantum stock holders should note that my reputation and that of Soros & Co. have grown significantly in recent months. Rumors about Soros & Co. investing in various markets are heard on an almost daily basis. Markets rely on These rumors operate. Usually, these rumors are not based on facts, and investors should be alert to these rumors. Whenever we make an investment, we will announce it to the public. We are considering the necessary methods and preparing a formal announcement." Section 7 Money and Politics 1992 was a glorious year for Soros.Not only was he commanding dizzying amounts of wealth, he was now seen as a man capable of performing miracles.On New Year's Eve, at an intellectual dinner in Prague, the conversation returned to Soros's money.Sitting with his favorites, Soros said he would be delighted if his tall image would help his career in Eastern Europe.Now he's a celebrity, busy distributing his autobiography, signing notebooks in England. But what Soros was looking for was still missing: respect. He was suddenly in the public eye, and people were asking for his autobiography, and the media wanted to dig into his experiences and his life, and write about the things that made him a celebrity, which was extremely important to them, but to Soros, it was not enough. not enough.Even giving money to someone can hardly satisfy him fully. He needs more, he wants people to respect his ideas, he needs it now more than ever. His goal, never mentioned in public and only sporadically in private, was to wield power in Washington, not by winning elections or being named a key member of the Cabinet, but by giving the President and Other important officials in the capital play an important role. Soros is a Democrat. In November 1992, Bill Clinton won the United States presidential election.Soros knew that winning the attention of the new president was not easy.Many people of great wealth believe they have the power to make their voices heard in Washington.What made Soros think he was more powerful than another man of great wealth?What is it about him that makes his voice heard in Washington? "I had to change people's perception of me," he told his partners, "because I didn't want to be just a rich man, I had something to say, I wanted my voice to be heard by the government."