SOROS WARNING

THISISMONEY.CO.UK - 23 JANUARY 2008

Billionaire investor George Soros said the world was facing the worst financial crisis since World War II and faced the end of a 60-year 'super boom'.

He warns the current financial crisis resembles other crises since the end of the second world war at intervals ranging from four to 10 years.

But he added: 'There is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency.

'The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.'

Writing in the Financial Times, he says each time credit expansion ran into trouble authorities intervened to stimulate the economy. This 'moral hazard' encouraged more borrowing and expansion and led to widespread belief in 'market fundamentalism' in the Eighties - 'regulations have been progressively relaxed until they have practically disappeared'.

'The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves.

'Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.'

He says this lead to the subprime crisis and the contagion from that to investment banks and insurers. He believes a recession in the developed world is 'inevitable' but that the economies of China and India should remain strong.

The biggest danger would come from a developed world on the back foot may raise tariffs to protect economies and send the global economy into recession 'or worse'.

European shares fell nearly 6% on Monday, their biggest one-day slide since the September 11 attacks of 2001, as fears of a US recession and more write downs in the financial sector sparked a broad-based sell-off.

The FTSE 100 recovered some of the losses on Tuesday but volatility continued today