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Soros: US, China key to world financial regulation

February 3, 2010

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HONG KONG—Billionaire financier George Soros said Wednesday that the United States and China need to cooperate better in order to create a new global regulatory system that would head off future financial meltdowns.

Last year's crisis, he said, demonstrated the need for a worldwide regulatory regime after decades of increasingly hands-off policies let banks and other big companies take risks that endangered the financial system as whole.

"Globalization was based on a false premise that markets don't really need to be regulated, financial institutions can look after their own risk and therefore there really is no need for regulation," Soros said at a forum in Hong Kong. "That was a false idea."

What is needed are uniform standards, he argued.

"It's not just a question of restarting the system," he said. "We actually have to create a system that currently doesn't exist, namely a global regulation of financial markets."

To develop such a system, American and Chinese cooperation was "indispensable," he said.

"In terms of leadership, if those two don't agree, then I don't think anything can be accomplished," Soros said, noting what he believed was a worrisome deterioration in relations between the two countries recently.

Soros' hedge fund, Soros Fund Management LLC, has been rumored to be opening a new office in Hong Kong.

Calling bank reforms championed by former U.S. Federal Reserve Chairman Paul Volcker "absolutely correct," he expressed concern that large financial companies were still operating with the implicit understanding that governments would again bail them out with public money if needed.

"To claim that somehow that guarantee is being withdrawn has no credibility until for 10 or 20 years the authorities show that they will in fact allow institutions to fail," he said.