George Soros is known as “The Man Who Broke the Bank of England” because of his short sale of US$10 billionworth of pounds, making him a profit of $1 billion during the 1992 Black Wednesday UK currency crisis. Soros is one of the 30 richest people in the world.
The collapse of Greece’s economy, and its domino effect on Spain
, Portugal, and other countries in the euro currency zone, is in many ways a replay of an earlier financial crisis–the break-up of the continent’s Exchange Rate Mechanism in 1992. Then, as now, Europe’s policymakers showed little patience with–or understanding of–markets. Then, as now, Germany often seemed contemptuous of the less competitive economies on the periphery of Europe.
The 1992 crisis came to a head on Friday September 9, when currency speculators forced the devaluation of the Italian lira. By the following Tuesday, Britain was facing the same fate.
- The Bank of England’s plan was to aggressively buy the pound in hope that it would inspire confidence and stop speculators from destroying the currency.
- Germany’s central bank began to attack Britain, calling for a devaluation of the pound.
- Soros had AT LEAST $1.5 billion bet on the pound since August, 1992. The devaluation crisis occurred a month later in September.
- Instead of steadily building up a position in September of 1992, Soros told his lieutenants to “go for the jugular.”
- Investor Louis Moore Bacon worked with Soros to find ways to dump the pound.
- Britain had to raise interest rates to protect the pound, but Prime Minister John Major refused to authorize the hike. Ultimately, he capitulated.
- The killer moment? When Soros found out just how badly his short selling had affected the Bank of England:
“I’ve learned we’ve just raised interest rates by two hundred basis points,” he said softly–a full two percentage points. Then he rose and shook Smick’s hand and left the room running.”