The current issue of The Atlantic has a nice tick-tock piece about how George Soros broke the pound. It’s timely, of course, given the messy complexities of what is currently happing with the euro, as well as the long-term bearishness in many quarters about fiat currencies in general.
Eddie George, the number two at the Bank of England, went ahead with a long scheduled meeting with David Smick, a financial consultant who fed political intelligence to Druckenmiller and Soros. Smick showed up at the Bank of England’s exquisite building on Threadneedle Street to find George in apparently fine form, decked out in a checkered shirt and striped tie in the manner of a London banker. "We have it all under control," George said cheerily; in the extreme case, which was unlikely, to be sure, the Bank of England would raise interest rates by a full percentage point to see off the speculators. Smick wondered whether George understood the weight of the hedge-fund selling that was forcing down the value of the British currency. The avalanche had begun. It might be too late to stop it.
Smick summoned up his nerve and asked George straight out: "Aren’t you worried that you may have slipped too far behind the curve on this thing?"
George betrayed a look of mild annoyance. He was about to respond when the telephone rang. After a minute of intense conversation, he hung up.
"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.Lamont’s plea to the prime minister had succeeded this time, and the announcement of the dramatic rate hike had been set for 11 AM. A few minutes before the appointed hour, Lamont walked over to his outer office at the Treasury to watch the Reuters screen. But when the announcement came, the pound did not respond at all. The line on the screen remained totally flat. Lamont felt like a surgeon who looks at a heart monitor and realizes that his patient has expired. All that remained was to unplug the system.