How to Be a Billionaire: Worry!

The markets were shuttered. Martin Luther King Day. Late afternoon. He was working. George Soros was at home in New York's Westchester County, inside a snow-wrapped, Gatsbyesque dream house, wrestling with the problem. It was as quiet as a bank vault, except for the occasional squeak of a chair, the ringing of the phone and Soros' soft, Hungarian-accented voice talking the problem through. He sipped at some hot tea, and when he put the cup down, that made some noise too.

The problem has bothered Soros for more than 40 years, tickled at him in his waking dreams in the way you might wonder if you have left an iron on at home. In 1963 it bothered him so much that he walked away from investing and spent three years just thinking about it. The problem is not what you think. The problem is not how to make money. That's easy, he says. You do that by spotting mistakes.

It's 1992. The Bank of England thinks it can outspend speculators betting on a weak pound. Wrong. Add hundreds of millions to your bank account. This is what Soros did. The problem is the mistakes themselves. Soros thinks that our history, especially economic history, is sculpted by blunders. It's a radical proposition, as if you suggested that Botticelli's best art was the result of paint splatters. But Soros is insistent: mistakes make history. They also make--and destroy--fortunes.

The tech runup of 1996-2000 was largely, Soros now says, a result of wrong ideas. Remember when folks predicted 200% revenue growth for Amazon.com in 2000? That was a mistake. The firm came in at less than half that. In Soros' mind, the beating that has hit Amazon and other stocks since then is the result of investors selling their mistakes. Soros among them. He hopped on the tech boat just long enough for his fund to sink 22%. As we said, mistakes break fortunes.

Soros wants us to imagine this same idea-crash-burn cycle writ much larger. What if we are wrong about the notion that the world's economies are coalescing into a vibrant, profitable whole? What if we are foolish to be congratulating ourselves on having cured recessions in the same way we once tackled smallpox? Soros, who made a fortune looking for and finding mistakes, worries we are making one now. He picks up on these errors by listening to his money. These days he doesn't like what he hears.

It's worth noting that listening to Soros listen to his money is an awfully fun activity. Ring. Hello? Yes, YES, YES!! Followed by several minutes of nine-digit bets on market moves that are here left off the record, by agreement. This is what Soros will say: he is up 9.5% to 10%. "A terrible two months for the market," he says as he shakes his head. Then, brightening: "But a great two months for hedge funds!" Soros thinks the U.S. is coming in for a hard landing. Fed rate cuts, he worries, won't come fast enough. Tax cuts? Too slow. The result: recession.

And the long term? While Soros' short-term views of the economy are spread around the world by a kind of emergency-broadcasting system, his long-range ideas tend to get written off. Sometimes they are just seen as a self-indulgent dip into philosophy. They have also been, from time to time, wrong. Mistakes!

This time, however, he has a small audience who thinks he may be right. "George is signal," says a Fed adviser, referring to the high noise-signal ratio among advice givers to Alan Greenspan. Inside the Bush Administration there has been a move to push economic and security policymaking together, a recognition that on the world stage America's dollars are as important as its missiles. Soros just wants to help target where those dollars are pointed. He's not sure American pockets should be target No. 1. He gives a lot of his money away to support these views. Now he wants to give away yours. Is he making a mistake this time?

Why worry if you have billions? Soros thinks there is "a flaw in the capitalist system" that widens the rich-poor gap, so capitalism may be a time bomb. The buzzy book on the topic: Hernando de Soto's The Mystery of Capital, a must-read among the globalization jet set.