Charlie Rose Talks to Stanley Druckenmiller

The Duquesne Capital founder discusses entitlement and tax reform—and one of the most famous bets in hedge fund history
Photograph by Scott Eells/Bloomberg

Describe how it happened that you made a billion dollars in one day shorting the pound with George Soros.
Germany was unifying with East Germany. Their economies were simultaneously under a boom. At the same time their currency was linked to that of Great Britain. My European analyst called me in August of ’92 and said the U.K. couldn’t handle the interest rates to keep the pound aligned with the deutsche mark and that they were going into a housing recession. I put a billion-and-a-half-dollar short in on the pound … to see how this played out.
Which was a good bet. What then?
Over the next month or so the British economy continued to deteriorate. Then I came in one morning—I’ll never forget it—on the bottom of the editorial section of the Financial Times was the head of the Bundesbank, [Helmut] Schlesinger, saying that the two currencies shouldn’t be aligned. That, to me, was the trigger. I went in to George at 4 o’clock and laid out my scenario and told him I was going to do $5 billion in addition, 100 percent of the fund. He looked at me with total disdain. I said, “What’s wrong?” He said, “You’re crazy to only bet 100 percent of the fund.” We started about 7 o’clock that night. By midnight we had about $7 billion done, and the floor just blew out. It was a pretty exhilarating feeling to see that happening.

Who has more ice water in his veins, you or George?
George has more ice water than I do. If you looked at our records, they’re very comparable. When he ran Quantum and I ran Quantum, they’re almost within decimal points, and I’d say George made more spectacular bets. With my record, the bets were more consistent, but the results were pretty much the same. If there’s one thing I learned from George—and it made me a better money manager—it’s not whether you’re right or wrong; it’s how much money you make when you’re right and how much you lose when you’re wrong.
Soros is on the left, you’re somewhere on the right. What does he say aboutyour ideas?
I haven’t talked to him about it. This is pretty new for me, Charlie. I didn’t even know I was going to do this. I don’t know what he’ll think.
Tell me why you’ve been talking to college students about the burdens they’ll face?
The way our entitlement system works isn’t pay-as-you-go. Current workers pay for current seniors. This is alarming because of the Baby Boom. We’re creating 8,000 new seniors every day. And we’re only producing 2,000 young adult workers to support them. It’s not that I’m anti-entitlement; it’s that I’m for sustainability of entitlements. Over the next 10 years—and this is the administration’s optimistic budget—Social Security, Medicare, and Medicaid is going to grow by $780 billion. The growth in spending on children is going to be $20 billion. I think it’s unfair, most of all.
How do you begin to correct this generational imbalance?
I have my own opinions, and I have suggestions, but the answer to your question needs to be fought out in the political arena. If you’re asking for my suggestions, the first thing we’d have to do is the really low-hanging fruit. You can means-test to a greater extent Medicare. You can certainly means-test Social Security. We haven’t even done that.
You have some suggestions about tax reform as well, right?
I think raising capital-gains rates and dividend rates to match income rates while you simultaneously lower corporate tax rates to zero would make the economy grow dramatically and increase government revenues. Corporations are owned by shareholders. If you tax the shareholder, you’re taxing the ultimate beneficiary. And corporations can’t come into our lives for a tax break; their rate is zero. By the way, there are a lot of companies, as you know, already paying zero.

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