Soros Proposes Bailout Alternative

Wednesday, 01 Oct 2008 11:50 AM

By Jim Meyers

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Billionaire financier and major Democratic backer George Soros is offering his own rescue plan to lawmakers weighing the $700 billion bailout package proposed by Treasury Secretary Henry Paulson.

In an editorial published by the Financial Times on Wednesday, Soros proposed that government funds should be used to recapitalize the U.S. banking system by purchasing equity in banks and investment firms.

Democratic Rep. Jim Moran of Virginia, who has been briefed on the proposal, compared the plan to Warren Buffet’s $5 billion investment in the Goldman Sachs Group in return for preferred stock and warrants to buy common stock at a discount, The Hill newspaper reported.

“The emergency legislation currently before Congress was ill-conceived — or more accurately, not conceived at all,” Soros wrote.

“Instead of purchasing troubled assets, the bulk of the funds ought to be used to recapitalize the banking system.

“The Treasury secretary would rely on bank examiners” who “would establish how much additional equity capital each bank needs in order to be properly capitalized according to existing capital requirements.

“The recapitalized banks would be allowed to increase their leverage, so they would resume lending…

“Banks deemed to be insolvent would not be eligible for recapitalization by the capital infusion program, but would be taken over by the Federal Deposit Insurance Corporation.”

Soros also believes the government should take direct action to shore up the ailing housing market.

The Paulson plan “addresses only one half of the underlying problem — the lack of credit availability,” he wrote.

“It does very little to enable house owners to meet their mortgage obligations and it does not address the foreclosure problem.”

His plan “could require the Treasury to provide cheap financing for mortgage securities whose terms have been renegotiated, based on Treasury’s cost of borrowing.”

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