The Fed’s banking capital infusion program is working, but it should not try to buy up troubled home loans directly, says Willam Ackman of private equity fund Pershing Square Capital Management.

Instead, the Fed should leave mopping up the millions of potential foreclosures ahead to private investors, Ackman told CNBC.

"What I would do instead of the government being a buyer of complicated mortgage assets … the best way to do it would have the government be a lender," Ackman said.

The government would provide financing that would be accessible to entities to bid on the distressed assets and set a price on them in the open market — instead of letting the government determine value.

The government is reportedly close to a plan to guarantee up to $500 billion troubled loans at a cost of $50 billion.

Otherwise, the Fed’s capital infusion program, known as the Troubled Asset Relief Program (TARP), is helping to restore credit and resuscitate the economy, Ackman says.

"I think stocks are cheap, and I think the Federal Reserve has taken some very important steps that will improve liquidity, the banking system, and that in turn will help the economy," Ackman said.

"I think the most significant thing the Fed has done is committed to putting $250 billion in the banking system. I think they're doing it the smart way."

Billionaire U.S. investor George Soros has a different idea of how the remaining $450 billion can be used.

Instead of purchasing troubled assets, Soros told the Financial Times that the money should be used to recapitalize the banking system.

"Funds injected at the equity level are more high-powered than funds used at the balance sheet level by a minimal factor of 12,” Soros said.

That would effectively give the government $8.4 trillion to “reignite the flow of credit,” Soros said.

"In practice, the effect would be even greater because the injection of government funds would also attract private capital. The result would be more economic recovery and the chance for taxpayers to profit from the recovery."