Soros Backs Plan to Buy Equity in Banks

A: Well putting money at the level of the capital injection is much more high-powered money, because you only need to maintain 8 percent eh, capital for your balance sheet. If you're putting money at the level of the balance sheet, you eh, you know, need to put in 100 percent. Here you only need to put in 8 percent. So $700 billion would be sufficient to recapitalize the banks, but it wouldn't be sufficient to take off their hands all the bad stuff that they've accumulated. In addition, if you, eh, make the terms right and I spell this out in an article in the Financial Times tomorrow, then I think you could attract eh, private capital. Existing shareholders and giving them rights to subscribe, which they could sell to others. Other investors, to come in, and you may not even need tax payers money for this.

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Q: I'm sorry to be obtuse, but I think for a lot of our viewers some of this is hard to understand, and so why don't we just take another crack at this. In the simplest possible terms, what is the difference between the initial plan, which was to buy the bad or toxic mortgage assets the banks were holding, and the current plan, which appears to be to have the government go in and say we're going to be part owner of these banks.

A: If you inject eh, money into the capital of the banks themselves, that is much more high-powered. Because eh, you only need to have for eh, a hundred dollars worth of loans, you only need 8 percent capital. So if you provide additional capital, then you can support a lot more of, of the the balance sheet than if you take some of the assets from the balance sheet and take it off the hands of the banks.

So it is much more effective. It's also would be the right thing to do because there is a hole, the banks lost money, they need to replenish eh, their equity. And that could be done by shareholders themselves, eh, or by others who want to invest. Because the, the Treasury would merely underwrite the issue but would give preference to the existing shareholders to subscribe.