Soros Backs Plan to Buy Equity in Banks

The following is a transcript of a "World News" interview by ABC News' Dan Harris of George Soros, the billionaire entrepreneur and philanthropist, who has just published a book titled "The Credit Crisis of 2008 and What It Means."

Q: So, you have consistently said that governments, including the American government have been behind the curve during this crisis. Have you seen anything over the last 48 hours that's made you more optimistic that governments are catching up?

A: Yes, I think that the Secretary of Treasury Paulson is coming around to the need to inject capital, equity capital into the banking system directly. And I think...

Q: But this is a big shift, I'm sorry to interrupt you sir, but that's a big shift, isn't it, because the White House and the Secretary of the Treasury initially said they didn't want to take partial ownership in these banks. Have they wasted time in the last couple of weeks focusing on this $700 billion bailout?

A: I'm afraid that a lot of time has been lost and a lot of altitude has been lost. But eh, I think that if they announce a coherent plan now and if they also act and I think they probably need to take action on Morgan Stanley right away, then I think the market will stabilize and they will have time to implement the scheme.

Q: Do you have any optimism that we may have seen the worst of this crisis?

A: Yes I think there's a good chance that Friday intraday low was eh, a good bottom, if a number of things are now done. Eh, one is recapitalize the banks, eh and then you also have to do something about the housing market and reforming the mortgage system, and reducing the foreclosures.

Eh, then I think eh, you will of course have the repercussions in the, eh, real economy, but at least the financial system which has been the source of the trouble will begin to heal.

Q: What is the difference between recapitalizing the banks, to use your phrase, which is essentially buying, having the government buy a share, an ownership stake in these banks, and the initial plan which was to buy back the bad assets that are on the banks' books right now? What's the difference?

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.

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.

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