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.
And those rights to subscribe would be trade-able. So if the shareholders don't have money themselves, they can sell the rights to someone else, who does have the money. And the deal would be attractive enough because if the treasury is willing to buy those shares, then that is probably the cheapest price at which you can buy. So it would attract private capital.
Q: I'm pleased to note that you sound more optimistic right now than you have in recent days when you've said some rather gloomy things. What has changed if anything?
A: Well I think that the secretary of the treasury has come around, eh, to this view. And I think that also the European governments realize that they have to fix their system. And eh, you know when you go to the brink as we are right now, then something happens to pull you back. Because the alternative of allowing this to continue is so horrendous that even people who don't want any government intervention realize that such intervention IS necessary.
Q: You have been a phenomenally successful investor over the years. As you look out at the stock market right now, do you see bargains out there? Is now the time to buy?
A: Well you know I don't want to give people advice, eh, I think people have to make up their own minds. But certainly you are now in a period, of lets say, give up. And at times like this there are bargains. But unless the government does the right things, eh, then things could still go wrong.
And in any case, the real economy is now going to enter into eh, quite serious recession. But if you do the right things, then you could see how you could come out of that recession.
You could see across the valley. And when you can see across the valley, then usually financial markets do it, and you find that at the time of recession, actually, stock markets tend to go up, rather than go down.
Q: I've heard you say recently that we're entering into a new and more difficult era What do you mean by that? That the United States will have less power in the world, and also perhaps that American citizens will have less money in their pocket?