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October 1st, 2008
11:57 AM ET

Recapitalize the banking system

George Soros
Soros Fund Management

The emergency legislation currently before Congress was ill-conceived – or more accurately, not conceived at all. As Congress tried to improve what Treasury originally requested, an amalgam plan has emerged that consists of Treasury’s original Troubled Asset Relief Programme (Tarp) and a quite different capital infusion programme in which the government invests and stabilises weakened banks and profits from the economy’s eventual improvement. The capital infusion approach will cost tax payers less in future years, and may even make money for them.

Two weeks ago the Treasury did not have a plan ready – that is why it had to ask for total discretion in spending the money. But the general idea was to bring relief to the banking system by relieving banks of their toxic securities and parking them in a government-owned fund so that they would not be dumped on the market at distressed prices. With the value of their investments stabilised, banks would then be able to raise equity capital.

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Filed under: Bailout Turmoil • Raw Politics
soundoff (30 Responses)
  1. Mark T. Market

    I recently featured Fareed Zakaria's interview of Soros which is an interesting discussion of how bubbles form out of misconceptions and how reality sets in and bursts and crashes bubbles.

    Unlike other critics like Peter Schiff and Jim Rogers, Soros favors government intervention to regulate markets since he doesn't believe in the "self-correction to equilibrium" notion of markets.

    Soros' skeptical approach to human prediction of markets is similar to Nassim Taleb's ideas that history is inherently a fallacy and any prediction based on past data is imperfect at best.

    January 16, 2009 at 9:12 am |
  2. Helen Riddle

    I have been doing some thinking instead of giving 700B. dollars to wall street why don't we just give every person in the USA a million dollars and let them spent and invest that money, I think the population in the us is less then 700b I'm sure that would really help the economy and nobody would complain about spending tax payers money because what we would be doing would be giving the tax payers their money back. we would have new business open and employing people and people wouldn't be afraid to spent and invest that money. The first thing they would do is put the money in the bank. lets start with the little banks and let the money go back the Wall street.

    October 1, 2008 at 7:50 pm |
  3. Karine

    I have been watching CNN for the past week and there were a few disturbing points.
    1) Ali Velishi and Suze Orman practically lectured us Americans for not voting for the Bailout Bill to pass. Hello? We don't get to vote on it. There were 12 Republicans (some were interviewed as well) who blamed Pelosi or were against the bank regulation that the bill proposes. So, please tell your Ali and Suze to get off our backs! If you want to lecture someone, talk to the House of Representatives.
    2) Sen. McCain supposedly was around to ensure that the bill passed thru the House, with his connections to the representatives. Most of the representatives don't even know him! There is no communication between Senators and the representatives, and it's hilarious to think that McCain has some clout with them.
    3) It's also interesting how no one.. no one has mentioned that McCain was involved in a shut-down of a local Irvine Savings and Loan bank in 2001. He absconded with the money, with 4 of his other friends including Keating (the CEO) who had to serve 4 1/2 years for his crime. All McCain got was a slap on the wrist. Last week, some of the Irvine residents who lost alot of their money in that bank received an apology letter from McCain. After this type of scandal, how could anyone trust McCain to go for this bailout bill? He was part of the problem! Look it up, CNN.. it's true!!

    October 1, 2008 at 3:55 pm |
  4. Noel

    McCain wants to freeze our Goverment spending How can you add this amount of debt and then punish the taxpayers with a freeze.If they would get gas prices down to 1.50 a gallon and Insurance premiumns affordible things might get better but instead of freezing Corprate Profits he going to let things get worse on Main St..Get out of Iraq save 12 billion a month.Freeze food prices not the programs that help poor families!They have created more poor than at anytime in my life,its sad to think of how selfish this is.

    October 1, 2008 at 3:49 pm |
  5. gretchen

    This is not just about houses, television sets, and big investors. The farm next to me can't get a loan. Now we don't have a Main Street or a Wall Street out here. We do, however, have a whole bunch of food that people in towns with streets by those names seemed to enjoy eating in the past. On the other hand, with as hard as some of those people are making it to deliver that food by driving up the price of fuel, making it impossible to get loans, I guess maybe all those places with fancy street names are planning to go on a diet this winter. Personally, everything I am planning to eat is in walking distance. I can pick it and can it faster than a trip to the grocery store. Those of you who get your food trucked into your stores from way out here may want to think about what no credit and high gas prices at harvest time means for you, though.

    October 1, 2008 at 3:48 pm |
  6. Kim

    I just tried to write my Representative and this is the message on the website:

    "Messaging Service Unavailable

    The House of Representatives is currently experiencing an extraordinarily high amount of email traffic. The Write Your Representative function is therefore intermittently available. While we realize communicating to your Members of Congress is critical, we suggest attempting to do so at a later time, when demand is not so high. System engineers are working to resolve this issue and we appreciate your patience."

    October 1, 2008 at 3:30 pm |
  7. Thom Grimshaw

    1. I am really getting tired of all these generic statements being made by the very people who made a hash of their regulatory oversight. What 3 or 4 market parameters can the public keep an eye on to see for themselves if the bailout is working? (Please don't just say the stock market, because there are too many influences to sort out for the lay person.)

    2. Will CNN post these parameters for the public to check in on?

    3. What will the likely bailout/no-bailout impacts be for the small, sattellie countries in the Caribbean and Central America, who depend on a strong US economy for their survival?

    Thanks,

    Thom (In Belize)

    October 1, 2008 at 3:27 pm |
  8. D Wallace

    The problem with the current bailout plan is that it rewards those who caused this problem twice. 1st, there's a big cash payout, and then they are free to use and sell those same assets - that's double dipping.

    Since we are saying bad home loans are the source of this problem and banks need money to provide credit, etc., why not simply use the bailout money to rescue the homeowners who can't pay their bills. The banks will get their money, home assets will be in the hands of American people and not banks, and things will be okay, right? That's only if these knuckleheads are telling the truth about all this in the first place.

    Keep it simple stupid...

    October 1, 2008 at 3:26 pm |
  9. J from DC

    Thanks CNN for fighting hard last week with real news stories. I am sick of the Fox stations and all their selective reporting. Please continue to hit Fox hard, with real new reports, like you did last week. People here did notice and did talk about it. I heard more talk about CNN last Friday, then I had in months. We need CNN to win the News competition in the workplace.

    October 1, 2008 at 3:24 pm |
  10. Richard J. Senosiain

    A few quaestions that should be approached.
    1) is this a wall street bailout or a Bush bail out ?
    2) will this bailout plan resolve the problem , (we all know it will not)
    3) why should we pay as tax payers for a plan that will not resolve the issues. and get ourselves into a larger debt dilema
    4) what happens when the consumer spending crisis hits the market ? defaulted credit cards , defaulted car and other loans , defaulted student loans , are we going to have to go back and bail them all out , where will the money come from. ?

    If the problem is injecting money into the system , why not inject it through the tax payers , negotiate morgages , and the govt pay them to the banks, and give the prperties to the tax payers with a new mortgagecontract . and the govt will be the resposable for the tax payers payback at the price they bought it which should be a lot less. .
    The banks they will loose , Yes !! but its a cost for the abuses.

    By buying the properties , at lower prices the govt will be injecting capital and helping the agonied tax payers , and giving money to the banks buy buying back the properties. Important that an argument would be that all mortgage holders will stop paying , but this should be only for those in debt as of sept.25,2008

    For those that have their motgages in day upto sept.25th , should have some kind of tax benefit .

    THe Govt has no credibility , why not get out of Iraq (10 billion expenditure a month), why does the usa need to be the baby sitter of the world , it has been doing this long enough . We have been throwing money out the window long eneough .Now its time to take care exclusivly of main street .

    October 1, 2008 at 3:22 pm |
  11. Fred

    Banks should not be bailed out just because of poor management policies.

    I really appreciated the interview on Fast Money of the small bank manager who said she is not having problems with lending because their lending policies – requiring down payments, doing credit histories, etc., though not competitive, kept them from the mess the banks that offered higher savings returns, etc. are now experiencing.

    I say, let the big banks fall! They got themselves into the mess they are now in. Let the small banks that were prudent prevail! That’s what our capitalist system is all about – self-governing banks end up the winners instead of the losers to the banks that don’t use sustainable and prudent business practices.

    October 1, 2008 at 3:20 pm |
  12. larry

    NO to bailing out people who are defaulting on their mortgages! This all started back in 1999 when Illinois State Senator Barack Obama, his cult organization ACORN & POTUS Bill Clinton threatened banks with being tagged as racist if they did not give mortgages to people who would have been rejected on the basis of their ability to pay their mortgage.
    Let Obama, ACORN, Bill Clinton & Barney Frank ( yes he was involved and the the Fanny Mae investigation will bring all of them down)!!

    October 1, 2008 at 3:15 pm |
  13. Maurice

    Here is another idea regarding the current financial morass. The mortgage meltdown is said to be a direct result of resetting variable rate and balloon mortgages. Resulting foreclosures have depressed home values making the situation worse. If the Federal Gov't is going to step in, then why not require lenders to fix the rate on all that variable rate paper to the current 10 Yr. Treasury Bill rate (3.8%) or slightly higher, and extend the term for 10 years. The Federal Gov't could insure the mortgages and charge a fee about equal to PMI rates. This would make the mortgages marketable, and most people would be able to afford the monthly payments. The mortgage insurance fee ( 0.5%) would serve to offset losses, without making the monthly payments too high.

    October 1, 2008 at 3:00 pm |
  14. John

    I would like to see the government ask the CEO's of successful banks with a decent credit rating about what's needed to repair the credit situation since they are the ones needing to lend the money. For instance, what would the CEO's of US Bank and Bank of America suggest they need to handle business and basic loans.

    October 1, 2008 at 2:55 pm |
  15. James

    So long as we live in this world no more evolved than a pack of lions, seeking to devour the weak, the sick and the poor, we will ALWAYS be aimed for disaster. A little stupidity From congress in the Carter/Reagan years followed quickly by greed from money hungry investers looking to make a quick buck from those "preyed" upon people who live pay check to pay check. And now we the people are asked to "bail out" there greedy butts. To this I say " you commit a crime against humanity NO BAIL NO BAIL. It is sad to think I just put $100,000 into a CD and it could be gone in a flash... I stand in protest and am deeply ashamed of the values we teach our children in this country. Have you no shame at all?

    October 1, 2008 at 2:28 pm |
  16. J from DC

    Everyone here in DC is still confused about this bill. We all think it needs to be done, but have no idea if we are being duke into it. That is the real problem. No one has faith that the Bush Administration will tell us the truth. And since we can’t see the books, we don't know the true state of these financial institutions, except for what we are told. One thing is clear. However, Obama seems to have more creditability then McCain on being able to work with congress to get this country back on the right track. The more Democrats we elect to congress, the better chances for work getting done in 2008 alongside a president Obama. It is the only way to ensure that we suffer no more congressional Gridlocks. It will also give us a government we can have faith in. All we can do now is vote Democratic for change in this election.

    October 1, 2008 at 2:26 pm |
  17. Lisa B, Yucca Valley, CA

    How about keeping them honest in the Senate and Congress and point out that there are other plans being proposed by Representatives Kaptur and Fazio, that WOULD NOT cost taxpayers $700 Billion, and that would be more effective in fixing the basic problem of tight credit, while NOT mortgaging America's future and giving a windfall to Banks and Wall Street and Foreign Banks? and not to mention the current bailout bill STILL gives Paulson unprecedented power.! What the Senate has added as sweetners is like blackmail, trying to coerce votes by saying basically if you don't vote for this idiot bill, You are against tax cuts for middle class and against energy programs, etc. Get real, $700 Billion and the interest on that borrowed money will overwhelmingly outweigh the benefit, but it is taxpayers who will feel the crunch, not Wall Street.

    October 1, 2008 at 1:46 pm |
  18. Twylla Ford

    From where did this magic number $700 Billion derive? Why do they continue to say THIS IS THE EXACT AMOUNT needed? Can we not call on those making these huge salaries, yet responsible for the resulting problems, to contribute their last bonus(es) toward this huge deficit?

    How can we trust anything they say, when we've been told (until this past week) that "There is no problem" – "The economy is going to be fine"? There must be a way to solve this problem without handing these same people $700 Billion. Listening to Hank makes me sick.

    October 1, 2008 at 1:44 pm |
  19. Randy Dear

    You can blame three groups of people for the current financial problems that this country is experiencing. The policeis and laws that congress has passed, the greedy banks and lenders, and the stupid people who bough in to the subprime and ARM game. You could also blame the educational system for not teaching us something about financial responsibility and how to manage money and then you could blame all of us who continue to elect the idiots who got us into this mess.

    October 1, 2008 at 1:19 pm |
  20. Adam Gavel

    What I don't understand is why the American government would want to use the money of the average joe who has just enough money to get by to bail out the mistakes of the people who have all the money in the markets? Seems pretty foolish to use the money of the people who don't have much money to save the hand full of people who have lots of money.

    October 1, 2008 at 1:14 pm |
  21. Jay Cooper

    What about recapitalizing the banking system by distributing the $700 billion to the gainfully employed taxpayers? If they are responsible, they will take that payout and pay down or pay off mortgages (bolstering the weak banks who hold toxic loans), maybe create jobs or start companies. But don't forget, they would also pay 30% tax on the pay out generating more tax revenue. Who better to stimulate this recovery than the people who drive it every day? Also, it would probably be a lot easier to get politicians to vote for that kind of plan than the one they turned down – especially in an election year!

    Thanks!
    Jay Cooper – Forest, VA

    October 1, 2008 at 1:02 pm |
  22. Corinna

    Say what you may it will not work because it doesn't provide what is needed to create stability and economic balance in the foundation of America. Perception and confidence is not the problem. It should not pass.

    October 1, 2008 at 12:53 pm |
  23. Susan in NC

    Perhaps I'm naive, but I'm truly looking for an answer to a question. First of all, let me say that I support the 'bail-out' bill (let's call it what it is) and I also support mental health issues being covered as are physical ailments. The news reports this morning say other 'add-ons' are included, but I've not been able to find out what those are. Frankly, what does one have to do with the others? I do understand that these add-ons aren't for tea kettle museums in wherever or for the study of bear DNA in Montana, but aren't they at least similar to the 'pork barrel spending' that everyone's talking about? Why can't items unrelated to one another be separated? I truly don't understand.

    October 1, 2008 at 12:52 pm |
  24. Rafiq Basaria

    My motto is KISS, keep it simple stupid and transparent stupid greedy politians. Goverment should act as a bank lending banks money at nominal interest rate (2%), there is no gray area in this. The bank makes monthly installment as we do, the first payemnt could be delayed 6 months or 12 for that matter, that will solve liquidity problem. No dividend sahould be allowed till the %50 of the pricipal loan is paid off. CEO salary capped (1 mill a yr, y=total) till the entire loan amount is paid.

    let the prices of home come down, they will not go to zero, they will bottom out to the point where an ivester will buy and rent it and have some ROI. If the banks do not pay then govt can foreclose on the bank

    October 1, 2008 at 12:50 pm |
  25. JAY

    No bailout rescue or whatever you want to call it. This better not pass in the congress. I contacted one of my reps. Bill Nelson or at least one of his people answering the phone and the guy said that he hadn't had not one call in support of this BAILOUT go figure...

    October 1, 2008 at 12:48 pm |
  26. wes

    The divide between Republican and Democrat may seem wide, however, the REAL divisions between us all are much older and immeasurably more vast. They are the philosohical differences between the priveledged elite and the struggling poor. Between the "redneck" with the deer across the hood of the pickup with the N.R.A. bumpersticker and the "bleeding-heart liberal" shouting on streetcorners in support of Animal Rights. Between those whose world view consists of "our pople" and "those other people". The 3 landmark trials in our history go on without resolution after many decades: The 1925 Scopes trial, Brown vs. the Board of Education and Roe vs. Wade. Such resolution requires us to examine the content of our characters. The sad countenence of Mr. Linclon still waits for us all to heed the council of "the better angels of our nature". You see, as Mr. Lincoln said: "A house divided against itself cannot stand." America is in SERIOUS trouble. Our current financial woes are but one more symptom.

    October 1, 2008 at 12:46 pm |
  27. Cindy

    NO bailout for mortgages! I don't care what anyone says...I will not pay for someone else's house when they are the ones that had to have something that they could not afford! If this is what is keeping the bill from being passed I hope it never gets passed then. Why should I bail out these people who don't use common sense? They made their bed now they have to lie in it. And I would say the same about the big banks and companies if it were not for the fact that if they closed then a lot of innocent, common sense using people would be jobless or homeless.

    Cindy...Ga.

    October 1, 2008 at 12:38 pm |
  28. Melissa, Los Angeles

    After reading the interview with Ron Paul on CNN, I agree with him no bailout should be given. Sorry George, you work for or are those slimy crooks and I don't believe a word you say.

    October 1, 2008 at 12:25 pm |
  29. PresFight.com

    Yes.... so they can go lend more money and create more toxic loans for the Government to bail them out again 5 years from now.

    October 1, 2008 at 12:11 pm |
  30. Hector Erazo

    Hypothetical Scenario:

    Why are you not suggesting to my neighbor that has paid his mortgage on time and has not gone over his head with easy credit that I need help because it will ultimately affect his home value if my home goes into foreclosure and lose my home? Surrounding property values are all adversely affected by neighboring foreclosures, causing a domino effect that will ultimately be felt by the city we live in as tax receipts drop precipitously. When this occurs, cities and towns will begin to cut back on basic services and finally let public employees go. To be fair to those less fortunate and under threat of foreclosure and losing their homes, during the good times, the “frugal” and reluctant neighbor, not having any troubles with mortgage payments today, may certainly have benefited from the boom in housing values and very likely cashed in much of their equity. It was certainly because of the availability of easy credit that many stable home owners saw the values of their homes increase over the very same years that regulators let mortgages lending and securitization of these assets go unchecked.

    San Francisco

    October 1, 2008 at 12:06 pm |

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