Wed Jan 28, 2009 10:03am EST
DAVOS, Switzerland, Jan 28 (Reuters) - The United States needs to recapitalise its banks but should consider the creation of a "good bank" when considering how to deal with the toxic assets, hedge fund manager George Soros said on Wednesday.
Speaking to Reuters Television at the World Economic Forum in Davos, Soros said the planned U.S. fiscal stimulus and proposals for creating a "bad bank" to pool banks' bad loans and assets may help ease the economic crisis stateside.
But he said these were "only palliatives".
"They need a thorough reorganisation of the mortgage system and you have replenish the equity of the banks," Soros told Reuters. "That now would require an injection of about a trillion and half dollars -- much more than if they had done it previously under the TARP (the $700 billion Troubled Asset Relief Program agreed by Congress last year)."
Soros added: "The well has been poisoned by the way the TARP money was used.
"It needs a good bank/bad bank solution, but I would do it differently than what is proposed," the Hungarian-born speculator-turned philanthropist said.
"I would keep the capital of the banks together with the bad assets in the bad bank and then create a new bank with the good assets of the bank and the recapitalise that, giving the shareholders the right to put in more money," he said.
"Without this the banks will not lend, because they know there is a lot of deterioration coming."
Earlier Soros told a press lunch that the "financial structure we used to take for granted has collapsed" and everyone was in a "state of shock" as the financial storm spread internationally and into the real economy.
He said the bankruptcy of Lehman Brothers investment bank last September was a "watershed event" and the financial system was now on "artificial life support." For full coverage, blogs and TV from Davos go to www.reuters.com/davos (Reporting by Mike Dolan; editing by Stella Dawson)
Speaking to Reuters Television at the World Economic Forum in Davos, Soros said the planned U.S. fiscal stimulus and proposals for creating a "bad bank" to pool banks' bad loans and assets may help ease the economic crisis stateside.
But he said these were "only palliatives".
"They need a thorough reorganisation of the mortgage system and you have replenish the equity of the banks," Soros told Reuters. "That now would require an injection of about a trillion and half dollars -- much more than if they had done it previously under the TARP (the $700 billion Troubled Asset Relief Program agreed by Congress last year)."
Soros added: "The well has been poisoned by the way the TARP money was used.
"It needs a good bank/bad bank solution, but I would do it differently than what is proposed," the Hungarian-born speculator-turned philanthropist said.
"I would keep the capital of the banks together with the bad assets in the bad bank and then create a new bank with the good assets of the bank and the recapitalise that, giving the shareholders the right to put in more money," he said.
"Without this the banks will not lend, because they know there is a lot of deterioration coming."
Earlier Soros told a press lunch that the "financial structure we used to take for granted has collapsed" and everyone was in a "state of shock" as the financial storm spread internationally and into the real economy.
He said the bankruptcy of Lehman Brothers investment bank last September was a "watershed event" and the financial system was now on "artificial life support." For full coverage, blogs and TV from Davos go to www.reuters.com/davos (Reporting by Mike Dolan; editing by Stella Dawson)