Soros floats alternative bailout to Dems & Obama Campaign (The Hill)

[chill_wind]

Soros floats alternative bailout plan with Dems
By Alexander Bolton
Posted: 09/30/08 11:19 PM

The billionaire financier George Soros, a major Democratic financial backer, is floating his own rescue plan among Democratic lawmakers who are uncertain what to do in the wake of a surprise defeat of a proposed $700 billion rescue package proposed by Treasury Secretary Henry Paulson.

Soros has outlined his plan in an opinion editorial in the Financial Times and circulated a concept paper among decision-makers.

Specifically, the liberal philanthropist has proposed that government funds should be used to recapitalize the American banking system by purchasing equity in banks and investment firms.

Democratic Rep. Jim Moran (Va.) scheduled a meeting Tuesday afternoon with Robert Johnson, a former manager of the Soros Fund Management, to discuss the proposal.


Soros has also contacted Sen. Barack Obama’s (D-Ill.) presidential campaign to share his views on the financial crisis and the best way to solve it.

Soros described the plan he outlined in his concept paper in an opinion editorial that appeared in the Financial Times early Wednesday morning, Greenwich Meridian Time.

“Instead of purchasing troubled assets, the bulk of the funds ought to be used to recapitalize the banking system,” Soros wrote.

“The Treasury secretary would rely on bank examiners rather than delegate implementation of to Wall Street firms,” he wrote in reference to the plan first crafted by Treasury Secretary Henry Paulson. “The bank examiners would establish how much additional equity capital each bank needs in order to be properly capitalized according to existing capital requirements.”

“The recapitalized banks would be allowed to increase their leverage, so they would resume lending,” he wrote.

(...)

The international financier would also like the government to take direct action to shore up the ailing housing market.

“The scheme addresses only one half of the underlying problem -- the lack of credit availability. It does very little to enable house owners to meet their mortgage obligations and it does not address the foreclosure problem,” Soros wrote in Wednesday’s commentary .

“A revised emergency legislation could also provide more help to homeowners,” he wrote of a package based on his own proposals. “It could require the Treasury to provide cheap financing for mortgage securities whose terms have been renegotiated, based on Treasury’s cost of borrowing.”

He has also suggested prohibiting mortgage companies from charging fees on foreclosures. Many companies are quick to foreclose because they no longer own the loan itself, which has likely been turned into a security.

Instead, these companies make money by charging delinquent borrowers during the foreclosure process.

Soros has emerged as a harsh critic of the Treasury Department, especially of Paulson’s proposal for the government to buy $700 billion of distressed mortgage-backed

securities to restore the flow of credit in the financial markets.

more: http://thehill.com/leading-the-news/soros-floats-alternative-bailout-plan-with-dems-2008-09-30.html

[Skink]

1. How about not even vote. Markets are fine now.

Markets even seem in line with inflation. Or is 400 sq feet worth 650 a month.

[sandnsea]

2. Housing and Economic Recovery Act, July 2008

Why didn't these geniuses make sure all of this got into the bill that hasn't even gone into affect yet.

[chill_wind]

3. Some help for homeowners. n/t

[amandabeech]

4. This is clearly more targeted and perhaps less reliant on ex-Wall Streeters

for implementation.

It is somewhat similar to what Buffet is getting.

I'm less sure about the mortgage restructuring. The housing market went up ridiculously in some places and it is going to have to go down to return some sanity to the average person's budget.

Not everyone is going to be able to keep his or her house. Working something out for people who could manage on a 40 year fixed is one thing. However, bringing the market down by writing down loans by 50% for people who shouldn't have had the mortgage in the first place is too much. They're going to take a hit.

I'd like to see a plan for going after the mortgage brokers who put people in these ridiculous mortgages in the first place, if a basis for suits could be found.

[mhatrw]

5. John Hussman, James K. Galbraith and Paul Krugman all agree that this is a better plan.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x44788

[chill_wind]

8. thanx for the link. n/t

[chill_wind]

6. Here's his FT article. How much MSM attention has this one gotten?

(this is from page two:

A scheme so heavily favouring Wall Street over Main Street was politically unacceptable. It was tweaked by the Democrats, who hold the upper hand, so that it penalises the financial institutions that seek to take advantage of it. The Republicans did not want to be left behind and imposed a requirement that the tendered securities should be insured against loss at the expense of the tendering institution. The rescue package as it is now constituted is an amalgam of multiple approaches. There is now a real danger that the asset purchase programme will not be fully utilised because of the onerous conditions attached to it.

Nevertheless, a rescue package was desperately needed and, in spite of its shortcomings, it would change the course of events. As late as last Monday, September 22, Treasury secretary Hank Paulson hoped to avoid using taxpayers' money; that is why he allowed Lehman Brothers to fail. Tarp establishes the principle that public funds are needed and if the present programme does not work, other programmes will be instituted. We will have crossed the Rubicon.

Since Tarp was ill-conceived, it is liable to arouse a negative response from America's creditors. They would see it as an attempt to inflate away the debt. The dollar is liable to come under renewed pressure and the government will have to pay more for its debt, especially at the long end. These adverse consequences could be mitigated by using taxpayers' funds more effectively.

Instead of just purchasing troubled assets the bulk of the funds ought to be used to recapitalise the banking system. Funds injected at the equity level are more high-powered than funds used at the balance sheet level by a minimal factor of twelve - effectively giving the government $8,400bn to re-ignite the flow of credit. In practice, the effect would be even greater because the injection of government funds would also attract private capital. The result would be more economic recovery and the chance for taxpayers to profit from the recovery.

This is how it would work. (see full article)

Recapitalise the banking system
By George Soros
Tuesday Sep 30 2008 20:15

page 1: http://us.ft.com/ftgateway/superpage.ft?news_id=fto093020082123483604&referrer_id=yahoofinance

[crazylikafox]

7. “would rely on bank examiners rather than delegate implementation of to Wall Street firms,”

I like that part.

[JimDandy]

10. Hear, hear!! n/t

[FlyingSquirrel]

9. Any plan proposed by George Soros is doomed from the beginning.

Helloooooooo. Republicans absolutely can't stand him.

They'd never get the votes, and if they did Bush would veto it.

[chill_wind]

11. Which is why they'll probably go with the Bush Blow Job Act 2008

It's a lot faster and easier. And quite familiar.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4138697#top

[nadinbrzezinski]

12. SOme of this MIGHT be doable

of course that means I will have more readying tomorrow

Not all is wonderful, but I like his way to deal with foreclosures much better

And the capitalization will have to happen, but I want a pound of flesh for that

I just wonder if they have time

[mhatrw]

13. Soros, Hussman, Galbraith & Krugman all basically agree.

I personally think http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x44788">Hussman's plan is the most evenhanded and fully thought out, but all agree on the basics and all are vastly superior to Paulson's folly.

So does the http://www.guardian.co.uk/commentisfree/2008/sep/29/wallstreet.useconomy">rest of the world:

Whenever there is a systemic banking crisis there is a need to recapitalise the banking/financial system to avoid a destructive credit contraction. But purchasing toxic/illiquid assets of the financial system is not the most effective and efficient way to do this. Such government-led recapitalisation – via the use of public resources – can occur in a number of ways: by purchasing bad assets or loans; an injection of preferred shares; an injection of common shares; a purchase of subordinated debt; an issuance of bonds to be placed on the banks' balance sheet; an injection of cash; credit lines extended to the banks and government assumption of government liabilities. A recent IMF study (pdf) of 42 systemic banking crises across the world shows how different crises were resolved.

In only 32 of the 42 cases was there any government financial intervention of any sort; in 10 cases systemic banking crises were resolved without any such action. Of the 32 cases where the government did recapitalise the banking system, only seven included a programme of purchase of bad assets/loans (like the one proposed by the US Treasury). In 25 other cases there was no state purchase of such toxic assets. Even in cases where bad assets were purchased – as in Chile – dividends were suspended and all profits and recoveries had to be used to repurchase the bad assets. Of course, in most cases multiple forms of government recapitalisation of banks were used.

But government purchase of bad assets was the exception rather than the rule. It was used only in Mexico, Japan, Bolivia, Czech Republic, Jamaica, Malaysia, and Paraguay. Even in six of these seven cases, purchase of bad assets such recapitalisation was combined with such moves as government purchase of preferred shares or subordinated debt. In the Scandinavian banking crises (Sweden, Norway, Finland) which are a model of how a banking crisis should be resolved, most of the recapitalisation occurred through various injections of public capital rather than a government purchase of bad assets. Purchase of toxic assets – in most cases in which it was used – made the fiscal cost of the crisis much higher and expensive (as in Japan and Mexico). Thus the claim by the Fed and Treasury that spending $700bn of public money is the best way to recapitalise banks has absolutely no factual basis or justification. It is a total rip-off that will mostly benefit – at a huge expense for the US taxpayer – the common and preferred shareholders and even the unsecured creditors of the banks. ...

Thus, the treasury plan is a disgrace: a bail-out of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown. It is pathetic that Congress did not consult any of the many professional economists that have presented – many on the RGE Monitor Finance blog forum – alternative plans that were more fair and efficient. This is again a case of privatising the gains and socialising the losses; a bail-out and socialism for the rich, the well-connected and Wall Street. And it is a scandal that even Congressional Democrats have fallen for this treasury scam that does little to help millions of distressed, debt-saddled home-owners.

[Peace Patriot]

14. Nope, fund the people at the BOTTOM. They will re-capitalize the economy,

as always--through their hard, productive, loyal WORK.

[slipslidingaway]

15. K&R n/t