Soros warns against “bad bank” option: report
Setting up a ‘bad bank’ to absorb toxic assets of troubled U.S. lenders — a move the Obama administration is debating — would be an error on political and financial grounds, billionaire financier George Soros said.
The process would lead to difficulties in valuing toxic securities and generate covert subsidies for affected banks, generating “tremendous political resistance to any further (bailout),” Soros wrote in a commentary in the Wall Street Journal on Wednesday.
The U.S. administration is thought to be considering creating a government entity to take toxic assets off banks’ balance sheets as part of a $900 billion stimulus package President Barack Obama hopes to see passed by mid-February.
European leaders are reviewing similar options — already under discussion by the German, British and Dutch governments — and will take their proposals to April’s G20 meeting, European Union economic chief Joaquin Almunia said on Monday cashadvance.
Soros said he favored putting toxic assets into a ’side pocket’, where the appropriate amount of capital — equity and unsecured debentures — would be sequestered.
This would cleanse the banks’ balance sheets while leaving them undercapitalized. “The same $1 trillion that is now destined to fund the (U.S.) bad bank could then be used to infuse capital into the good banks,” he wrote.
(Reporting by Bhaswati Mukhopadhyay in Bangalore; editing by John Stonestreet)
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