Soros: 'Bad Bank' for Troubled Assets Is Bad Idea

Tuesday, Feb 3, 2009  |  Updated 3:03 PM CDT
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Billionaire financier George Soros told CNBC he disagrees with plans to create a new government entity to buy up troubled bank loans and believes former Treasury Secretary Henry Paulson mis-managed the first rescue attempt of financial institutions.

"That (the "bad bank" proposal) will help relieve the situation, but it will not be sufficient to turn it around," Soros said during a live interview at the Davos economic conference in Switzerland. Instead, Soros said he would create a "good bank" and re-capitalize the good assets.

He admitted his alternative plan is not likely to get support because it too closely approaches nationalization. "The political will to do that is not there," he said.

As to Paulson's handling of the first half of the $700 billion Wall Street bailout fund known as TARP, Soros said the money was used "capriciously and haphazardly."  He said half of it has now been wasted, and the rest will need to be used to plug holes.

Although Soros saw trouble ahead, he stresses he did not foresee how bad it was going to get after the "life-changing event" of the Lehman Brothers bankruptcy.

"The storm that started in the financial system has now spread, in a very big way, to the real economy," he said.  "It has fallen off the cliff following the Lehman thing."

He believes still more must be done to turn the slowing of decline into real economic growth, including the reorganization of the mortgage system, and skillful handling of the international repercussions.

For more stories from CNBC, go to cnbc.com.

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