George Soros Explains Why This Is Not A Good Time To Recapitalize Banks

George Soros explains why it is not a good idea for Europe to recapitalize banks now. He thinks that it is not a good time for governments to put up funds to recapitalize banks when the added risk to governments is driving up their cost of debt. Furthermore it is not a good time for banks to recapitalize when their shares are selling below book value. This will give them an incentive to reduce their balance sheets by withdrawing credit lines and shrinking loan portfolios. That would be damaging to economic growth which is needed to service sovereign debt.

Soros suggests that it would be better to guarantee the bank debt first and to recapitalize the banks after the crisis has abated and government bonds prices and banks shares return to normal. He proposes a plan for doing this that does not require a renegotiation of the treaty.