Soros calls for break-up of big banks

From BBC News 1/27/2010,

By Tim Weber
Business editor, BBC News website, in Davos

Legendary investor George Soros has called for a radical break-up of banks that are "too big to fail".

He also backed US President Barack Obama’s proposed reforms to limit the size of banks at the World Economic Forum in Davos.

Speaking at a private lunch, Mr Soros told journalists that Wall Street bankers opposing Mr Obama’s plans were "tone-deaf".

‘Goldman in Somalia’

Analysing attempts to overcome the crisis, Mr Soros had plenty of praise for Mr Obama’s plan to split big banks – separating their commercial banking bits and their investment arms.

Even after the break-up proposed by Mr Obama, most investment banks would "still be too big to fail," Mr Soros told the lunch guests.

To contain these banks, he said all major economies would have to agree on a common set of financial regulation that set strict limits for leverage – how much money the banks can borrow to invest.

Without a global agreement, capital would simply move to the least regulated country.

However, if all major economies participated, they could exercise the necessary controls over money flow to prevent rogue states from circumventing the system – or stop "Goldman Sachs from setting up shop in Somalia," as one of the participants called it.

Super bubble

Mr Soros called the current economic crisis a "super bubble" that had been "generated by the system itself," and was the culmination of 25 years of "smaller bubbles" and misguided attempts to tackle them.

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