Soros made his proposal in an article published Wednesday by the Financial Times.
"Instead of purchasing troubled assets, the bulk of the funds ought to be used to recapitalize the banking system," Soros wrote.
Soros also discussed the idea with presidential candidate Barack Obama, The Hill newspaper reported Wednesday.
"The two main principles are to inject more cash into the securities market and shore up home mortgages," said Rep. Jim Moran, D-Va.
"He doesn't think the government should be buying up toxic stock," Moran said.
In his article, Soros complained that "securities are hard to value, but the sellers know more about them than the buyer."
"In any auction process the Treasury would end up in the dregs," Soros wrote.