Warren Buffett I Haven't Seen As Much Economic Fear In My Adult Lifetime - Charlie Rose Interview
Warren Buffett appears on the Charlie Rose program, October 1, 2008
In an interview tonight (Wednesday) with Charlie Rose on PBS, Warren Buffett says, "In my adult lifetime I don't think I've ever seen people as fearful, economically, as they are now... The economy is going to be getting worse for a while."
Bloomberg also reports Buffett tells Rose that the freezing of credit markets is "sucking blood" from the U.S. economy, which he compares to a heart attack victim "flat on the floor."
Earlier today, in a telephone interview with CNBC following the announcement that Berkshire Hathaway is investing $3 billion in General Electric, Buffett criticized Congress for not acting sooner on a financial rescue plan:
"You've had an economy that's like a great athlete that's had a heart attack, cardiac arrest, and the paramedics that have come, (and are) arguing (about) who was at fault, the athlete should have been checking his blood pressure more carefully. The important thing is to apply the resuscitator. It doesn't help spending time worrying about who is to blame for the patient having the heart attack."
Buffett told us he still thinks Congress will "do the right thing" but will "feel better after the votes have been counted." He warned that there will be "terrible, terrible" problems if Congress doesn't take action, sooner rather than later.
COMPLETE TRANSCRIPT OF BUFFETT'S INTERVIEW WITH CHARLIE ROSE
Here is a complete transcript of tonight's Warren Buffett interview with Charlie Rose, airing on PBS. It was provided to CNBC by the Charlie Rose program.
are in San Diego, California this afternoon for a conversation with Warren
Buffett. He is a man congressional leaders, the administration, and the Federal
Reserve want to talk and talk to. He is the legendary chairman and CEO of
Berkshire Hathaway. Its success has made him the world's richest man. He's
admired for his investment results over a long period of time. He is trusted for
his common sense and the fact that he's warned over the years, in his annual
letter to stockholders, about some of the things that are contributing to the
crisis facing America and the global economy. For all those reasons, we have
come to see him in San Diego where he is attending the Fortune
Magazine's most powerful women's summit. Later, he will be
interviewed at a conference by the Fortune reporter and long time friend, Carol
Loomis. We come this evening from the studios of our public television affiliate
in San Diego, KPBS. I thank my friend, Warren Buffet, for taking time in a busy
schedule to talk to us.
me talk of the news of today. You have announced an investment of $3 billion in
General Electric, along the same terms as the the Goldman Sachs --
I got a call this morning from a friend of mine at Goldman Sachs saying they
might be interested in such an investment. I'm familiar with the company. I've
known the management, the current management, Jack Welch before Jeff Immelt.
I've known him for decades. And so I understand their businesses. We do lot of
business with him, and GE has been -- I think it's the longest running stock in
the Dow Jones industrial average. It will be 100 years now it will be around. I
hope I'm around then, too. And it was an attractive investment. And we have had
a lot of money around, over the last two years, and we're seeing things that are
you looking at other things?
look at everything, Charlie. That's my job. I really do. I mean every day, I
think about everything, yeah.
know, but cash is said to be king now. Are you sitting on a lot of cash so that
this is the time for Berkshire Hathaway and Warren Buffet to look carefully at a
lot of opportunities.
we want to use cash. The reason we haven't used our cash two years ago, we just
didn't find things that were that attractive. But when people talk about cash
being king, it's not king if it just sits there and never does anything.
There are times when cash buys more than other times, and this is one of the
other times when it buys a fair amount more, so we use it.
is a time to accumulate and a time to spend.
You want to be greedy when others are fearful. You want to be fearful when
others are greedy. It's that simple.
are they now?
Warren Buffett: They're
pretty fearful. In fact, in my adult lifetime, I don't think I've ever seen
people as fearful economically as they are right now.
is that, do you think?
it's because they -- they have seen the credit market seize up. They're
worried about money market funds, although the latest proposition from
government should take care of that. They've seen eight percent of the bank
deposits in the United States get moved very skillfully, I might say, within the
last couple of weeks from institutions that they thought were fine a few months
ago to other institutions. They are not wrong to be worried.
it being felt as people often point out on Main Street?
I've read about all the sales today. If you're an auto dealer, you're feeling
it. If you're a furniture retailer like we are, you're feeling it. If you're a
jewelry retailer, you're feeling it. I know some of these businesses because
we're in them. Yeah, it's being felt, but it will be felt big time more if we
don't do something about it, what's going on.
Senate will vote sometime this evening.
Charlie Rose: Are you satisfied with that rescue plan?
Warren Buffett: Well, I don't think it's perfect, but I don't know that I could draw one that's perfect. But I'd rather by approximately right than precisely wrong, and it would be precisely wrong to turn it down. We need -- we have a terrific economy -- it's like a great athlete that's had a cardiac arrest. It's flat on the floor, and the paramedics have arrived. And they shouldn't argue about whether they put the resuscitation equipment a quarter of an inch this way or a quarter of an inch this way, or they shouldn't start criticizing the patient, because he didn't have a blood pressure test or something like that. They should do what's needed right now. And I think they will. I think the Congress will do the right thing. I think that they've -- you know, they got into certain arguments and they start worrying about assessing blame, and there is a little demagoguery, but in the end, something this important, they'll do the right thing. So this really is an economic Pearl Harbor. That sounds melodramatic, but I've never used that phrase before. And this really is one.
Charlie Rose: Go through why that is true beyond the fact that there is a freeze on credit, beyond the fact that nobody is making loans, beyond the fact that banks don't lend to backs beyond the fact that treasury bills are at a low.
When 40 billion of treasury bills are sold like they were last week, seven
day treasury bills, at a yield of 1/20th of one percent, that means the whole
country is basically at the point virtually, or a lot of the country is at the
point of putting the money under the mattress. One twentieth of one percent
away from where it's betting to put it under the mattress. You don't want 300
million Americans putting their money under the mattress. This economy
doesn't work well without the lubrication of credit and trust. And that's been
lost. It's a huge problem. What you have is you have the major
institutions of the world all wanting to deleverage. They want to take down
their assets and liabilities. What seemed so easy to borrow against a year
ago now looks like rat poison to them. So they're trying to deleverage. There is
only one institution in the world that can leverage up in a way that's all a
countervailing force to that, and that's the United States Treasury.
you approving of what has been taking place along the stages that got us to
where we are now, whether it's Bear Stearns or Lehman Brothers or AIG, Freddie
Mac and Fannie, or what you've done with Goldman Sachs and the rest?
I think basically the right things have been done. But no one saw the tsunami
coming fully. And so when Bear Stearns came along, it looked like if you stopped
the flood at that point, you didn't have to worry about being downstream from
it. And I think the Fed did the right thing there. And I really thought that
would probably halt runs on other major institutions, but it didn't. We have
seen wave after wave. And admittedly, there's been somewhat of an ad hoc
response. I'd rather have an ad hoc response than no response at all. And I
don't think -- I don't think the treasury could remotely have gone to
Congress three or four months ago and laid out that scenario of what's happened
and been credible and gotten the necessary tools. I think it took a crisis like
asking for the power he is asking for and the level that he was asking for.
they wouldn't have gotten it. So I think it's been, you know, kind of like a
tragic play to this point. But at this point, I think it's clear, and will be
clear to the majority of the Congress. I think it's clear to the American
people that there is only one countervailing force to a world where financial
institutions are trying to sell instruments every day and where credit has dried
up, and that's the United States Treasury.
Rose: But at
the same time, there has been, and Congressmen and women will tell you this, a
resistance across the country because they think, as you well know, it's a
bailout of Wall Street and that they are sitting there in their own economic
life, and nobody's coming along to say, We're here to help you. We're from the
the patient that's on the floor with the cardiac arrest is not Wall Street. It's
the American economy. I mean, that's --
Rose: Do you
think they understand that yet? Because that's --
I think they probably don't. And I think any time you couple the term "Wall
Street" with "bailout" or something like that, you know -- I don't like what's
going on in Wall Street. I don't like what's going on with the executive
compensation. You know, but I don't want to give a lecture to this body that's
out there. You know, I mean, having had the heart attack, I want to get it back
functioning. And as a practical matter, I mean if you were Bear Stearns, and
you were a shareholder, you know, you lost 90 to 95 percent of your money. A
good many lost their jobs. They lost very cushy lives, many of them.
you were at Lehman, the same thing happened. If you were at AIG, the
shareholders are getting creamed on these things. And those shareholders are not
just a bunch of big shots in Wall Street. Those are pension funds, and those are
investors all over the country. I wouldn't worry too much about that. Justice
won't be perfect on it. I mean, you may be very mad at some guy that walked away
with a huge golden parachute, but that really isn't the important thing. I mean,
if Pearl Harbor came along, you could have said the planning was wrong by the
military ahead of time or maybe the battleships shouldn't have all been in the
harbor and all that kind of thing.
doesn't make any difference.
Pearl Harbor. [unintelligible]
mean, the job is Pearl Harbor. And you better not spends weeks and weeks and
weeks trying to assign blame or deciding on a complete plan for fighting the
whole war, you know, and letting a committee decide where the battleships should
go and all of that. You better spring into action with the best people you have.
Rose: You have
never seen anything like this in your life.
Buffett: No, I
are those who argue that we are headed for a recession, you know? And they look
at depression as the great fear.
Rose: Is that
a possibility if this plan doesn't work?
it's a possibility, yeah. We have about 6.1 percent unemployment now. I mean,
we've been in a recession, by any common sense definition, because if you look
at the American public, they've got 20 billion -- 20 trillion, I should say,
worth of residential homes. They've got 20 trillion worth of stocks, very
roughly. Those are the two big assets of American families. They are both down
dramatically for different families. But 95 percent of the people at least
are worse off in terms of their residential wealth plus stock wealth from a year
ago or two years ago. That is bleeding into the real economy. I mean,
that's bleeding into auto sales and jewelry sales and furniture sales and all
that. But that wave is just starting to hit. And if the paralysis we have in
the credit markets, if every company continues to feel all we want to do is
get our balance sheet down, sell assets, you know, it's just the start of what
can happen. Unemployment's going to go up under any circumstances. I mean,
it's the 6.1 is going to go higher. But whether it goes and quits at 7 or
whether it quits as 10 or 11 or 12 depends on, among other things, the wisdom of
Congress, and then the wisdom of, in terms of carrying out the plan that
you say that this plan which you have argued very strongly the Senate ought to
pass and the House ought to pass is simply the plan that we have, and I don't
have a better idea. But it's essential for the confidence of the nation and the
I just worry about whether it's enough. But I think it is --
day that goes by, I mean, if you don't react to Pearl Harbor for a week or two
weeks or three weeks, you're behind in the war that you otherwise would have
fought. But it's very important that the determination of the US Congress to do
what is is needed be made evident this week and by the actions of most of the
members. I mean, you're not going to get total assent.
makes you confident that this plan will work? I mean --
Warren Buffett: Well, I think you've got -- I don't think you can have a better secretary of the Treasury than Hank Paulson, you know. I mean, he is in there at the wrong time, probably shouldnít have taken the job. Heís a friend of mine. But he knows markets, he knows corporationsí work, he knows money, and heís got the interests of the country at heart. And so, youíve got the right -- youíve got a wonderful person with Sheila Bair, most of the viewers have never heard of Sheila Bair. Sheila Bair, in the last two weeks, has taken eight percent of the deposits in the United States and seamlessly moved those over to sound institutions which in turn have gotten more capital, ended up, itís been a magnificent job. Eight percent of the deposits in the United States, 10s of millions of depositors. And nobodyís ever heard of her. Sheíll never get a golden parachute or any severance pay or anything. Sheís done a great job. Weíve got some great public servants. We have I think the right people in there to get the job done, and then they need more tools.
Charlie Rose: And those more tools might be in addition to whatís in this plan?
Warren Buffett: Well, they need plenty of money and they really need plenty of flexibility to carry out this plan. They also need in my view to very much tie it to market prices. I have said, Charlie, that the 700 billion, if they buy mortgage-related securities or mortgages themselves at current market prices, theyíre going to make money over time because the United States government has staying power and it has a low cost of borrowing. And if I could take one percent of that 700 billion pot and take the gain or loss from it and be their partner, and they would buy the stuff at market, I'd make a lot of money. Itís -- I mean you have hedge funds and people like that buying these assets to yield 15 or 20 percent, I mean, thatís the buyer for these people that are trying to unload them. The U.S. Treasury has got borrowing costs like nobody else has. They can borrow basically unlimited amounts. They can stay there for years and years. These assets will be worth more money over time. So when Merrill Lynch sells a bunch of mortgage-related assets at 22 cents on the dollar like they did a month or so ago, the buyer goes -- is going to make money, and heís going to make a lot more money if it happens to be an institution like the U.S. government which has very, very cheap borrowing costs.
Charlie Rose: So you are saying to those taxpayers who are worried about whatís going to happen to the $700 billion, chances are good that when these securities are purchased and sold, youíll get a lot of your money back.
Warren Buffett: I think [inaudible].
Charlie Rose: Or all of your money back, and maybe something else [spelled phonetically].
Warren Buffett: I would bet on it. I mean, if I got a chance to take one percent of the deal either way, I would make that bet. When Berkshire Hathaway laid out three billion dollars for GE today, we didnít spend it, we invested it. When the Federal government buys the mortgages, theyíre not spending it, theyíre investing it. Now, theyíre investing it in distress type assets but theyíre buying them at distress prices if they buy them at market. Itís the kind of stuff I love to do. I just donít have 700 million. Maybe we could go in it together.
[laughter] You know, with your money and my brains, I mean, thereís no telling how far weíd go.
Charlie Rose: Whatever, Iíll take the deal, whatever you want to do. There is this, though, I mean, in terms of alternatives, some people have suggested for example that why donít we -- why isnít America doing what Berkshire Hathaway is doing? Why isnít that a better deal for America?
Warren Buffett: I donít think it would be crazy to have a model or an entity model on the Reconstruction Finance Corp. That goes back to 1932, although it was really implemented in í33 under Jesse Jones, and it invested in mostly banks initially and preferred stock and that sort of thing. So there are two things needed in the system, the one thatís needed overwhelmingly is liquidity. I mean, when people are trying to [unintelligible], there has to be somebody there to buy. And they donít have to buy at a fancy prices, but to buy. And then thereís also a capital problem with some of the institutions. We have provided capital here with a couple of institutions recently. The Federal government did that in the Ď30s for the RFC and I think there could well be a proper role for government in that.
Charlie Rose: Would that have been a better idea today?
Warren Buffett: It wouldnít have been big enough today. And it wouldnít have been -- you couldnít have -- if youíd set up at RFC today and you gave them $100 billion invested in the [spelled phonetically] capital, thereíd be a very cumbersome type of application process and everything, these assets are getting shoved out day by day, and loans are coming to a commercial papers not being renewed. I mean, the commercial paper market, when that dries up, you know, thatís just like sucking the blood out of the economic body of the United States. And thatís happening. So I would say that an RFC-like thing might make sense. I probably would do it myself. But I donít think trying to combine that with whatís going through now, I think what is needed now is liquidity.
right. There are those who -- you just said you would do it yourself -- there
are those who believe and it has been suggested, you know, that this is the time
for Warren Buffett to answer the call of his government in a country thatís been
very good to him. I mean what are you prepared to do yourself beyond run
Berkshire Hathaway well is this.
my job. But any time I can be of help to the government in terms of giving
advice -- I've given a little advice, actually. [talking simultaneously] anyway,
no. I obviously am willing to do that. I'm here tonight talking about this for
that reason. It isn't going to do anything for Berkshire Hathaway. Well, that
isn't really true. I mean anything that enables this economy to run in the
manner that it should -- I mean we've got the same clients out there we had two
years ago. We have the houses, we've got people -- more productive than they've
ever been in the history of this country. We've got a wonderful economic formula
in this country, but right now, it is being -- it's been brought to a halt by
some events --
it's the deleveraging that's going on right now that has caused the credit
mentioned earlier in this introduction do you, if you read your letters to your
stockholders which you write, and Carol Loomis edits every year, and you think
of your sister as the person [talking simultaneously]
have talked about derivatives. Derivatives are, in part, at the core of this
would be doing fine today. It was one of the ten largest companies in the United
States in terms of market value, over 200 billion, the most respected insurer
and everything in the world.
If they never heard of the word derivatives, they'd be doing fine. They'd
be going to work in the morning and they would have no troubles. But they --
they -- it was very easy to do, because it's very tempting to write numbers on
little pieces of paper and you can report the profit you want to, and there is
no limit on it. I mean there is no capital requirements to it or anything of the
sort. And basically, I said there were possibly financial weapons of mass
destruction, and they had them. They destroyed AIG. They certainly
contributed to the destruction of Bear Sterns and Lehman. Although Lehman had
other problems, too.
interested in this because people are asking, did people get away with murder
here? Were there people who simply gained the system and took advantage and made
huge amounts of profit, and we had excesses that inevitably led to where we are
we had all of that. But I would say the biggest single cause was we had an
incredible residential real estate bubble. I mean you can go back to tulip
bulbs in Holland 400 years ago. The human beings going through combinations of
fear and greed and all of that sort of thing, their behavior can lead to
bubbles. And it may have had and Internet bubble at one time, you've had a farm
bubble, farmland bubble in the Midwest which resulted in all kinds of tragedy in
the early '80s. But 300 million Americans, their lending institutions, their
government, their media, all believed that house prices were going to go up
consistently. And that got billed into a $20 trillion residential home market.
Lending was done based on it, and everybody did a lot of foolish things. And
people really behaved in a fraudulent way or something, we'll go back and find
the culprits later on. But that really isn't the problem we have. I mean that's
where it came from, though. We leveraged up and if you have a 20 percent fall
in value of a $20 trillion asset, that's $4 trillion. And when $4 trillion lands
-- losses land in the wrong part of thiss economy, it can gum up the whole place.
it continues with respect to the housing market.
some will argue that we have to do something about that in terms of a long-term
recovery of the American economy.
there is no question we have an excess stock. The good thing is, we have
household formation in this country. We have a country where I don't know
whether it's a million households a year or more, but good form. So we can eat
off an [unintelligible], but too big, and house prices just soared beyond --
beyond reason in many places and they got financed in silly ways, and people
lied about loans, all kinds of excesses entered into it. But that is what --
that is the single biggest cause of why we're here.
should wise people have known better?
should always know better.
mean people -- people don't get -- they don't get smarter about things that
get as basic as greed and you can't stand to see your neighbor getting rich.
You know you're smarter than he is, and he's doing these things, you know, and
he's getting rich, and your spouse is getting unhappy with you because you
aren't doing -- pretty soon you start doing it. And so you get what I call the
natural progression, the three Is. The innovators, the imitators, and the
idiots. And that's what happens. Everybody just kind of goes along. And you
look kind of silly if you disagree. I mean, you know, you could have these crazy
Internet valuations in the late 1990s, but they prove themselves out in the
market. The next day they were selling for more than they were the day before,
and people said, you know, you're crazy if you don't get in on this. So it's
very human. Now, with housing it's something even more dramatic than that,
because most people aspire to own their own home. And if you really think
that houses prices are going to go up next year and the year after, you feel if
I don't buy it this year, I'm going to have to buy it next year. That's not true
of an Internet stock. But it's true of a home. And when somebody makes it very
easy for you to do it by saying you don't really have to put up my money, you
can lie about your income a little, or we'll give you 100 percent mortgage,
you're going to do it, because everybody that's done it has been proven right.
You have what they call social tools, and, you know, you're going to feel like
an idiot if you didn't do it, because the house cost more.
Charlie Rose: It's sound money.
Warren Buffett: It's sound money, sure.
so when you look at where we are going, there seems to be two issues that are
apparent to me at least, risk and leverage. We just lost sight of risk and
leverage of what was appropriate?
Warren Buffett: Yeah. Again, because it pays off for a while. You know, you can lose leverage, and it's the only way a smart guy can go broke. If you owe money, you can't pay them out. You just pay for everything, you do smart things, you eventually get very rich. If you do smart things and use leverage and do one wrong thing along the way, it could wipe you out, because anything times zero is zero. But it's reinforcing when the people around you are doing it successfully, you're doing it successfully, and it's a lot like Cinderella at the ball. I mean you know at midnight everything is going to turn to pumpkins and mice; right? But if the evening goes along, I mean, you know, the guys look better all the time, the music sounds better, it's more and more fun, you think why the hell should I leave at quarter of 12. I'll leave at two minutes to 12. But the trouble is, there are no clocks on the wall. And everybody thinks they're going to leave at two minutes to 12.
Charlie Rose: And you're having a good time.
Warren Buffett: Yeah, sure.
Charlie Rose: So if this plan -- you hope it will do what? It will loosen credit. It will stop the slide and the panic. People will have more confidence --
Confidence is key. Confidence is key. You're not going to leave your money
with me unless you're confident I'm going to give it back to you. And at
this point, when treasury bills, seven day treasury bills at 1/20th of one
percent, it's not because people want to earn 1/20th of one percent, it's
because they trust the fact the treasury will give it back to them next week.
And I'm sitting with six and a half billion dollars we're going to use to close
the Mars-Wrigley deal on October 6. I've got to hand over that six and a half
billion on October 6. Now, I have to be very careful about who I leave it in
between now and then, because they're expecting that he show up. But I lose
confidence in other people, all kinds of institutions. And there are plenty of
them that I've lost confidence in. Then they get -- their funds aren't
available. They don't have it for the next -- I mean the whole economy just
comes to a grinding halt. Competence (Confiidence?) in markets and in
institutions, it's a lot like oxygen. When you have it, you don't even think
about it. Indispensable. You can go years without thinking about it. When it's
gone for five minutes, it's the only thing you think about. And the oxygen has
been sucked out of the credit markets, and confidence, and there has to be --
And that's what this --
Warren Buffett: That's what I hope gets done.
if it doesn't work?
Warren Buffett: You turn the spigot. But you -- I've argued with the senators and congressmen I've talked to. You don't want to be too little too late. They're being somewhat too late, in my view, and -- but that's okay. We're going to argue for a few weeks after Pearl Harbor to decide whether the Japanese attacked or whether we should actually commit a few battle ships. But the too little part, you know, it could be a mistake. I mean this has to be done on a --
Charlie Rose: Too little meaning in terms of dramatic steps, or the amount of money you're spending --
Warren Buffett: It's whether people think it's too little, when you get all through with it. I mean in the end, 700 billion is a lot of money. And it will buy a lot of distressed property. And if you buy them at the right price, you may be buying two trillion of face value. The one thing you don't want to do -- [unintelligible] paid for it what you're paying it from or what his carrying value is, you got to buy it at market. And one way to do that is if some institution wants to sell you a billion dollars worth of mortgages, they might have to sell 100 million in the market, and then you'll buy the other 900 million on the same terms. Now, the very fact that this has been authorized or will be authorized, I hope, will firm up the market to some degree. And that's fine. But you don't want to have artificial prices being paid.
Charlie Rose: What do you believe might never be the same?
Warren Buffett: Oh, I think confidence will come back. I will tell you this. This country is going -- be living better ten years from now than it is now. It will be living better in 20 years from now than ten years from now. The ingredients that made this country, you know, the miracle of the world -- I mean we had a seven for one improvement in the average American standard of living in the 20th century. Now, we had the great depression, we had two world wars, we had the flu epidemic. You know, we had oil shock. You know, we had all these terrible things happen. But something about the American system unleashed more and of a potential to human beings over that hundred years so that we had a seven for one improvement in -- there's never been any -- I mean, you have centuries where if you've got a 1 percent improvement, then it's something. So we've got a great system. And we've got more productive capacity now than we ever have. The American worker is more productive than he's ever been. We've got more people to do it. We've got all the ingredients for a sensational future. It's just that right now the athlete's on the floor. But we -- this is a super athlete.
what's the impact of the athlete being on the floor around the globe?
Warren Buffett: Plenty. Plenty, and we're finding that out. And the same things happen to quite an extent around the globe. I mean, the European banks were doing what the American banks were.
Charlie Rose: And they're failing now, too.
Warren Buffett: Yeah. I mean, they were getting the mortgage of some guy in Omaha, you know, securitized a couple of times. I mean he had all these -- they had all these types from Wall Street, you know, and they had advanced degrees, and they look very alert, and they came with these -- they came with these things that said gamma and alpha and sigma and all that. And all I can say is beware of geeks, you know, bearing formulas. They've heard that in Europe.
Charlie Rose: Have we learned something about decoupling or the American economy in terms of its impact, for example, China, a place where you've had investments, and you know well.
We just made a new one a couple days ago.
Buffett: In a company
called BYD, and they develop a really good electric car, I hope.
Charlie Rose: Is there an operative narrative to the kinds of investments you are making other than you look at and you buy on value, look at advantagement [spelled phonetically] you look at a place that can absorbed the amount of money you want to invest, and you look at its prospects, and you look at price.
Yeah. They have to be pretty good size for us now to have -- to move the needle. But we look for fairly large situations. We look for things I can understand. A lot of businesses I don't understand. So some guy may know how to make money in cocoa beans, but I don't so I just let him have that. But it's got to be something I understand. It's got to be a business with fundamentally good economics. It's got to be a management that I like and trust and admire. And it's got to be a price that makes sense. And lately the price --
Prices make a lot more sense now, yeah.
Rose: Now, is
I'm not worried they're all about the investments we make. I mean, listen, this
country -- we've got $46,000 or $47,000 of GDP per capita. Now, we've done
pretty darn well. We'll do better in the future. I am not worried about the
country. I'm just worried about anything that gums up the potential of the
country. And right now, it's pretty gummed up.
But we do this emergency, urgent rescue.
January, we have a new president. We have a new treasury secretary.
Rose: We have
a new legislature. What's there in parity? What will be the challenge for them
because they then can take a little bit of a longer term, look, maybe the
patient's getting up off the ground. And but you want to get him or her moving
Well, I think it will get moving faster. I mean once you get it off the -- once
credit flows -- now the recession is going to get worse. I mean, I don't want to
hold out false hopes that the -- by some magic moment, that things will turn
around in a couple months because they wouldn't, Charlie. I mean, and it's a big
mistake to try and mislead people. They will turn around. I don't know whether
it will be six months or whether it'll be two years.
more likely two years than six months.
don't know. It isn't going to be one month or two months, no matter what
happens. All I can --
Rose: Can you
imagine six months from now, it's beginning to turn around? With the condition
that you know their --
That's sort of the best case, yeah. That's sort of the best case.
Rose: And the
case is a long time. And I would say that if they --
case is five years or --
Buffett: If we
don't do the things we should do, it could be five years, sure.
Rose: Okay. We
should do, though, beyond where we are now. What are those things?
I would say this, if it becomes evident that -- I understand the latest bill,
they're talking about 350 billion early and then going back.
we need to throw the resources at this that are necessary. But like I say, we
are not spending money. I mean, if we buy these assets intelligently, the
United States Treasury will make money. I mean, it's borrowing money. It's just
a few percent a year. And these assets are better than that.
But that's a very big if.
it makes a difference who the treasury secretary is.
Rose: Okay. So
that's the important question in terms of whether we buy these assets wisely.
would say it's more important who the treasury secretary is than who the vice
president is. If you want to have a debate here, I'd like a debate between
potential treasury secretaries than the vice presidential debate.
might it be a good thing for the presidential candidates to tell it who it is
they're going to be listening to and who might be a potential treasury
presidential candidates which I know listen to you.
because they tell you that, aren't they?
Warren Buffett: Well, no, but I mean it's not their job to know the candidacy of people.
Charlie Rose: When all these people call you up, what are they asking you? I mean, youíre hearing from your friends and people at the Fed, youíve been through this before too I mean you were that long term capital, a lot of other times you have had to face difficult crisis.
Warren Buffett: Iíve seen a lot of things happen.
Charlie Rose: So they come to you and they say ďYouíve fought wars before, Warren, weíd like to talk to you.Ē But whatís the question theyíre asking? What is it they want to know? And Iím talking about smart people who are charged with fixing it.
Warren Buffett: Yeah. Well, lately theyíve been asking will this work.
Charlie Rose: Right. Yeah.
Warren Buffett: And youíre assuring them that if they do it --
Charlie Rose: I will.
Warren Buffett: -- if they do it, I -- I [talking simultaneously] Treasury Secretary [unintelligible] I would say this, I would -- they hate this term in Washington, obviously, but I would hand something pretty close to a blank check to a fellow like Hank Paulson to fight --
Charlie Rose: Would you, really?
Warren Buffett: Yeah. Well --
Charlie Rose: A blank check, $700 billion, go spend it?
Warren Buffett: Yeah, go invest it. Go invest it. And maybe put up a little of your own money up beside it, I mean, I might ask Hank to go invest with me.
Charlie Rose: Thatís right.
Warren Buffett: But, no I think that trying to invest through 535 people is a tough job, you know, and so I would give more latitude. That isnít going to happen and I -- you know, I [inaudible] --
Charlie Rose: -- go with oversight? I mean, thatís what [inaudible], go with oversight.
Warren Buffett: [inaudible], I think --
Charlie Rose: But donít try to make the decision --
Warren Buffett: No, I think the oversight is great, and I think that oversight ought to be devoted almost entirely to the question is this being done at market you know. In other words, you want to make sure that the government isnít investing foolishly. But you donít want to care about which congressional districts it goes to or whether banks get favored over --
Charlie Rose: But how do we determine whether itís being done wisely?
Warren Buffett: Well, I think --
Charlie Rose: Thatís a big question.
Warren Buffett: Yeah, I think youíll have plenty of scrutiny as how the moneyís invested. I mean, just like the RFC. When the RFC operated, people knew which institutions they were buying preferred stock in. And it worked very well.
Charlie Rose: But is this different from the Resolution Trust Company because they are talking about securities, not real estate?
Warren Buffett: Yeah, well Resolution Trust Company was set up to liquidate a bunch of assets that the government had inherited because the savings and loans went broke. So the savings and loans went broke, the government stepped in, paid off depositors, and now theyíre left with this mass of assets to sell. Weíre not talking about selling here, weíre talking about buying intelligently. They were selling what they got handed to them by a bunch of savings and loan operators that had in many cases had done some very dumb thing. But their job was to liquidate it. And they liquidated. This is an entirely different proposition.
Charlie Rose: You have said to me before that capitalism is not a perfect system. It may be better than all the other systems, but itís not a perfect system. You talked about it in terms of some of its failings. People are looking at this now and saying, you know, excesses of capitalism, number one, markets that donít work. And thereís some people in certain countries are pointing a finger at us and saying, ďSee, we told you, the markets will not always deliver for you.Ē
Warren Buffett: Markets arenít -- people do, as long as you have markets, youíll have excesses. People went crazy with tulip bulbs. They went crazy with the South Sea Bubble, they went crazy internet stocks, they went crazy with the uranium stocks back when I was first getting started. I mean, you know, youíre not going to change the human animal. And the human animal really doesnít get a lot smarter. Now, you can you know you can have institutions that put curbs on that in various ways, and actually what the banks, you know, they have various capital ratios and that sort of thing, but the banks got around them, I mean, they set up sieves and that sort of thing just to get more leverage. People love leverage when itís working. I mean, itís so easy to borrow money from a guy at X and put it out at X [inaudible].
Charlie Rose: -- going up, youíre --
Warren Buffett: Yeah, but you donít get the X plus one back, if you still have the X on the other side youíre in trouble.
Charlie Rose: There is this, too, accounting. You have strong feelings about accounting and mark [spelled phonetically] to market. Tell me where you are on that issue.
Warren Buffett: A lot of people disagree with me on this, I believe in mark to market. I think that accounting in 1974 Charlie, it was either 1974 or í75, we owned a bunch of common stocks at Berkshire Hathaway. I told our shareholders what the market was. And we used that. I said I think these things are worth a lot more than market. And I think weíre going to make a lot of money out of it. But this is what theyíre worth today. And I don't think anybody gets hurt by telling the truth on that sort of thing. And I think that once you start saying weíre going to peg these things at some price that isnít market, God knows what a financial [talking simultaneously].
Charlie Rose: [inaudible] these people make that argue against you will say the assets are worth much more than mark to market says and therefore --
Warren Buffett: Theyíre not worth it today.
Charlie Rose: -- therefore weíre not seeing a reality.
Warren Buffett: Well, but that is the reality. And thatís the reality of what theyíre going to sell them to the Treasury for. You know, I --
Charlie Rose: You get market.
Warren Buffett: You get in a lot of trouble when you start putting fictitious numbers --
Charlie Rose: On value.
Buffett: -- on
value. I mean, you can explain the fact that these are depressed prices, you
know. We think these assets are going to be worth a lot more. And I think that
case can be made in certain situations. But I think to just say, you know, we're
going to say a dollar of cash is worth $2 all of a sudden, it isn't worth $2.
It's worth a dollar today. And I think once you start putting phony figures
into financial statements, you get in a lot of trouble. And we've seen so much
of that in the last 20 years.
it getting worse?
don't think it's getting worse. I think people -- what people want to do is make
it get worse. [laughter]
what would you reform about that in terms of the way the accounting process --
you'd keep mark to market?
rule [unintelligible]. I mean it's -- it's a nightmare to administer some of
this sort of thing, but I want to tell the shareholders of Berkshire, to the
percent we own marketable securities or things for which there are market, even
if those markets -- I want to tell them what it's all about. As a matter of
fact, I've already written a section in the annual report for next year
explaining why I think in one case that the figures on our balance sheet as
calculated are wrong. But it's the standard way of doing it. It's holy writ. The
SEC wants us to do it that way, and we'll do it that way, and I'll explain why I
think it's wrong and shareholders can read it and see whether they agree with my
logic or don't.
-- when you look at the prospects for thhis country, there are other people who
argue, you know, that America, as good as it is, lives in a world today and
there are books being written in which our supremacy, our primacy will now have
to be shared. That we may still own as much of the pie as we had, but other
people will own a lot more.
great. You know, I want our -- I want our pie to grow all the people, but if
some other guy's pie is growing a little faster, that's terrific. It will be
good for us in the long run, and I mean there are, you know, six and a half
billion people in this world. And it's great for 300 million to keep enjoying
more and more property, but I think it's terrific if, you know, the remainder
do. And I think if they can learn something from us in terms of our system, and
I think they have, they are learning more about how to unleash the potential of
their citizenry to turn out more goods and services that their citizens want or
that we want, I think that's terrific. And that's -- you know, I think it's much
better to live in the world where those around you, particularly when some of
them have nuclear bombs, I think it's much better to live in a world where their
lives are getting better also.
But you mean you look at that. So when you look at China today, and you look at
some Asian countries and the amount of American debt they have, how much does
that concern you in today's economic circumstances? And are they losing some of
their confidence in America? And does that pose a huge problem for us?
somebody's buying these treasury bills at 1/20th of one percent. I mean the
-- we -- [talking simultaneously] consumming about $2 billion a day of goods and
services beyond what we're producing. In other words, the rest of the world
sends about $2 billion a day net of something. We got to send them something in
return, don't we. So we send them little pieces of paper. That would be nice if
they stuck them all under a mattress, but they got to buy something with them.
Sometimes they buy a treasury note, sometimes they set up sovereign wealth
funds. They can do all kinds of things. They can buy our companies here. As long
as we consume more than we produce, and we trade away little pieces of the
country daily, they're going to own something. Now, they can't run from American
assets. I mean every day the rest of the world is going to have about two
billion more of American assets than we have, as long as they sell us these
we're borrowing two billion dollars --
and they want to sell us these goods.
you don't believe that's good. I mean you believe that an increasing current
accounts deficit is bad.
think it's bad.
it reflects American's consumption ideas rather than its savings ideas.
Warren Buffett: Yeah.
Charlie Rose: But how does that change?
I laid out -- it's kind of a Rube Goldberg plan a few years ago, which I don't
like myself, except I like it better than the alternative, which is what we're
doing. But we've actually been pretty good on exports. I mean we are exporting
12% of our GDP now roughly. That was five percent many years ago, a much smaller
GDP. So the rest of the world really likes our stuff pretty well. It's just we
buy so damn much of what they produce. And I think -- I think that should be
something addressed by -- I don't think it's the most pressing problem now at
all. We are trading away a little bit of our country all the time for this
excess consumption that we have over what we've produced. That is not good. I
think it's terrible over time. But our country's productive grows enough so we
actually can do that, and we'll still be better off. We just don't be as well
off as if we hadn't done it.
Charlie Rose: What's all this going to do to the price of the dollar?
Warren Buffett: It could be very tough on -- inflation could be a very -- is a likely consequence out of what's going on now. Right now, we are in effect making a -- to some extent, making a choice between future inflation and getting our -- getting off the floor. And we're likely -- we're likely to have more inflation in the future as a consequence of the things we do to fight the present situation.
Obama, who you support, I think, I don't want -- to be clear on this, but made
an economic speech today, talks about another stimulus program. Is that
essential at this time?
think the biggest thing we need now is to unclog the credit markets, and we may
need another stimulus -- if we do, it's -- it should go to the lower and
middle-income people. I mean the truth is, I've never had it so good in terms of
taxes. I am paying the lowest tax rate that I've ever paid in my life. Now,
that's crazy. And if you look at the Forbes 400, they are paying a lower rate,
accounting payroll taxes, than their secretary or -- whomever around their
office. On average. And so I think that actually people in my situation should
be paying more tax. I think the rest of the country should be paying less, the
95 percent that Obama talks about or maybe even a little higher than that. But I
think that a stimulus plan should really be geared to the people. You know,
you've got -- you've got, what, 24 million households, 1/5th of the households
of the United States, you have earning $21,000 a year or less, on average of
close to four people, three people in those households. Two and a half they will
actually probably. But just imagine living on 21,000 a year, Charlie, 22,000 a
year. I mean you have 20 percent of the population doing that. So you don't have
to worry about guys like me. I would push purchasing power -- you push out
$1,000 of purchasing to those people, it's going to get -- it's going to get
spent. And it needs to be spent. They need it. And it should come, to some
extent, from guys like me.
what about the capital gains tax?
you know, the capital gains tax is 15 percent now. So I sit there in my office
and I make a lot of money by capital gains, and I pay 15 percent, and I pay no
payroll tax on it.
woman that comes in, takes the wastebasket away, she's paying 15.3 or whatever
it is on payroll tax alone. I mean it is -- I never had it so good.
therefore the capital gains tax should be changed to 18, 25, 30?
think it's terrible for people in effect to say that income from investment
should be taxed at a much lower rate than income from labor. I mean I just think
that you're going to -- we're going to spend 3.1 trillion, something like that,
this year. We're going to only raise about 2.6 trillion or something like --
you're going to raise it from somebody. You know. Now, who you're going to get
it from, you're going to get it from me and you, or you're going to get it from,
you know, the people that drive the taxis, bring me here. Whatever. Maybe. I
mean you got to get it from somebody. And, you know, everybody is against paying
tax. I feel the same, everybody feels that way. But if you want a government
that's going to do the things we ask our government to do, you've got to get it
from somebody. And over the years, the last -- particularly the last six or
eight years, they've taken less and less from a guy like me. Now, you know,
everybody likes to talk about how the top one percent pays this percent in
income, but the income tax, we'll say 1.3 trillion. The payroll taxes are over
900 billion. That 900 billion, that doesn't come from me. I pay it on the first
hundred thousand or something like that. But that comes from the people in my
office. And they are paying 900 billion -- nobody ever talked about that when
they talk about what the one percent is paying. I love to tell how I'm suffering
because one percent we're paying 25 percent of the total. We're not paying 25
percent of the total taxes on individuals. We're paying maybe 25 percent of the
income tax, but the payroll tax is over a third of the receipts of the federal
government. And they don't take that from me on capital gains. They don't take
that from me on dividends. They take from the woman who comes in and takes the
mentioned inflation. The possibilities of inflation. Are you therefore -- do you
have a position on what interest rates -- what the fed should do about interest
I think that's almost -- for the time being, just put that aside and we'll get
to that after the patient is up and walking. It's interesting, though. I mean we
are -- what's going to happen -- things we're doing are going to have some
inflationary consequences. But, you see, interest rates, you know, very low
levels, including the long rates.
we watch this, I mean you and I are having this conversation today. The senate
votes tonight. House may vote. People I talked to today believe it's going to
pass. Whatever happened to change minds either in the combination of what they
did with the plan and tweaking the plan, or B, some people got so scared by the
failure of the vote last time that it brought home a danger of not doing
right. How will we measure the progress, whether this is working or not? What's
It's going to be tough because the economy is going to be getting worse for a
while. And it might fall off a cliff if this doesn't pass. But nobody will ever
know that if it does. And so what they will not see immediate reaction. I mean,
we'll be pounding on the guy's chest, you know, on the floor, and you know, he's
not going to just jump up all of a sudden. So it makes it tough. I mean, it's
tough to be in the legislature, you know, and vote for something and then people
say, well, you voted all this money and you know, it's all getting spent. It
isn't getting spent. It's getting invested. But it's all getting spent.
Nothing's happening. You know, how could you have done that? You haven't done
anything for me. I mean, you go through all of that. And that's going to be
tough. And it takes -- what it really takes is leadership that knows what it's
all about and can explain what it's all about. And that people will believe --
hasn't that been missing, though --
leadership that can explain what it's all about?
Rose: And the
reason you're here and the reason I want to have a kind of fireside chat with
you, it is that somehow it hadn't gotten through, the idea --
the president of the United States goes out at, you know, 8:00 o'clock in the
morning and then his own party votes gets him 2 to 1 in the house, you know that
somehow a message isn't getting out. It takes real leadership. I mean Roosevelt
didn't -- you know, when he came in, he didn't print any money. Well, he
actually may have done [unintelligible], but he -- it wasn't like, you know,
you've got the greatest economics professor in the world or anything else. But
he did restore confidence. And they did a lot of thing. And you needed it. You
needed to jump-start the economy. It took a long time. I mean, the world did not
change, you know, in 1933 or '4. But we put in things like the FDIC. I think the
FDIC was one of the great inventions of the American [unintelligible].
they had to tweak that in terms of his bill, did they not?
They were -- and --
[unintelligible] extended five-year.
They're going the right direction, yeah.
Roosevelt also said the only thing we have to fear is fear itself, which is
clearly the fear that exists in the country. Tell me when you worried the most
of all the things that you have seen over the last three weeks, say. I mean how
about in the last month, when did you say, my God, I never knew it could get to
I don't get that afraid in a sense because I really do have faith in both -- I
know the country works extremely well. You know, but when it isn't clogged up.
And I know that Congress will do the right thing. But I will tell you, when I
watched the House vote the other day, I wasn't afraid because I -- I still felt
something would pass. But I -- we are going through a very, very tough period.
And, you know, I did not think I would see the day when, you know, an AIG would
not be able to have its checks clear.
Rose: If AIG
had failed, would fold man sacks have been exposed and at risk, JP Morgan would
have been --
Warren Buffett: Everybody would have been exposed, Charlie. Everybody.
Charlie Rose: So why was there even a question of not rescuing AIG at that time?
I think what people understand there probably -- well, they were hoping the
private sector would do it.
mean, that's the same way I would behave. If I were the treasury secretary or
head of the Fed, you know, I would try to scare the hell the out of the private
sector and say, you better save this because you're going down with the ship. So
you guys save it. And I went as long as I could worrying if they didn't save it,
I'd come in.
did that in fact happen during this crisis in which the secretary of the
treasury said you better save this or we'll all going down?
think certainly --
better put up some cash right now.
think that they hoped the private sector would come in. And the private sector
tried to come in until they saw the size of the problem. I mean, from were
people on that weekend that thought they'd had a solution. And then the hole
kept getting bigger and bigger. And all of a sudden became apparent that 20
billion wouldn't do it and 30 billion wouldn't do it and 40 billion wouldn't do
it. So it got beyond anybody's ability to certainly to do it in a short period
was not enough capital available other than from the government.
an unknown situation. You have the derivative book, [unintelligible] AIG
financial products, you know. Nobody's every heard of it except it was a
terrific profit center. You know, you could manufacturer earnings out of it, do
all these things. And I will guarantee that you the top management -- and I'm
not knocking them for this. I don't think I could have done it. They couldn't
get their minds around it. I bought a company called General Reinsurance in 1998
that had a similar but much smaller operation, had 23,000 contracts in it.
Rose: And you
had to get rid of it.
Buffett: I got
to get out of this. It cost me 400-and-some million dollars in benign -- in a
benign situation. But when this was not a benign situation. If AIG had tried to
unwind their derivatives books. I don't know. It would have hit every
institution in the world.
there was no private capital to come in and do that.
Rose: Not even
Not even Berkshire Hathaway. I mean, if I thought 5 or 10 billion would have
bought me a good deal, and I could have done that, I'd have done it.
[unintelligible] was within reach.
Charlie Rose: But 85 billion might not have been.
Warren Buffett: No, no. And the Fed structured that thing very, very well. I mean, they have put themselves in a position --
Charlie Rose: Yeah.
Warren Buffett: -- where they are very likely to get their money back; maybe more. They participate 80 percent -- I mean, they drove tough terms. I mean I want to hire the guy that made that deal. Heíd fit in well at Berkshire.
Charlie Rose: A lot of people look at you and Goldman Sachs and GE saying I want to hire the guy that made that deal for you.
Warren Buffett: No, Tim Geithner did a better job on this one.
Charlie Rose: So we come down to the close of this conversation and you have been warning us about certain kinds of things. I hear from this conversation too this plan is essential now. Otherwise weíre in a very, very difficult place and each week we go beyond not doing something we get deeper and it becomes more irreversible.
Warren Buffett: And, yeah, whoever said, you know, an ounce of prevention is worth a pound of cure understated it and I you know a pound of cure thatís delayed another six months is going to need a ton of cure later on I mean it would be crazy not to do this. It will not produce dramatic results though in the economy. Thatís what people have to understand. Youíre going to see unemployment go up. You know, youíre going to see lousy earnings in many businesses. And theyíre not --
Charlie Rose: Youíre going to see people unemployed.
Warren Buffett: Youíre going to see more people unemployed. But the difference Charlie if we bottom this thing out at seven percent unemployed versus nine percent, thatís three million people, thatís three million people that if we do it wrong you know lose their jobs unnecessarily in my view I mean you know Iíve never been unemployed. Iíve never been very fully employed either but just think of what itís like, you know, to go home with a mortgage payment you know and kids and everything else. My dad had that happen to him in the early Ď30s. It you know you donít want to create three million people more unnecessarily. But I donít think you --
Charlie Rose: Thatís the depression --
Warren Buffett: It really is. And you canít help some increase from this point. I donít want any viewer to go away think a magic wand exists in Congress. So theyíre going to see some more bad news. But if we do this, weíre doing the right thing. And if -- the system will work over time. Thereís no -- we got a wonderful system.
Charlie Rose: Okay, but I mean let me come to that in the end. Do we need to do anything about the system? And beyond the emergency of the moment, the urgency of the moment, come January, about the system, lots of talk about regulation as you know and finding the right balance, lots of talk about whether government involvement is an idea we need more of rather than less of, rethinking sort of what President Reagan brought to fore.
Warren Buffett: Once we get the [unintelligible] back, we can [unintelligible] changes [unintelligible], exercising [unintelligible], we can do all of that sort of thing. And you know if I got any good ideas out of that or I think theyíre good ideas, Iíll be glad to contribute them but the system will probably overdo some other things. I mean, the nature of democracy is such that when thereís this -- thereíll be this revulsion, obviously, toward -- thatís never going to happen again, so weíll probably attack it in various ways that donít make sense. But I -- thatís what Congress is for. And thattís what advisors are for. And Iím all for getting the best minds you can get to work on that kind of thing. Like I say, I donít think itíll be done perfectly. Maybe weíll end up with a little bit better system. But the end, we had a pretty good system over time. But when we went crazy, and we did go crazy on residential real estate, it set things in motion that just -- the dominoes started toppling.
Charlie Rose: Thank you for coming.
Warren Buffett: Thank you, Charlie.
Charlie Rose: Pleasure to see you.
Warren Buffett: Enjoyed it.
Charlie Rose: Warren Buffett. Weíre in San Diego. My thanks to the people at KPBS here. A conversation here about the crisis that we all face, and hearing from a man that a lot of people want to hear from. And Iím pleased that we were able to join with him here. Thank you for joining us. See you next time.
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