Warren Buffett on America, Life and Money. A Charlie Rose Global Conversation

Warren Buffett is retiring as CEO of Berkshire Hathaway at the end of 2025. He is 94 years old.

Most consider him the greatest investor of our time. Some say the greatest investor of all time.

He built Berkshire Hathaway into a trillion-dollar company, and his net worth is over $160 billion.

But there is much more to his story than his financial genius and the numbers.

This is not an obituary. It is simply a moment to look at a man and appreciate what he means to all of us.

He views himself as an artist and his company as a painting.

He has represented the best of capitalism and the best of America.

He feels a profound obligation to his stockholders, whom he has also made very rich.

He understands his credibility and uses it appropriately.

If Warren believes in you, that is money in the bank.

His gift is his intelligence, but also his common sense, his sense of history, and his wit.

He is a man, as Hamlet said about his father, the king.

We shall not see his like again.

Warren, I consider it one of the great blessings of my life, that Warren and I became friends, and I cherish his support and what I've learned from him about life.

Of our many interviews, his favorite is this one.

In 2008, at the height of the financial crisis, when his strength of character and belief in America helped many who were losing their confidence, their savings, and their faith in the future.

We are in San Diego, California this afternoon for a conversation with Warren Buffett.

He is the 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 has 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 that conference by the Fortune reporter and longtime friend, Carol Loomis.

We come this evening from the studios of our public television affiliate in San Diego, KPBS.

I thank my friend Warren Buffett for taking time in a busy schedule to talk to us.

My pleasure, Charlie.

Let me talk with the news of today.

You have announced an investment of $3 billion in General Electric, along the same terms as the Goldman Sachs.

Yeah, almost identical.

Why GE?

Well, 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 current management, Jack Welch before Jeff Immelt.

I've known him for decades.

And so I understand their businesses.

We do a lot of business with them.

And, you know, GE is going to, it's been, I think it's the longest running stock in the Dow Jones Industrial Average.

It'll be 100 years from now.

It'll be around.

I hope I'm around then, too.

And it was an attractive investment.

And we've had a lot of money around over the last two years.

And we're seeing some things that are attractive now.

Are you looking at other things?

I look at everything, Charlie.

That's my job.

I really do.

I mean, every day.

I mean, I'm thinking about everything.

Yeah, I know.

But cash is said to be king now.

I mean, are you sitting on a lot of cash so that this is a time for Berkshire Hathaway and Warren Buffett to look carefully at a lot of opportunities?

Yeah, we want to use cash.

The reason we haven't used our cash a few 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 times when it buys a fair amount more.

And so we use it.

There's a time to accumulate and a time to spend.

Absolutely.

You want to be greedy when others are fearful and you want to be fearful when others are greedy.

It's that simple.

And where are they now?

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.

And why is that, you think?

Well, it's because they have seen the credit market seize up.

They've gotten worried about money market funds, although the latest proposition from government should take care of that.

They've seen 8% 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.

I mean, they are not wrong to be worried.

Is it being felt, as people often point out, on Main Street?

Well, it's being, you know, I've read about auto sales today.

I mean, 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 were in them.

Yeah, it's being felt, but it'll be felt big time more if we don't do something about it and what's going on.

The Senate will vote sometime this evening.

Are you satisfied with that rescue plan?

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 be approximately right than precisely wrong.

And it'd 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, you know, and it's flat on the floor.

And the paramedics have arrived.

And, you know, they shouldn't argue about whether they put the resuscitation, you know, a quarter of an inch this way or a quarter of an inch that way.

Or they shouldn't start criticizing the patient because he didn't have blood pressure tests 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 get into certain arguments and they start worrying about assessing blame and there's a little demagoguery.

But in the end, something that's important, they'll do the right thing.

This isn't, this really is an economic Pearl Harbor.

That sounds melodramatic, but I've never used that phrase before.

And this really is one.

But go through why that is true.

Beyond the fact that there's a freeze on credit.

Beyond the fact nobody's making loans.

Beyond the fact that banks don't lend to banks.

Beyond the fact that treasury bills are at a low.

Yeah, when 40 billion of treasury bills are sold like they were last week, seven-day treasury bills, at a yield of one-twentieth 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 their money under the mattress.

I mean, you're only one-twentieth of one percent away from where it's better to put it under the mattress.

You don't want 300 million Americans putting their money under the mattress.

I mean, this economy doesn't work well without the lubrication of credit and trust.

And that's been lost.

And 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.

They want to, 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 at all a countervailing force to that.

That's the United States Treasury.

Are 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 or Freddie and Fannie or what you've done with Goldman Sachs and the rest.

Yeah, I think that basically the right things have been done, but no one saw the tsunami coming, you know, fully.

And so when Bear Stearns came along, it looked like if you stopped the flood at that point, you know, 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 to it, but I'd rather have an ad hoc response than no response at all.

And I don't think the Treasury could remotely have gone to Congress three or four months ago and laid out the scenario of what's happened and been credible and gotten the necessary tools.

I think it took a crisis like this.

And asking for the powers, asking for it and the levels it was asking for.

Well, 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 a 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.

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 government.

Well, the patient that's on the floor with a cardiac arrest is not Wall Street.

It's the American economy.

I mean, do you think they understand that yet?

Because that's the question of communication.

Yeah, 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 at Wall Street.

I don't like what's going on in executive compensation, you know.

But I don't want to give a lecture to this body that's out there having had the heart attack.

I want to get it back functioning.

And as a practical matter, I mean, if you were at Bear Stearns and you were a shareholder, you know, you lost 90 to 95 percent of your money.

Good many lost their jobs.

They lost very cushy lives, many of them.

If 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 this battleship shouldn't have all been in the harbor and all that kind of thing.

It doesn't make any difference.

I mean, the job, it's Pearl Harbor.

And you better not spend 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 battleship should go and all of that.

You better spring into action with the best people you have.

You have never seen anything like this in your life.

No, I haven't.

There are those who argue that we're headed for a recession, you know, and they look at depression as the great fear.

Sure.

Is that a possibility if this plan doesn't work?

Yeah, it's a possibility.

Yeah, we have about 6.1% unemployment now.

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, I got 20 trillion worth of stocks very roughly.

Those are the two big assets of American families.

They're both down dramatically for different families.

But 95% 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 is going to go up under any circumstances.

I mean, the 6.1% is going to go higher.

But whether it goes and quits at 7 or whether it quits at 10 or 11 or 12 depends on, among other things, the wisdom of Congress and then the wisdom of it in terms of carrying out the plan that Congress authorizes.

Would 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 system.

Yeah.

And I just worry about whether it's enough.

But I think it is.

Well, I, every day that goes by, I mean, if you don't react to Pearl Harbor for a week or two weeks or three weeks, you are behind in the war that you otherwise would have fought.

But it's very important that the determination of the U.S. Congress to do what 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.

What makes you confident that this plan will work?

I mean, well, I think you've got, I don't think you could have a better secretary of the treasury than Hank Paulson.

You know, I mean, he is, he is in there at the wrong time.

He probably shouldn't have taken the job.

He's a friend of mine, but he knows markets.

He knows, he knows, he knows how corporations work.

He knows money.

And, and he's got the interest of the country at heart.

And, and so you've got, you've got the right person.

You've got a wonderful person with Sheila Bear.

Most, most of the viewers have never heard of Sheila Bear.

Sheila Bear in the last two weeks has taken 8% of the deposits in the United States and seamlessly moved those over to sound institutions.

Which in turn have gotten more capital into them.

It's been a magnificent job.

8% of the deposit in the United States.

Tens of millions of depositors.

And nobody's ever heard of her.

She'll never get a golden parachute or any severance pay or anything.

She's done a great job.

We've got some great public servants.

We, we have, I think, the right people in there to get the job done.

And then they, they need more tools.

And those more tools might be in addition to what's in this plan?

Well, they need plenty of, 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, they're 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 1% 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.

No, it's, I mean, you have hedge funds and people like that buying these assets to yield 15 or 20%.

I mean, that's 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 of those is going to make money.

And he's 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.

So you are saying to those taxpayers who are worried about what's going to happen to $700 billion.

Chances are good that when these securities are purchased and sold, you'll get a lot of your money back.

I think, I think.

Or all of your money back and maybe something else.

I would bet on it.

I mean, if I got a chance to take 1% of the deal, either way, I would, I would make that bet.

But when Berkshire Hathaway's laid out $3 billion for GE today, we didn't spend it.

We invested it.

When the federal government buys the mortgages, they're not spending it.

They're investing it.

Now, they're investing it in distress type assets, but they're buying them at distress prices if they buy them at market.

It's the kind of stuff I love to do.

I just can't, I just don't have $700 billion.

Maybe we can go in it together.

You know, with your money and my brains, I mean, there's no telling how far we can go.

Whatever, whatever.

I'll 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 don't we, why isn't America doing what Berkshire Hathaway is doing?

Why isn't that a better deal for America?

I don't, I don't think it would be crazy to have a, a model or an entity model on the Reconstruction Finance Corp.

That goes back to 1932, although it was really implemented in 33 under Jesse Jones.

And it invested in mostly banks initially and preferred stock and that sort of thing.

So there is, there are two things needed in the system.

The one that's needed overwhelmingly is liquidity.

I mean, when people are trying to do deliveries, there has to be somebody there to buy.

And, and they don't have to buy at fancy prices, but to buy.

And then there's 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 30s for the RFC.

And I think there could well be a proper role for government in that.

But wouldn't that have been a better idea today?

It wouldn't have been big enough today.

I mean, and it wouldn't have, you couldn't have, if you'd set up an RFC today and you gave them a hundred billion dollars to invest in the capital, there'd be a very cumbersome type of application process and everything.

These assets are getting shoved out day by day and loans are coming to commercial papers not being renewed.

I mean, the commercial paper market, when that dries up, you know, that's just like sucking the blood out of the, of the economic body of the United States.

And, and, and that's happening.

So I would say that an RFC like thing might make sense.

I probably would do it myself, but I don't think trying to combine that with what's going through now.

I think what's needed now is liquidity.

All right.

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 that's been very good to him.

I mean, what are you prepared to do yourself beyond run Berkshire Hathaway well?

That's my job.

But I, any, any time I can be of help to the government in terms of giving advice, I've given a lot of advice, actually.

Most of us, I guess, ignored it when it really counts.

But anyway, the, no, I, I am, I obviously willing to do that.

I'm, I'm, I'm here tonight talking about this, you know, 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 plants out there we had two years ago.

We've got the houses.

We've got people that are more productive than they've ever been in, in the history of this country.

We've got a wonderful economic formula in this country.

But right now, it is being, you know, it's been brought to a halt by, by some events that, well, it's, it's, it's, it's the deleveraging that's going on right now that has caused the credit crisis.

I mentioned earlier in this introduction to you, if you read your letters to your stockholders, which you write and Carol Loomis edits every year.

Uh, and you think of your sister as a person you're talking to trying to explain.

Two sisters.

Yeah, right.

A birdie of Doris.

You have talked about derivatives.

Derivatives are in part, uh, at the core of this problem.

Yes.

AIG would, would be doing fine today.

It was one of the 10 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'd never heard of the word derivatives, they'd be doing fine.

Everybody going to work in the morning and they would have no troubles.

But they, they, it was very easy to do because very tempting to write numbers on little pieces of paper and you can kind of report the profits you want to.

And, and there's no limit on it.

I mean, there's no capital requirements to it or anything of the sort.

And basically, uh, I said they were possibly financial weapons of mass destruction and they have been, I mean, they destroyed AIG.

They may, they certainly contributed to the destruction of Bear Stearns and Lehman, although Lehman had other problems too.

I'm interested in this because, uh, people are asking themselves, how did the, did people get away with murder here?

Were there people who simply gained the system, uh, and took advantage and made huge amounts of profit?

And we had excesses that inevitably led to where we are today.

Well, we had all of that, but I would say the biggest single cause was that we had a, we had an incredible residential real estate bubble.

I mean, you can go back to tulip bulbs in Holland, 400 years ago, the human, human beings going through combinations of fear, greed, and all of that sort of thing, their behavior can lead to bubbles.

And it may have had an internet bubble at one time, and you've had a farm bubble, a farmland bubble in the Midwest, which resulted in all kinds of tragedy in the early eighties.

But we've had a 300 million Americans, their lending institutions, their government, their media, all believe that house prices were going to go up consistently.

And that got built into a $20 trillion residential home market, lending was done based on it.

And everybody did a lot of foolish things and where 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, that we, we leveraged up.

And if you have a 20% fall in the value of a $20 trillion asset, that's $4 trillion.

And when $4 trillion lands, losses land in the wrong part of this economy, it can gum up the whole place.

And it continues with respect to the housing market.

It continues.

And, and some will argue that we have to do something about that in terms of the long-term recovery of the American economy.

Well, there's 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 get formed.

So we can eat off an inventory, but the inventory is too big.

And, 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, that is the single biggest cause of why we are here.

And should wise people have known better?

Well, people always should know better.

I mean, people, people don't get, they don't get smarter about the, about things that get as basic as greed.

And, uh, you know, and, uh, 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, and he's getting rich.

And your spouse is getting unhappy with you because you aren't doing it.

Pretty soon you start doing it.

And so you get, you get what I call the natural progression, the three eyes, the innovators, the imitators, and the, and the idiots, you know, and that's what happens.

We've been through all three, have we?

Everybody just kind of goes along and you look kind of silly if you disagree.

I mean, you know, you can have these crazy internet valuations in the, in the late 1990s, but they proved themselves out in the market.

I mean, tomorrow, the next day they were selling for more than they were the day before.

And people said, you know, you're crazy if it, 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 housing 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 then when somebody makes it very easy for you to do it by saying, you don't really have to put up any money or you can lie about your income a little, or, you know, we'll give you a hundred percent mortgage, you're going to do it because everybody that's done it has been proven right.

You have what they call social proof and, you know, you're going to feel like an idiot if you didn't do it next year.

The house costs more.

It's found money.

It's found money, sure.

And so when you look at where we are going, there seems to be two issues that, that are apparent to me, at least risk and leverage.

We just lost sight of risk and leverage.

Yeah.

What was appropriate?

People will do, you know, again, because it pays off for a while.

I mean, you know, you can use leverage and it's the only way a smart guy can go broke.

I mean, it basically is if you owe money, you can't pay tomorrow.

If you just pay for everything and you do smart things, eventually you get broken rich.

You can do smart things and use leverage.

And if you do one wrong thing along the way, it can wipe you out because anything times zero is zero.

But it's so 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's going to turn to pumpkins and mice, right?

But as the evening goes along, I mean, you know, the guys look better all the time.

The music sounds better.

It's more and more funny.

You think, why the hell should I leave at a quarter of 12?

You know, 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.

And you're having a good time.

Yeah, sure.

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 to take a chance.

Confidence is key.

Confidence is key.

You're not going to put your money, 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, that seven-day Treasury bill is at 1 20th of 1%, it's not because people want to earn 1 20th of 1%.

It's because they trust the fact the Treasury will give it back to them next week.

Right, right.

And I'm sitting with $6.5 billion we're going to use to close the Mars-Wrigley deal on October 6th.

I've got to hand over that $6.5 billion on October 6th.

Now, I have to be very careful about where I leave it in between now and then because they're expecting me to 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.

You know, 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.

And confidence in markets and in institutions, it's a lot like oxygen.

You know, when you have it, you don't even think about it.

I mean, it's indispensable.

You can go years without thinking about it.

When it's gone for five minutes, it's the only thing you think about.

I mean, and that's exactly – the oxygen has been sucked out, you know, of the credit markets and confidence.

And there has to be – it's got to be given a jump start, basically.

And that's what this plan is about.

That's what I hope it gets done.

And if it doesn't work.

You turn the spigot.

But you don't get – I have argued with the senators, congressmen I've talked to.

You know, you don't want to be too little too late.

Now, they're being – you know, they're being somewhat too late in my view.

But I'm glad they're – yeah, you know, but that's okay.

I mean, and, you know, we're going to argue for a few weeks after Pearl Harbor to decide whether it's really the Japanese that attacked or whether we should actually commit a few battleships.

But the too little part, you know, it could be a mistake.

I mean, this has to be done on a big scale.

The too little meaning in terms of dramatic steps or the amount of money you're spending or what?

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 $2 trillion market value – I mean, $2 trillion of face value for something.

The one thing you don't want to do – it doesn't make any – here's what the guy paid for it that you're buying it from or what its carrying value is.

You've got to buy in a market.

And one way to do that is if some institution wants to sell you a billion dollars' worth of mortgages, you know, 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 act that you're – 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.

What do you believe might never be the same?

Oh, I think confidence will come back.

In fact, I will tell you this, this country is going – be living better 10 years from now than it is now.

It'll be living better 20 years from now than it is 10 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 more of the potential of human beings over that 100 years so that we had a seven-for-one improvement in – there's never been anything.

I mean, you have centuries where you've got a 1% improvement of them in 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 with.

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, isn't it?

And what's the impact of the athlete being on the floor around the globe?

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.

And they're failing now, too.

Yeah, I mean, they were getting the mortgage of some guy in Omaha, you know, securitized a couple of times.

I mean, you had all these types from Wall Street, you know, and they had advanced degrees, and they looked very learned.

And 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 learned that.

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.

Yeah.

We just made a new one a couple of days ago.

What was that?

And a company called BYD that may develop a really good electric car, I hope.

Is there an operative narrative to the kinds of investments you're making other than you look at and you buy on value?

You look at management.

You look at a place that can absorb 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 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 there's got to be a price that makes sense.

And lately the price...

Prices make sense, don't they?

The prices make a lot more sense now, yeah.

Now, is it...

And I'm not worried at all about the investments we make.

I mean, this country, we've got $46,000 or $7,000 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.

Okay.

But we do this emergency urgent rescue.

Right.

Come January, we have a new president.

We have a new treasury secretary.

We have a new legislature.

What's their imperative?

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.

But you want to get him or her moving faster.

Yeah.

Well, I think it will get moving faster.

I mean, once you get it off the ground.

Once credit flows...

Now, the recession is going to get worse.

I mean, I don't want to hold out false hopes that by some magic bullet that things will turn around in a couple of months.

Because they won'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'll be six months or whether it'll be two years.

It's more likely two years than six months.

I don't know.

It isn't going to be one month or two months, no matter what happens.

All I can imagine six months from now, it's beginning to turn around with the conditions that you know are there.

That's sort of the best case.

Yeah.

That's sort of the best case.

And the worst case?

Worst case is a long time.

And I will say this is...

Worst case is five years?

If we don't do the things we should do, it could be five years.

The should do, though, beyond where we are now.

What are those things?

Well, 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.

But we need to throw the resources at this that are necessary.

But like I say, we are not spending the 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.

Okay.

But that's a very big if.

If we buy it back...

Well, it makes a difference who the Treasury Secretary is.

Okay.

So that's the important question in terms of whether we buy these assets wisely.

I 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 two potential Treasury Secretaries and the Vice Presidential...

Well, it might be a good thing for the Presidential Candidate to tell you who it is they're going to be listening to and who might be a potential Treasury Secretary?

Well, the Presidential Candidates will tell you they'll listen to you.

I assume they're telling you that, aren't they?

Well, no, but I mean, it's not their job to narrow the candidacy field.

When all these people call you up, what are they asking you?

I mean, you're hearing from your friends and people in the Fed.

You've been through this before, too.

I mean, you were that long-term capital.

A lot of other times, you have had to face difficult crises.

I've seen a lot of things happen.

So they come to you and they say, you've fought wars before, Warren, we'd like to talk to you.

But what's the question they're asking?

What is it they want to know?

And I'm talking about smart people who are charged with fixing it.

Yeah, well, lately, they've been asking, will this work?

Right.

And you're assuring them that if they do it, it will.

If they do it...

I don't know who the next Treasury Secretary would be.

I would say this.

I would...

I would...

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.

Would you really?

A blank check?

$700 billion, go spend it.

Yeah, go invest it.

Invest it, right.

Go invest it.

And maybe put up a little of your own money up beside it.

I mean, I might ask Hank to call it best with me.

That's right.

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 isn't going to happen.

And I, you know, I am getting...

Well, can't you do it with oversight?

I mean, that's what the comments are saying.

And oversight is terrific.

Do it with oversight.

I think...

But don't try to make the decision.

No, I think the oversight...

I think 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, I mean, in other words, you want to make sure that the government isn't investing foolishly, but you don't want to care about which congressional districts it goes to or whether banks get favored over...

But how do we determine whether it's being done wisely?

I think you...

That's a big question.

Yeah.

I think you'll have plenty of scrutiny as how money is 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.

But is this different from the Resolution Trust Company because they're talking about securities, not real estate?

Yeah.

Well, Resolution Trust Company was set up to liquidate a bunch of assets that the government inherited because the savings and loans went broke.

So the savings and loans went broke.

The government stepped in, paid off depositors, and now they're left with this mass of assets to sell.

We're not talking about selling here.

We're talking about buying intelligently.

They were selling what they got handed to them by a bunch of savings and loan operators that in many cases had done some very dumb things.

But their job was to liquidate it, and they liquidated it.

This is an entirely different proposition.

You have said to me before that capitalism is not a perfect system.

It may be better than all the other systems, but it's not a perfect system.

You've 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 don't work.

And there's some people in certain countries are pointing their finger at us and saying, see, we told you, the markets will not always deliver for you.

Markets aren't perfect.

People do, as long as you have markets, you'll have excesses.

People went crazy with tulip bulbs.

They went crazy with the South Sea bubble.

They went crazy with internet stocks.

They went crazy with the uranium stocks back when I was first getting started.

I mean, you're not going to change the human animal.

And the human animal really doesn't get a lot smarter.

Now, you can, you know, you can have institutions that put curves on that in various ways.

And actually, with 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 it's working.

I mean, it's so easy to borrow money from a guy at X and put it out at X plus one.

And if everything's going up, you're a bonanza.

Yeah, but if you don't get your X plus one back and you still owe the X on the other side, you're in trouble.

There is this, too, accounting.

You have strong feelings about accounting and mark-to-market.

Tell me where you are on that issue.

I, and a lot of people disagree with me on this.

I believe in mark-to-market.

I think that accounting, in 1974, Charlie, it's either 1974 or 75, 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 we're going to make a lot of money out of it.

But this is what they're 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 we're going to peg these things at some price that isn't market, you know, God knows what, you know, what a financial statement is.

Yeah, because the other argument these people who argue against you will say the assets are worth much more than mark-to-market says.

And therefore, it's not worth it today.

Therefore, we're not seeing a reality.

Well, but that is the reality and that's the reality of what they're going to sell them to the Treasury for, I hope, too.

You know, you get in a lot of trouble when you start putting fictitious numbers 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 two dollars all of a sudden.

I mean, it isn't worth two dollars.

It's worth a dollar today.

And I think once you start putting phony figures into financial statements, you can get in a lot of trouble.

And, you know, we've seen so much of that in the last 20 years.

I mean, is it getting worse?

No, I don't think it's getting worse.

I think what people want to do is make it get worse.

But I mean, what would you reform about that in terms of the way the accounting process?

I think you keep mark-to-market.

The rules get ungodly complicated.

I mean, it's a nightmare to administer some of this sort of thing.

But I want to tell the shareholders of Berkshire, to the extent we own marketable securities or things for which there are markets, even if those markets are bad.

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.

You know, it's wholly writ.

The SEC wants us to do it that way.

And we'll do it that way.

And then I'll explain why I think it's wrong.

And shareholders, they can read it and see whether they agree with my logic or don't.

When you look at the prospects for this 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 have, but other people own a lot more.

That's great.

You know, I want our pie to grow all the time.

But if some other guy's pie is growing a little faster, that's terrific.

It'll 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 prosperity.

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're 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 a 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.

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?

Well, somebody's buying these treasury bills at one-twentieth of one percent.

I mean, we have been consuming about $2 billion a day of goods and services beyond what we're producing.

In other words, the rest of the world sends us about $2 billion a day net of something.

We've got to send them something in return, don't we?

So we send them little pieces of paper.

Now, it'd be nice if they stuck them all under a mattress, but they've got to buy something with them.

Sometimes they buy our treasury notes.

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, on the other hand, they can't run from American assets.

I mean, every day, the rest of the world is going to have about $2 billion more of American assets than we have as long as they sell us these goods.

Because we're borrowing $2 billion a day.

Yeah, and they want to sell us these goods.

Yeah, but you don't believe that's good.

I mean, you believe that an increasing current accounts deficit is bad.

I think it's bad.

And it reflects America's consumption ideas rather than its saving ideas.

But how does that change?

Well, I laid out a 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 have actually been pretty good on exports.

I mean, we are exporting 12% of our GDP now, roughly.

That was 5% many years ago of 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 that should be something addressed by the administration.

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 produce.

That is not good.

I think it's terrible over time.

But our country's productive capacity grows enough so we actually can do that and we'll still be better off.

We just won't be as well off as if we hadn't done it.

What's all this going to do to the price of the dollar?

It could be very tough on inflation could be a very is a likely consequence out of what 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.

Senator Obama, who you support, talks about another stimulus program.

Is that essential at this time?

I think the biggest thing we need now is to unclog the credit markets.

And we may we may need another stimulus.

If we do, it's certainly 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.

You know, and if you look at the Forbes 400, they are paying a lower rate counting payroll taxes than their their secretary or whomever around their office.

I mean, 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 than the 95 percent that Obama talks about or maybe even a little higher than that.

But I think that that a stimulus plan should really be geared to the people.

You know, you know, you've got you've got what, 24 million households, one fifth of the households of the United States.

You have earning, you know, twenty one thousand dollars a year or less, you know, an average of close to four people, three people in those households at two and a half people, actually, probably.

But the you know, just imagine living on twenty one thousand a year, Charlie, twenty two thousand a year.

I mean, you have 20 percent of the population doing that.

So they don't have to worry about guys like me.

I mean, I would push purchasing power, you know, you push out a thousand dollars a person to those people.

It's going to get it's going to get spent and it needs it to be spent.

They need it. And it should come to some extent from guys like me.

But what about the capital gains tax?

Well, I know the capital gains tax is 15 percent now.

Right. So I sit there in my office and I make a lot of money by capital gains and I pay 15 percent.

I pay no payroll tax on it. Right.

You know, the woman that comes in to take the wastebasket away, she's paying 15.3 or whatever it is, you know, just payroll tax alone.

I mean, it is I've never had it so good, you know.

But so therefore the capital gains tax should be changed to 18, 20, 25, 30.

I think it's terrible for people to in effect to say that that income from investment should be taxed at a much lower rate than income from labor.

I mean, I just I just think that you're going to we're going to spend three point one trillion, you know, or something like that.

They should only raise about two point six trillion or something.

You're going to raise it from somebody, you know, now who are you going to get it from?

You're going to get it from me and you or are you going to get it from the, you know, the people that drive the taxi that brings me here or whatever it may be.

I mean, you've got to get it from somebody.

And, you know, everybody's against paying taxes themselves.

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 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 income.

But the income tax is, we'll say, one point three trillion.

The payroll taxes are over nine hundred billion.

That nine hundred billion, that doesn't come from me.

I mean, 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 nine hundred billion.

Nobody ever talks about that when they talk about how the one percent is paying.

They love to tell how I'm suffering, you know, because one percent we're paying twenty five percent of the total.

We're not paying twenty five percent of the total taxes on individuals.

We're paying maybe twenty five 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 that from the woman who comes in and takes the wastebaskets out.

You mentioned inflation, possibilities of inflation.

Are you there for?

Do you have a position on what interest rates would what the Fed should do about interest rates?

Well, I think that's almost the time being.

That's just just put it.

Yeah.

Just put that aside.

And we'll get to that after the patient's up up and walking.

It's interesting, though.

I mean, we are you know, what's going to happen?

Things we're doing are going to have some inflationary consequences.

But you see interest rates at very low levels and including the long rates.

When we watch this, I mean, you're not having this conversation today.

The Senate votes tonight.

House may vote.

People I talk to today believe it's going to pass.

Whatever happened that changed minds and 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 the danger of not doing anything.

All right.

How will we measure the progress, whether this is working or not?

What's the issue?

Yeah, 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 passes.

And so what they will not see immediate reaction.

I mean, we'll be pounding on a guy's chest, you know, on the 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 a 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.

But hasn't that been missing, though, leadership that can explain what it's all about?

I mean, 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.

Go ahead.

When the president of the United States goes out at, you know, eight o'clock in the morning and then his own party votes against him two to one in the house, you know that somehow a message isn't getting out.

No, it takes real leadership.

I mean, Roosevelt didn't, you know, when he came in, he didn't print any money or that way.

Actually, they have done a little bit of that.

But he 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.

I mean, and they and they did a lot of things.

And you needed it.

You needed to jumpstart the economy.

It took a long time.

I mean, the world did not change, you know, in 1933 or four.

But we put it in things like the FDIC.

I think the FDIC was one of the great inventions of the American government.

Well, they had to tweak that in terms of this bill, did they not?

Yeah, they were there were.

And 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 long in the last month, when did you say, my God, I never knew it could get to this point?

Well, 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, when it isn't clogged up.

And I know that Congress will do the right thing.

But I was when I when I watched the House vote the other day, I wasn't afraid because I I still felt something would pass.

But we are going through a very, very tough period.

And I did not think I would see the day when, you know, an AIG would would not be able to have its checks clear.

I mean, if ALG had fell, would Goldman Sachs have been exposed and at risk?

Everybody would have been exposed, Charlie.

Everybody.

You look at why was even their question of not rescuing AIG at that time?

Yeah, I think with people that understood it, they're probably well, they were hoping the private sector would do it.

I mean, that's the same way I would behave if I were if I were the Treasury Secretary or head of the Fed.

You know, I would try to scare the hell 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'd wait as long as I could.

But if they didn't save it, I'd come in.

Well, did that, in fact, happen during this crisis in which the Secretary of the Treasury said, you better save this or we're all going down?

I think certainly you better put up some cash right now.

I think that they hope the private sector would would come in.

And the private sector tried to come in until they saw the size of the problem.

I mean, there were people on that weekend that thought they had a solution.

And then the hole kept getting bigger and bigger.

And all of a sudden it 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 of time.

There was not enough capital available.

To go into an unknown situation, you have a derivative book called AIG Financial Products.

You know, nobody's ever heard of it, except it was a it was it was a terrific profit center.

You know, you could manufacture earnings out of do all these things.

And I will guarantee you that 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 mind around.

I bought a company called General Reinsurance in 1998 that had a similar but much smaller operation, had 23,000 contracts in it.

And you set out to get rid of it.

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 that derivative book, I don't know, it would have hit every institution in the world.

And there was no private capital to come in and do that.

Not big enough.

Not even Berkshire Hathaway.

No, not even Berkshire Hathaway.

I mean, if I thought five or 10 billion would have bought me a good deal and I could have done it, I'd have done it.

I mean, 10 billion was within reach, but 85 billion might not have been.

And the Fed structured that thing very, very well.

I mean, they have put themselves in a position where they are very likely to get their money back maybe more.

They participate 80%.

I mean, they drove tough terms.

I mean, I want to hire the guy that made that deal.

He fit in well at Berkshire.

Yes, a lot of people are looking at you and Goldman Sachs and GE saying, I want to hire the guy that made that deal for you.

Tim Geithner did a better job on this one.

But, but the, 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, we're in a very, very difficult place.

And each week we go back beyond not doing something.

We get deeper and it becomes more irreversible.

And yeah, whoever said, you know, an ounce of prevention is worth a pound of cure, understated it.

And an ounce, you know, a pound of cure that's delayed, another six months that 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.

That's what people have to understand.

You're going to see unemployment go up.

You know, you're going to see lousy earnings in many businesses.

You're going to see people unemployed.

You're going to see more people unemployed.

But the difference, Charlie, if we, if we bottom this thing out at 7% unemployed versus 9%, that's 3 million people.

That's 3 million people that if we do it wrong, you know, lose their jobs unnecessarily in my view.

I mean, you know, I've never been unemployed.

I've never been very fully employed either.

But, you know, just think of what it's 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 30s.

It, you know, you don't want to create 3 million people more unnecessarily.

But I don't think you can't.

That's the depression.

It really is.

And you can't, you can't help some increase from this point.

I don't want to, I don't want any viewer to go away thinking the magic wand exists in Congress.

So they're going to see some more bad news.

But if we do this, we're doing the right thing.

And the system will work over time.

There's no, we've got a wonderful system.

Okay, but that's, I'm going to come to that in the end.

And is it, how 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.

Once we get the athlete back, we can tell him to change his diet a little, you know, or exercise a little more.

We can do all of that sort of thing.

And, you know, if I got a good ideas on that, or I think they're good ideas, I'll be glad to contribute them.

But the system will probably overdo some other things.

I mean, the nature of democracy is such that when there's this, there'll be this revulsion, obviously, toward, that's never going to happen again.

So we'll probably attack it in various ways that don't make sense.

But that's what Congress is for, and that's what advisors are for.

And I'm all for getting the best minds you can get to work on that kind of thing.

Like I said, I don't think it'll be done perfectly.

Maybe we'll end up with a little bit better system at 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.

Thank you for coming.

Thank you, Charles.

Pleasure to see you.

Enjoyed it.

Warren Buffett, we're 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 I'm pleased that we were able to join with him here.

Thank you for joining us.

See you next time.