I should add the insurance departments, particularly the Superintendent of Insurance in New York, Eric Dinallo, they've been very cooperative and put forth a lot of energy into trying to find a solution for this. They want to find a solution for the municipal bond insurers. They want it for the $800 billion in the case of these three companies that are out there. But they also want it to open up the issuance of municipal finance.
Right now, the standard guarantee is not only worth nothing. We've actually bought, or, we see bonds trading that are insured that are selling at lower prices than their uninsured counterparts, just because there's been an unusual supply and demand situation. So the insurance in the market is presently not doing the bondholders a bit of good, and in fact in some cases it's even penalizing below the price of other bonds.
I should mention the price we're offering here is kind of interesting. The one-and-a-half percent, which, ah, the one-and-a-half times their original premium, we're receiving in the market right now, our company is receiving double the premiums that were originally charged just to stand behind the present bond insurers in case they don't pay. So for being a second-to-pay, we're getting twice the premium that they received to be first-to-pay, which says something about the market.
Carl Quintanilla: Warren, it's Carl. Can you tell us which has said no, of the three? (Warren chuckles.) And another question Warren, what would a scenario look like in which some of these bonds lost triple-A. Could the markets, the broader markets withstand that?
Buffett: Well, in effect you're seeing a market where they've lost their triple-A. They're trading as if they're uninsured now. Now as I understand it, if they formally lost their triple-A, there are a number of institutions that have to sell them. So, you might see an even greater, well you would see a greater supply hit the market. So you could easily have a disruption for awhile that would be reflected by this outpouring of people that would now find those bonds ineligible to own. You've already seen the market effects to some degree but you haven't seen an absolute forced sale where a mutual fund or a bank trust department or somebody that says we're only going to own triple-As, ah, would have to sell them because the triple-A formally went away. In the market, the triple-A has gone away a long time ago.
Carl: Who has been the stick in the mud?
Buffett: (Laughs loudly.) Well, I'll, maybe they'll call in after the show and tell you. (Laughter.)
Joe Kernen: Mr. Buffett, it's Joe. Good to talk to you. Last time you were on, we made a big deal out of, I don't know, you were actually admitted, 'Yeah, I've been approached by one of those financial deals.' I'm going to approach it differently this time. I assume you have been approached about every single, solitary, one of these deals that we've seen get done. That's probably true, isn't it?
Buffett: It's close to true.
Joe: Close to true. All right. Soveriegn funds, all of that stuff?
Joe: You've turned down every single, solitary one of the them, and I think that is very, very noteworthy. And I just want to know why? Because some of these things are selling at a 50 to 60 percent discount from where they were, and you like things when they're cheap, unless they're getting a lot cheaper. So you must be pretty darn bearish about the prospects for a lot of these financials.
Buffett: Well, or there are other things that I feel I understand better, where I think that they're cheap. But because something is down 50 percent from where it was does not necessarily mean it's cheap. It's something that you look at, but, ah. For one thing, we try to stick with things that we understand, and as you've noticed with some of these deals, the first news is not necessarily the last news.
Joe: Yeah, comment on AIG. What did you think of that yesterday?
Buffett: Well, I think it's very, very, very tough to evaluate a lot of these securities. You know, sometime back I called them, derivatives, 'weapons of mass destruction.' I probably should have called them 'weapons of selected destruction.' But it's been pretty massive in some cases.
Joe: Do you know, is General Re, is there anything there that worries you? Then I would say you've played beautifully, carpet, Mo, things like that, any of those businesses really affected right now in a way that's disappointing to you?
Buffett: No, not disappointing, but I would say that carpet, brick, insulation, our real-estate brokerage operations, anything that has anything with housing, was down last year and continues down. Now that's not disappointing because you know that if you own anything connected with new house sales, that periodically, you know, you're going to feel it. But they have the most competitive position. They're strong and well-managed companies, but their earnings, anything we have that touched the new home market last year had down earnings and this year is going to have down earnings.
Joe: How about General Re?
Buffett: Well, General Re actually did quite well last year. In fact, it may have had the best year in its history. But, none of our companies own the CDOs or that sort of thing.
Jack Bogle: Hey, Warren. It's (Squawk Box guest host) Jack Bogle. How are you this morning? Good to be in the same show with you.
Buffett: Well, listen, I'm a huge fan of your books, as you know.
Bogle: We're a mutual admiration society.
Buffett: Yeah, right!
Bogle: Let me just ask you one question on these bond insurers. About 25 to 30 percent of their portfolios outside of the municipal areas, isn't that correct?