2:52 pm:  Buffett says you can't design a regulatory system that can deal with a very large financial institution using complex strategies.  You're better off knowing the people running it.  Munger says when a financial institution accepts the backing of a government, it should be required to be very conservative in its dealings.

2:54 pm: Buffett - Fannie Mae and Freddie Mac were pre-announced to be "too big to fail."  200 people were assigned to a regulatory agency (OFHEO) whose sole job was to watch Freddie and Fannie.  Even so, there were all kinds of accounting problems.  People will behave badly when given the wrong incentives. Management had to "paint pretty pictures" for Wall Street and that led to bad accounting.

2:58 pm:  Munger - "The people selling the weird products are always going to be venal."  Buffett - "Well, not always."  Buffett notes that when the profit margin gets squeezed out of the "plain vanilla" transactions, people start getting creative.  "Toxic waste" more attractive to Wall Street than "plain vanilla."

3:00 pm: Asked about the  partnership, Buffett says the two hit it off from the start, "rolling on the floor, laughing at their own jokes" and have "had a lot of fun ever since."  They disagree sometimes, but they have never had an argument since 1959.  Buffett says Charlie has taught him a lot about how to value a business and about human nature.  Charlie has pushed him to buy into strong, solid businesses rather than be tempted by cheap "cigar butts."

3:02 pm: Munger says Buffett has influenced his life far more than he has influenced Buffett, especially since Buffett convinced him to give up his law practice.   "We both like learning."  Berkshire is an example of an "ever-learning machine."  "The best thing a human being can do is to help another human being know more."  They say they are blessed to know each other and to be able to work with such talented managers throughout Berkshire.

3:06 pm: Asked if there may be opportunities among financial stocks, Buffett says he just doesn't know enough about most banks and any bank Berkshire would invest in would have to be very big.  "I'm not going to rattle around the country talking to one manager after another."  Buffett says just talking to a manager isn't all that useful.  Sometimes when they're lying they believe it themselves.  From Berkshire standpoint, wouldn't gain much trying to find some medium-sized bank it would feel strongly about.  It may be out there but too much effort to find it.  Still, every now and then "one hits me between the eyes."  Munger says "that prospecting territory might have some promise" for others, but not for Berkshire.  Buffett - probably easier to find values in Korean stocks rather than U.S. financial stocks.  Munger agrees.  "More obvious opportunities there than in American banks."

3:10 pm: On helping investors hurt in the mortgage mess, Buffett says those who bought mortgages they didn't understand shouldn't get any more help than he did when he bought Dexter, which he didn't understand.  As for helping home buyers, there are a certain percentage of people who got into mortgages with payments that get bigger.  A "small proportion" may have been misled, and they deserve some help to keep their homes.  There should be a big, red, warning on mortgages with payments that increase during the term of the loan.  "I see no reason for someone who borrowed on a 6 percent mortgage" to get help if they can't make the payments.  If they can make the payments, they should stay in the house.  We can't guarantee to everyone that the value of their house will never go down.  For a time, everyone thought house prices could never fall.

3:14 pm: Munger - "We never should have created the situation" where the holders of the first mortgages on a home have a conflict of interest on foreclosures.  It was a stupid system.  "There's a certain amount of tragedy in this that may be unfixable in a capitalist system."  Buffett - When you get into any kind of bubble where you think tomorrow's price will bail out any decision now, there's going to be trouble.  He says Berkshire bought some sub-primes, and even though it could reset the rates higher, it won't.

3:19 pm:  Problems came from allowing "over-reaching and complexity" by financial institutions that wanted to increase their earnings.  "Problem came from giving human nature more discretion than it can handle."  Buffett says in some cases, people could pick their own payments, even payments so low that it didn't cover the interest and the principal went up.  Banks shouldn't have made those kinds of loans and people shouldn't have taken them out.  Munger - People sacrificed common sense and decency to increase earnings.

3:23 pm: Asked why he bought stock in Munich Re when directors of the company don't own a lot of shares, Buffett says that happens a lot.  "There's no rule that you can't have a wonderful business when directors don't own a lot of the stock."  He prefers it when directors do own the company's stock and even better when they buy it with their own money.  "It's not a requirement."  In response to a question, Buffett says it was his decision to buy Munich Re stock, not Geico investment chief Lou Simpson's.

3:25 pm: Asked by a British reporter why he's not including the U.K. in his upcoming European tour, Buffett says Berkshire is already fairly well known in Britian.  He has no aversion to investing in the U.K. and may be close to buying a "medium-sized" British company.  He also said he'd take a look at Royal Bank of Scotland's possible divestiture of its insurance unit. 

3:26 pm: A Brazilian reporter asks whether Buffett is still invested in that country's currency.  Buffett says the real is the only currency position he does have, and it's relatively small.  He learned a lot about Brazil from a friend who lives there.  After hearing about the country from his friend, he looked at the country, and bought some reals.  He says he had an "outdated" opinion about the Brazilian economy.  He was lagging on "what has really taken place in Brazil" recently.  He still thought of it as a place with a history of failed currencies.  Buffett reveals that his friend is Jorge Paulo Lehman. (He's a self-made "beer baron" who is number 172 on the Forbes list of the world's richest billionaires.)

3:32 pm: Asked if the U.S. is still in recession, Buffett says, yes, by his definition, although most people pay attention to the "official definition."  "If we're in a non-recession," he doesn't think people would like things to stay the way they are.

3:34 pm: Q - What should Japan do to attract Buffett's attention?  Buffett says he does look at Japanese companies, but so far hasn't found anything he likes at a price he likes.  He points out that he doesn't buy all that many stocks at any given time.  "Very few names get added or subtracted at Berkshire every year."   Buffett says we like the companies fine, we just don't like the prices.  If prices come down, he could be buying there.  There's nothing Japan itself needs to do.  He'd love to buy something big in Japan, and he could come across such an opportunity at any time.  Munger - "We're not prejudiced against Japanese stocks, it's just that your reputation is so good that your stocks sell higher."

3:38 pm: Buffett says if he had to guess, he'd say the Canadian dollar will be stronger than the U.S. dollar ten years from now.  (He made a similar prediction last fall during a Toronto appearance.) Munger points out that semi-socialist nations like Brazil and Canada have stronger currencies, and he finds that "amusing."  Buffett - "It's much easier to be wrong on currencies than it is on stocks."  Canada and U.S. are following policies under which the Canadian dollar will overperform the U.S. dollar over a period of years.

Tools:

PrintEmail Del.icio.us Digg It

Next Post

Previous PostBack to Main Page