TRANSCRIPT/VIDEO PART TWO: Three Hours With Warren Buffett - Live From Omaha

THIS IS PART TWO OF "THREE HOURS WITH WARREN BUFFETT - LIVE FROM OMAHA" ON CNBC'S SQUAWK BOX WITH BECKY QUICK, FRIDAY, AUGUST 22, 2008.

IT IS AN UNEDITED TRANSCRIPT AS PROVIDED BY BURRELLESLUCE.

GO TO PART ONE OF THE TRANSCRIPT

BECKY QUICK, co-anchor (Omaha, Nebraska): But we're in Omaha this morning, folks, for the world premiere of a new documentary that's resonating with Americans from Wall Street to Main Street. It is appropriately titled "I.O.U.S.A." Let's take a look.

(Clip from "I.O.U.S.A.")

QUICK: The man you just heard is David Walker. He served as comptroller general, and he plays a major part in this documentary. He's joining us this morning on set. And, Mr. Walker, thank you for being here today.

DAVID WALKER (Former U.S. Comptroller General): Good to be with both of you this morning.

QUICK: All right. Well, we were just listening to what you were talking about, a major problem that you've laid out. How serious and drastic is this problem, in your view?

WALKER: Well, I--it talks about four deficits, the film does. The budget deficit, the savings deficit, the balance of payment/trade and the leadership. I think they're all a problem. But the biggest problem's the leadership deficit. We have too many people today focusing on short-term issues, not enough trying to take on structural problems to try to help make sure that our future is better than our past.

QUICK: Mm-hmm. Warren, you said at the beginning of the show you didn't necessarily agree with everything, but you do agree with taking a longer term look at some major problems out there.

WARREN BUFFETT: Absolutely. I admire what Dave's doing, that he--the future does not--has not had much of a constituency in this country in recent years and, you know, it's because the electoral cycle's shorter than the policy cycle on many issues, and it's hard to get worried about what's going to happen 10 or 20 or 30 years out. And we're feeling the effects of that in energy and, obviously, every fiscal decision you make today has an impact forever, really...

QUICK: Yeah.

BUFFETT: ...in the country. So I--like I say, I admire--I admire Dave and Pete Peterson in terms of what they've done here.

QUICK: David, you've been looking at the budget and studying these things for about a decade and a half and being really aware of every single thing that happened as the nation's chief auditor. When did you really get worried that things were headed down a terrible path?

WALKER: You know, I came in as auditor general of the United States, or the comptroller general, in 1988, and things were going pretty well. You know, we had tough budget controls in place, the economy was doing pretty well, we were moving to surplus, we had surpluses for four years in a row--although only one of them without the Social Security surplus. In 2002 the budget controls, the statutory ones that were in place that helped us take us from deficits to surpluses expired, and Washington totally lost control. It was more spending, enhanced entitlements, more tax cuts. Out of control.

QUICK: Is there a sense that right now--with American people facing some tougher times, with an economy that's in crisis, is there a sense that this is a message that's starting to resonate?

WALKER: Well, first, I've had the good fortune of being able to go to over half the states, over 40 cities...

QUICK: Right.

WALKER: ...over the last two years talking directly to the American people with others about this. They get it. The question is, do people in Washington get it? The risk is, is that, clearly, as Warren said, there are things that need to be done today. We do have challenges today. People are hurting today, and we need to do some things to deal with that. But we must also deal with our structural, systemic problems and not exacerbate the long range by doing things that might be good today but further mortgage our future.

QUICK: What--in short order, what would you like to see done if you had a wish list, maybe three things that could get done right away?

WALKER: Well, for the presidential candidates, I'll give them two things.

QUICK: OK.

WALKER: Number one, publicly acknowledge that we're in a $53 trillion hole that gets deeper 2 to 3 trillion a year even if we balance the budget--unfortunately, we're headed the wrong way--and that they'll make addressing that a priority. And secondly, for them to endorse the need for a capable, credible and bipartisan commission to make recommendations to the next president and the next Congress for an up or down vote; things like budget controls, Social Security reform, round one of tax reform and round one of health care reform. That would be a tremendous positive step.

QUICK: Warren, what do you think about that?

BUFFETT: Well, I think I--probably the second point I agree with more fully. I think that you've had situations like the Greenspan commission on Social Security...

QUICK: Right.

BUFFETT: ...back in 1982. There are times--usually commissions are a waste of time. I mean, you know, the report goes in a drawer someplace and--I mean, just think of the last six or eight that you can recall and how much came out of them. But there are occasions and, frankly, a time of recession would make the country more receptive. And you would need--you would need people on them that, in effect, the president couldn't ignore after the report came in. But there's--it makes perfectly good sense to have people that are smart, that care about the future of the country sit down. There are things we can do to improve ourselves always, and the time might be ripe for something like that.

QUICK: Mm-hmm. Dave ..

WALKER: You know, we've got to learn how to walk and chew gum in Washington. You know, we need to be able to do more than one thing at a time. And that's why a commission is particularly critical, because we need to make progress on reinstituting budget controls. Social Security reform is easy. We can do that if we go about it the right way. Health care is the real challenge. And we do need tax reform, too. So if we had the right kind of commission with an up or down vote--and that's what's different from a number of the other recent commissions--then we could make progress on multiple fronts, and that's what we need.

QUICK: Have you reached out to the two campaigns? I mean, you said you've been across more than half the country. What about the two political candidates right now?

WALKER: Yes. I met with the top economic policy advisers of both of the campaigns--they both happen to be friends of mine--to help them understand where we're coming from in the foundation, what we believe is important. And I'm hopeful that the general election campaign will make fiscal responsibility and intergenerational equity a higher priority. But we'll wait and see.

QUICK: OK. You say that you're hopeful that the campaign will push that. Does that mean you didn't get a great reception from either one of these two when you sat down with them?

WALKER: Well, you know, that means most politicians like to gain votes rather than lose votes, OK? And that's why I think it's unrealistic to expect that they're going to get to a great level of specificity about, `Well, this is exactly what we're going to do to Social Security or taxes or health care.' That's why this proposal acknowledging the problem, endorsing this type of commission is the right way for both of them, because then they don't have to get into the specifics but yet they then have an ability to take on the issues after they're president. And for the sake of our country, our children and grandchildren, they need to.

QUICK: All right, Dave, we're going to talk more about the film later this morning. We'll also be joined by Pete Peterson coming up. But thank you for getting up early with us to talk about this right off the bat. And we'll get back to you just a little bit later this morning.

WALKER: Great.

QUICK: Again, we also have Warren Buffett who's with you this morning. We'll be talking more about "I.O.U.S.A.," but also the state of the economy. We're going to talk about the "Oracle of Omaha," where he's investing in the stock market right now--at least we'll try and get that out of him. Some of his investments, his thoughts on the state of the banking system. Stay tuned, this is a very special edition of SQUAWK BOX right here on CNBC.

WHAT HAPPENED TO FANNIE & FREDDIE?

QUICK: All right, welcome back, everybody. As we mentioned a little earlier, the movie "I.O.U.S.A." premiered across the country last night, and we got the chance to host a live town hall in Omaha that was simulcast to theaters across the country last night. Our CNBC team was on the ground at some of those theaters across the country. They got the chance to catch up with crowds from the East Coast to the West Coast. And, Warren, a lot of them heard you were going to be at this town hall meeting, and so we had our cameras ask some of those people some questions that they wanted to pose to you. Are you ready?

BUFFETT: I'm ready.