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Oct.01

8:46 PM ET

Wednesday, 1 Oct 2008

Warren Buffett: I Haven't Seen As Much Economic Fear In My Adult Lifetime - Charlie Rose Interview

Posted By:Alex Crippen

Topics:Politics & Government | Congress | Economy (U.S.) | Warren Buffett

Companies:General Electric | Berkshire Hathaway Inc.

Charlie Rose:
So why was there even a question of not rescuing AIG at that time?

Warren Buffett:
Well, I think what people understand there probably -- well, they were hoping the private sector would do it.

Charlie Rose:
Right.

Warren Buffett:
I 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.

Charlie Rose:
Well, 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?

Warren Buffett:
I think certainly --

Charlie Rose:
You better put up some cash right now.

Warren Buffett:
I 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 of time.

Charlie Rose:
There was not enough capital available other than from the government.

Warren Buffett:
It's 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.

Charlie Rose:
And you had to get rid of it.

Warren 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.

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

Warren Buffett:
Not big enough.

Charlie Rose:
Not even Berkshire Hathaway.

Warren Buffett:
No. 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.

Charlie Rose:
They were --

Warren Buffett:
I'm not bashful.

Charlie Rose:
[unintelligible] was within reach.

Warren Buffett:
Yeah.

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. He’d 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.

[laughter]

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 we’re 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 that’s 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. 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. And they’re not --

Charlie Rose:

You’re going to see people unemployed.

Warren Buffett:

You’re going to see more people unemployed. But the difference Charlie if we bottom this thing out at seven percent unemployed versus nine percent, that’s three million people, that’s three 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 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 three million people more unnecessarily. But I don’t think you --

Charlie Rose:

That’s the depression --

[talking simultaneously]

Warren Buffett:

It really is. And you can’t help some increase from this point. I don’t want any viewer to go away think a 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 if -- the system will work over time. There’s 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 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 I -- 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 say, I don’t think it’ll be done perfectly. Maybe we’ll 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. 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.

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