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Warren Buffett's Dateline Interview with NBC's Tom Brokaw: The Complete Transcript (Part 1)

Monday, 19 Jan 2009 | 12:36 PM ET

aired portions tonight (Sunday) of an interview with Warren Buffett by Tom Brokaw. The conversation was taped late last week while Buffett was in Washington.

Buffett tells Brokaw that Barack Obama is the right "commander in chief for the economy" but warns that no one should expect a "miracle" turnaround in the next few months.

Buffett and Brokaw also covered many other topics, including Obama's leadership style, excessive executive compensation, the challenges facing Detroit's automakers, China, and the role of greed in good times and bad.

This is the first part of complete transcript of that interview, as provided by NBC News. CLICK HERE FOR PART TWO OF THE VIDEO AND TRANSCRIPT.

TOM BROKAW, NBC NEWS:

Last fall, Warren, a pollster told me that the election was between hope and fear. When it comes to the economy, who's winning, hope or fear?

WARREN BUFFETT:

Well, right now fear is. I mean, you're seeing it everyplace. You saw it at-- in the sales of almost every item at-- at Christmas. There's a lot of fear throughout the country. Even-- even with people whose jobs are fine, and who have money in the bank. But they-- they're worried.

Buffett & Brokaw, Pt. 1
NBC's Tom Brokaw talks to billionaire Warren Buffett about the Obama Administration.


BROKAW:

I've been describing this as the domestic equivalent of war. Is that an overstatement?

BUFFETT:

Well, actually, in September I said-- this is an economic Pearl Harbor. I-- that was the time Congress had made it in. It really is an economic Pearl Harbor. It-- the-- the country is facing something it hasn't faced since World War II.

And they're fearful about it. And they don't know quite what to do about it. And the point is-- and-- and it-- and temporarily it looks like we're losing. It has that-- that same aspect. Interestingly enough, we were losing for a while after Pearl Harbor. But the American people never doubted that we'd win. I mean, we had that attitude then. I think, right now, that they're sort of paralyzed.

BROKAW:

Is Barack Obama the right commander in chief for the economy?

BUFFETT:

He's the absolute right commander in chief. That-- you know, that's another thing the American people seem to do, occasionally, is that we elect people that are right for the times. You know, whether it was Lincoln, Roosevelt. And-- and I would say Obama-- you-- you couldn't have-- anybody better in charge.

BROKAW:

But why is he right for the times?

BUFFETT:

Well, he's-- he-- he's smart, he's got the right values, but he also-- he understands economics very well. He's cool. He's-- he's-- he's analytical. But then, when he gets it all thought through, and he's fast-- he can convey to American-- the American people what needs to be done. Not to expect miracles. That it's gonna take time. But that we're gonna get to the other end. And-- and I-- I-- I don't think there's anybody better for the job than-- than-- the president-elect.

BROKAW:

He often cites you as an advisor. And I know that you've been in touch with his economic team. But what often happens to somebody who gets elected to that office, particularly, they're more to you to tell you what they know than they are to listen. Does he listen?

BUFFETT:

He's a listener. I-- I first met him, maybe, four years ago, or something like that. He was a listener then, he's a listener now. But, on the other hand, he makes up his own mind. He will-- he will not be-- his team won't run him. He'll use his team, he'll use them very effectively. He'll synthesize, he'll-- he'll-- he'll analyze. But, in the end, it'll be his decision.

BROKAW:

Apart from his election, in your judgment, is there any other good news in the economy?

BUFFETT:

There's not much good new right now-- no. The-- we are-- we are in the middle of the economic Pearl Harbor right now. I mean, our ships have been sunk. Now-- (LAUGHTER) now we have to get mobilized-- to win the war, which we will.

BROKAW:

Your friend, and my boss, Jeff Immelt -- who is the CEO of General Electric , had a phrase that I thought, in many ways, not just because he's my boss, but I thought he summed it up pretty well when he said, "This is not a cycle, it's a reset."

BUFFETT:

Well, there's-- there-- there's some real truth to that. And-- we have lived in one way in one type of economy. And-- and-- we're now deleveraging that economy. We're-- we're gonna have to live without the same impetus from credit expansion that-- really helped propel the economic engine for a long period of time. The-- the-- that-- that wind will not be at our back. But there's all kinds of things that will be in our back. But that-- he's right about resetting with-- without credit expansion being the propellant for the economy.

BROKAW:

And the stimulus program, that-- the new president wants to have, and that Congress is cobbling together, in your judgment is it sound? Are there some things they're-- they should be doing they're not doing?

BUFFETT:

Well, they're doing-- they-- they-- they're gonna turn the fire hose on this-- on this fire. I mean, the-- the-- and-- and-- it's-- it's-- it's a blunt instrument, to some extent. At-- at-- but it's very, very big. We're-- we're-- we're gonna-- we're gonna have a medicine coming in a dosage we've never seen before. And-- it-- but it won't-- it won't-- it won't have immediate impact. It should-- it takes time for it to-- to hit the economy in real force. So people should not expect miracles in February or March or April. That isn't gonna happen.

BROKAW:

I'm very interested in that. And the conditioning of the American consumer. We've been through some downturns here in the last 40 years. But we've always made a snappy recovery. The first two years of the Reagan administration, that was a very sharp recession. At the end of George Bush 41's administration, very sharp recession. But then we made a big comeback with the information technology. I-- I wonder if the American people don't, in the back of their minds, say, "Well, we'll come out of this one pretty quickly."

TRUTH AND CONSEQUENCES

BUFFETT:

Well, if they do, I-- I hope they don't get-- (LAUGHTER) feel that way too strongly. And, incidentally, in the-- in the way it was technically-- described, you could describe the 80s as being a fairly quick recession. But if you think of the period from the oil shock all the way through 'til (Paul) Volcker got done, that whole period was one of stagflation and general-- the stock market did nothing. People didn't trust-- money, you know, cash is trash, and they were running from it 'cause they thought--

Buffett & Brokaw, Pt. 2
NBC's Tom Brokaw talks to billionaire Warren Buffett about the Obama Administration.

(OVERTALK)

BROKAW:

Twenty percent interest rates--

(OVERTALK)

BUFFETT:

Sure. And all of that. So-- so I would say that you really had-- a ten year period there where the American economy did not make much progress. I'm not predicting that this time. But I-- that-- that was-- that was a period that most people didn't feel great about the economy. They didn't feel as depressed as they feel right now though.

BROKAW:

We know, or we have a pretty good idea, what the stimulus program will mean to the economy in terms of raw dollars and so on. The economists can't seem to come to a judgment about how long it will take for it to have an effect. Some are saying a year, others are saying it may be up to five years. Do you have a position on that?

BUFFETT:

Well, I-- I don't think it'll be five years Tom. But I-- I don't have the answer to that. I-- I-- I don't know what the stock market will do in the next year. What I do know is that, if you go back to the 20th century, 100 years, you had two great wars, you had other very large wars, you had the Great Depression, you had the flu epidemic, you had a dozen recessions and panics, you had all kinds of things.

At the end of that century the amer-- the average American was living seven times as well as-- the start of the century. The DOW Jones average went from 66 to 11,497. With all those problems. This is a country that has the ingredients that-- that-- well, it unleashes the potential of humans. And-- and they're still here. I mean-- so five years-- you can put me down on that one. You can't put me down on one year. (LAUGHTER)

BROKAW:

And how important is the new president to all of that in terms of instilling confidence, and talking bluntly to the American people saying, "There is gonna be some pain here. And you may have to make some sacrifices."

BUFFETT:

That's exactly what he's gonna say, 'cause it's the truth. And-- and he's-- he's smart enough to know it's the truth, and he-- and he's the kind of person who's going to tell you the truth. So-- I think he's the ideal president for it. But that's not because I think he can wave a magic wand.

It's because I think he can, in a sense, figure, once again, how to get these basic strengths of the American economy in gear again. I mean, we-- we have a wonderful economy that's gummed up at present. And it's gotten gummed in the past many times.

And it is important who's president. It's important that the American people believe in him. It's important that we take the right policy actions. But there are no miracles in a month or two months or three months. And he's going to tell the American people that.

BROKAW:

Has he--

BUFFETT:

He always has.

BROKAW:

You're very good with words. Has he asked you if-- at all for any advice on his inaugural address? (LAUGHTER)

BUFFETT:

No-- no. No. I have not been sitting around writing four score and-- (LAUGHTER) any of that sort. No, he doesn't need-- he doesn't need any help--

(OVERTALK)

BROKAW:

We have nothing to fear but fear itself.

BUFFETT:

That's right. Nothing to fear but fear itself, right.

BROKAW:

But does it have to be in that tone? Like FDR, "We have nothing to fear?" Or John Kennedy saying, "Ask not what your country can do for you, but what-- you can do for your country?" Are we ready for that again?

BUFFETT:

Well, I don't-- I don't have any specific knowledge. But my guess is it will be inspirational. It'll-- it'll be-- it-- it-- it-- it will be asking something of the American people. I mean, he-- he has every right to expect something of the American people.

I-- I think the American people want something to be asked of-- of them. So I think it will have-- it will-- it-- it'll-- it'll have that same tone, I'm sure, as-- as-- as Kennedy, in that respect. And I think it'll have some tones of-- of Roosevelt in saying that-- you know, we still have 305 or ten million people, whatever it is, who have all the abilities.

We still have a rule of law and a market system and-- and we believe, you know, in-- in-- in-- in everybody reaching their potent-- all of these things are going for us. And I think he will convey that a lot better than I just have. (LAUGHTER)

"FAILURE GOES TO THEIR HEAD"

BROKAW:

But, at the same time Warren, we have-- new systems in play too. And the ripple effect seems to happen a lot faster now, and goes a lot deeper. Part of the reason we got in trouble this time is the system is so complex, and no one seems to know what's going on just below the surface.

BUFFETT:

Yeah, we-- we have a negative feedback cycle going on now. We have fear which leads to people not wanting to spend. And-- and not wanting to make investments. And then that leads to more fear. And-- we're in a negative feedback cycle. We were in a positive feedback cycle three or four years ago, when everybody lent you more and more (LAUGHTER) on a house that kept going up, and you could keep spending money you didn't have and so on. We'll break out of it. But-- it takes time, and nobody can predict exactly when it'll happen. But it will happen faster, I will guarantee you. Because we have the right president-- in office-- than would be the case otherwise.

BROKAW:

Do you think that the American taxpayer, or the American consumer, will have learned anything about proportion as a result of this experience? Because we have been on a binge.

BUFFETT:

Yeah, we've been on a binge.

BROKAW:

And I count myself on that by the way.

BUFFETT:

Yeah, well-- well, you look like a guy that's been on a binge, actually. (LAUGHTER) No, I think-- the-- most people won't. But some institutions will. And-- and some will learn it whether they want to or not. But-- but the-- most people have a propensity to spend what they-- what they make and maybe a little more.

And-- and the trouble is they-- they've had a friendly bartender, you know, in-- in terms of this binge. And I think-- I think the bartender is going to, been sobered up materially. And some of the rules about how many drinks he can serve and all of that-- (LAUGHTER) will be tightened up somewhat.

So I-- I-- I do not think we will see a repeat of the factors that led to this soon. We will see bubbles though again in the future. Human nature, you know, greed and fear will keep-- continue to exist. And-- and-- and we will have other bubbles, and they won't be exactly like this one. But they won't-- you won't see this particular type repeated for quite a while.

BROKAW:

And-- and that building behind us, the U.S. Capitol, Democrats controlling both chambers now, there's gonna be a big cry for more regulations on Wall Street. For the financial institutions to be more closely supervised. Is that a good idea?

BUFFETT:

Well, it's-- it's-- it's probably a good idea. But I-- I wouldn't look at that as a panacea. What-- what-- what you have to do, to some extent, is you have to create the right incentives also for that are running those institutions.

And, you know, I'm not sure whether I would shoot the-- CEO of any bank that went broke or anything. But I would-- (LAUGHTER) I would make it much tougher than it's been in the past-- to-- to run an institution into the ground. I think-- I-- I think-- I think there are plenty of things to be done in the board room as well as in the rooms of-- the Senate or the House.

BROKAW:

Well, you've also been very tough on executive compensation. Speaking out on it. Has that era come to an end? Where these huge, huge paydays come whether or not you've been successful.

BUFFETT:

Yeah, that's-- I-- I hope they have, Tom. And they certainly should. That-- and I think-- I-- I think there will be a lot of curbing of that. But I-- I-- I wouldn't underestimate the desire of people who get paid more than they're worth. I mean, (LAUGHTER) and particularly at the top.

And-- you know, so-- one of my friends says, "Failure goes to their head." You know, they start-- (LAUGHTER) they start thinking that they're entitled to-- eight or nine figures. You know-- with an institution that's failed. That's really up to American shareholders and to boards.

There may be some regulations that help on that. But-- but that-- it's been an old boy's club to quite a degree in board rooms. And-- and-- and-- the-- you know, that should have ceased a long time ago. I think the-- the events-- the recent events will help it get curbed. But-- but the urge for people to rig the-- the compensation arrangements-- will not go away.

BROKAW:

Well, someone also said to me that no one had any skin in the game. That old golfing phrase. Where they didn't have a stake in it because these new instruments are passed along, they're complex. There were a lot of guys on Wall Street when I would say to them, "What's a credit default swap?" They couldn't explain it to me, for example.

BUFFETT:

Yeah, well, we may have been better off 'cause they couldn't. That's-- that's-- that enabled them to sell them easier. But they-- you're right. I mean it-- there should be a real downside if you want a big upside. And-- and that has not been the case.

The stock option is all-- you know, it's a one way ticket. I would-- you know, I-- I sort of believe in-- in people that are running businesses having most of their net worth in those businesses. And-- and-- and-- and not just-- not-- not on paper. I mean, with real ownership, having paid for it themselves. And-- but that looked a little old fashioned here a while back. But it may-- it may stage a comeback.

PATRIOTIC TO PAY TAXES?

BROKAW:

Did the president-elect talk to you about tax policy? You've been outspoken as well about-- for example, payroll taxes. It's unfair that your secretary pays more of her income, proportionally, than you do.

BUFFETT:

That's true. That's right.

BROKAW:

And there's that whole question about capital gains staying stuck at 15 percent. Did he ask your advice on that?

BUFFETT:

Well, we've talked about that some years back. I mean, not-- not-- not-- not recently. But-- actually, in his-- in his book, The Audacity of Hope we-- he-- he mentions it, conversation or two we had about taxes. But I think that, you know, what we learned in the last 20 year-- we learned that a rising tide lifts all yachts.

But-- but the-- the fellows in the row boat-- boats have been left behind. And-- while the aggregate wealth of the four-- four-- 400 went from 220 billion to a trillion 540 billion. Seven for one. The wage of the average American went no place.

And-- and tax policy has just consistently favored, more and more-- the rich. I mean-- basically you've got, you know, capital gains rates at 15 percent. And-- and-- and I don't pay any-- payroll taxes on that at all. So it's-- it's gotten tilted way to the rich, and everybody said this is wonderful because we need to encourage investment. Well, we've had the lowest tax rates for investment relative to earned pen-- income the last eight years and look at what it's produced.

BROKAW:

When Joe Biden said, during the course of the campaign, it's patriotic for the wealthy to pay more in taxes, those who are more conservative jumped all over him. Do you think it's patriotic for the wealthy to pay more taxes?

BUFFETT:

Well, I-- I-- (LAUGHTER) I-- yeah, but I wouldn't want to rely on patriotism. I'd rather rely on the tax code. (LAUGHTER)

BROKAW:

But is-- is it gonna have to come to that?

BUFFETT:

Well, we-- we're gonna-- we're gonna spend a lot more money now. But here just-- the last-- in the last year-- you know, we spent about 2.9 or-- trillion dollars. We raised about 2.6 trillion. And-- you know, we are raising more and more of that from the people that-- that are-- you know-- are-- are the-- are the working people in the world, (LAUGHTER) and less-- less from people like me.

And we've gotta the money from someplace. I mean, we-- we-- we-- and-- and it's just-- Congress makes that decision as to-- as to whom shall contribute to these things that contribute to our common good. And-- and, in the last decade, the proportion that, counting payroll taxes, and you gotta count them, because they're over 30 percent of the receipts of the federal government, but counting payroll taxes-- the proportion has gone down on guys like me and it's gone up on people like my secretary.

BROKAW:

And do you think that that can get changed in this administration?

BUFFETT:

I-- I think it will get changed, yeah.

BROKAW:

Do you think that Congress and Secretary Paulson, between them, have been tough enough on the financial institutions that have their hands out all over Washington trying to get money out of this bailout program? Bank of America , Citi Bank , AIG , these huge financial institutions that helped get us in trouble in the first place now are being underwritten by the ordinary taxpayer who's out there worrying about losing his job the next day?

BUFFETT:

Well, I-- I-- I think what's been done has been necessary. I mean I-- I-- if your financial system becomes totally dysfunctional everything else becomes dysfunctional in the country. Now the-- you may hate to help them out, because you-- you may-- you know, they-- they may have gotten us in trouble in many ways.

And the people at the top may have made out like bandits in-- in terms of it. But I wouldn't let that stop me from doing what's right to make next year better. I-- the-- we-- you know, I-- the searching for villains is less important to me now than figuring out a solution that gets us out of this promptly. And-- and-- and-- but I-- I do think that boards that vote big golden parachutes and all that sort of thing. I mean, I think they ought to reexamine their activities.

BROKAW:

Your friend-- Arnold Schwarzenegger, is the governor of California. That state, in many ways, is ground zero for all of this. I mean, they've got a housing crisis that it'll take years for them to get out of. And their budget deficits are running into the, now--

BUFFETT:

Huge.

BROKAW:

--40 billion dollars maybe. Is he asking for your advice?

BUFFETT:

No-- (LAUGHTER) no, I'm not sure what I'd tell him. But what you will see down-- for one thing, the pension plans of states and-- and cities-- has been decimated-- have been decimated in the-- in the last year. And the costs from that, the lack of revenue they're going to face as the-- economy slows, means that you are going to see a parade of mayors and governors to Washington like you've never seen it.

And they're gonna say, "If you can help out General Motors , and you can help out Citicorp, you can certainly help out, you know, this state or that state." So I-- I think you're going to be-- I think it's gonna make inauguration day look like nothing in terms of the public officials that come in here and say, "We-- we need help." Their revenues are gonna be down. Their expenses, particularly including pension expenses, are going to be up. And you're going to have unbalanced budgets just all over the country with states and cities.

CLICK FOR PART TWO OF THE COMPLETE BUFFETT/BROKAW DATELINE INTERVIEW

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