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Warren Buffett Watch
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TRANSCRIPT & VIDEO: Ask Warren Buffett on CNBC's Squawk Box - Part 3
This is part three of the preliminary transcript and video clips of Warren Buffett's appearances on CNBC's Squawk Box on Monday, March 9, 2009.
Previous transcripts: Part One, Part Two
BECKY: The front page of the (Wall Street) Journal today, Warren, says that some of the progress we've made in the credit markets has been backsliding. It's been going away. LIBOR rates have been inching higher once again. Have you seen that as well in the credit markets?
BUFFETT: Yeah, I've seen that. It's not like it got a worse of the situation in September, but when people lose confidence, yeah, I don't care whether they're big shots, you know, running big companies, or big banks, or whether they're the guy on the street, they behave exactly the same way. I mean, this goes back to the human--you know, the "Naked Ape" type of thing, reaction. The fear or flight stuff comes in and where they flee is something this government guaranteed. And you've seen it, yeah, and you'll continue to see it. They have--people have to be confident. The system doesn't work without confidence and they are--they're not confident now and they are confused and the government has to speak with real clarity. Government's done a lot of good things in terms of the banking system...
BECKY: Mm-hmm.
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BUFFETT: ...but frankly when you have changes of administration, when you have--when you have 535 members of Congress criticizing maybe various policies and maybe taunting even people, the reaction of the public to that is, you know, `I'm going to go to something this government guaranteed,' and the world won't work if that continues to be the case.
BECKY: Well, let's get back to that, though. How could the administration possibly rein in 535 members of Congress, not to mention it's a 24-hour news cycle and we put just about anybody and everybody on to spout their views?
BUFFETT: Well, I think that the first--you have to recognize that it is an economic Pearl Harbor. If you don't believe that, then why should members of Congress not, you know, why shouldn't they throw in 8,000 earmarks or do what they've been doing? Congress, and I think I said this six months ago, I mean, they're a patriotic group of people. I don't think maybe they understood fully, some of them, the gravity of the situation and what is required. What is required is a commander in chief that is looked at as being the commander in chief in a time of war and the support that generally he needs and other things that have to be given up. When we get all this solved and go back to yelling at each other, you know, and putting in pet projects and doing all that sort of thing. But for the time being we should put that, as much as we can, aside and then frankly, nobody but the president now will be believable to the American people.
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BECKY: Joe:
JOE: Yeah, I--really quickly on that--on that Merck dividend I want to--I said they're going to try. They're committed to maintaining it. I'm hearing from work--or from Merck. They're committed to maintaining that dividend. So it's about 6.7 percent.
I want to get back quickly, Mr. Buffett, we were talking about this article in the Journal. Look at your Berkshire AAA bonds, look at General Electric, which is still AAA. Look at those bonds. Look at Goldman Sachs bonds. The thrust of this piece is that when you're not sure what the government's going to do eventually to fix things, even senior debt holders aren't sure that they'd end up with the assets of the firm. How do you expect this to work itself out? What does the government need to do? You--Mr.--or President Obama needs to speak for the government obviously, but we're not really sure how--you know, what steps are going to be taken in the financial system.
BUFFETT: Well, if I've got just a minute, I'll back up a little. In the 19th century you had at least six huge financial panics. They were--and they caused in many cases by people losing confidence in banks. So if somebody lost confidence in a bank in Omaha they got in a line and as soon as somebody got in the line at the First National there was a line at the Second National and so on. We learn time after time--and they called them panics. The reason they called them panics was because if you went to the bank and couldn't get your money out you panicked. And that same situation will continue to exist forever. People, if they've got their money someplace and they get worried about it they want to get it out fast and if they see other people wanting to get it out, they want to do the same thing. So along came the 20th century. We put in the Fed and we thought that would calm down people. But when the '30s came along, we recognized that without faith in the banking system this economy was never going to get well. So we formed the FDIC. Now, this is an interesting group of pages here. This has 3600 banks that the FDIC has assisted. Three thousand six hundred. There's only about 7,000 banks in the United States, another 1400 savings institutions. No depositor of an insured deposit has ever lost a penny since 1934. It was a huge factor in making this economy work to be one of the greatest--well, the greatest economy that's ever existed. Thirty-six hundred times the FDIC has come in. In the last year, they have moved, I think, something close to 8 percent of the deposits in the United States. It hasn't cost the taxpayer one dime, no depositor has lost one dime. Now, what the American people have to be sure of is that when organizations as big as the ones that have been in the news, like a Citigroup...
BECKY: Right.
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BUFFETT: ...where people know the FDIC can't come over and move it to the Second National Bank of Omaha or something overnight, they have to be sure that all deposits, really, all debt liabilities of Citigroup are going be met. There's--and the truth is we're going to do that. People say they're too big to fail, but you really need somebody that's totally authoritative who can say, `Just forget about the problems of ever worrying about having your money or actually a debt instrument of a bank.' It's too important that--to be left ambiguous on that subject. And all of the--the FDIC's raising more money now. But the FDIC will take care of banks. They talk about nationalizing banks, they nationalized for a nanosecond 20 banks this year, roughly 20 last year. They moved it overnight, it's all working fine. Nobody loses a dime. And people have to feel that way about the entire banking system. And if they don't, we will have--you'll have more articles like the one you talked about in the Journal.
BECKY: Yesterday, Senator Richard Shelby and Senator John McCain both made comments on the morning news programs and said things to the extent that they should let some of these banks fail. "Close them down, get them out of the business. If they're dead they ought to be buried," Shelby was commenting.
BUFFETT: Here's 3600. Not all of these got--but overwhelmingly these did die and get buried. And we have had--we had one over the weekend in Georgia, I believe. We had about 20 this year, we had 20 last year. The peak year we had over 500 and the country went on fine because they didn't panic about banks. So there's no question that a bank that's going to go broke should be allowed to go broke. You know, the thing you have to make sure of is that the people that gave their money to that bank--the shareholders can get wiped out. The shareholders have gotten wiped out of thousands of banks over the years. That--but...
BECKY: Shelby also said those Citi has also been--has always been a problem child. Can you do that with a bank the size of Citigroup [C
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BUFFETT: Well, Citi is--Citi's probably going to keep shrinking, but in the end nobody should be worried about having their money in Citi. On the other hand, there's really no moral hazard to that. When your stock goes from $50 to $1, I don't think you create way more moral hazard than when it goes from $50 to zero. I mean, you know, we have a system that penalizes enormously the shareholders of banks where the management screw up. But we have to make it very clear, you know, no Fed-speak type stuff or anything. We have to make it very clear that people are not going to lose money. That doesn't say they're not going to fail. We're going--we're going to have--we'll have more pages of this stuff as we go along. It's the nature. But we provided for it.
Data is a real-time snapshot *Data is delayed at least 15 minutes
