BUFFETT: Everything will be all right. We do have the greatest economic machine that man has ever created, I believe. We started with four million people back in 1790 and look where we've come and it wasn't because we were smarter than other people, it wasn't because our land was more fertile or we had more minerals or our climate was more favorable. We had a system that worked. It unleashed the human potential. Didn't work every year, we had six panics in the 19th century, in the 20th century we had the Great Depression and World Wars, all kinds of things. But we have a system, largely free market, rule of law, equality of opportunity, all of those things that cause the potential of humans to get unleashed, and we're far from done. So I think your kids will live better than mine, your grandchildren will live better than your kids. There's no question about that. But the machine gets gummed up from time to time and it's--if you take the bulk of those centuries, probably 15 years were bad years, but we go forward.
BECKY: Which brings us to another question. A lot of people have been trying to figure out is this different from what we saw back in the Great Depression. I'm going to jump ahead to one from Dan from Shohola, Pennsylvania, who asks a question very pointedly about this. "How is the market better off today than when we were in the 1929 to 1933 period?"
BUFFETT: Well, we certainly--it's different. I mean, there's a lot of similarities between all recessions or in this case depressions or call them panics like they did back in the 19th century, and there's always differences. One key similarity is that there was a paralysis of confidence in banks and--which is silly now because of the FDIC. I mean, we--but if you went back, my dad, on August 15th, 1931, worked at a bank and he went there and it was closed and he had no job and he had his savings--small savings in there. I mean, if you don't trust where you have your money, the world stops. And they recognized that, but it was a little belatedly. They didn't put in deposit insurance until it was started in 1934 in the Glass-Steagall Act. We have a system that's far better organized to deal with that.
The trouble is that a lot of people don't believe in the system. It needs to be clarified. Actually, the head of the New York Fed, Mr. (William) Dudley, on Friday, you can go to their Web site and read it, he describes it perfectly. But nobody's going to listen to Mr. Dudley very much throughout the United States. The people coming to Furniture Mart today don't know who he is and they're not going to go to his Web site. You really need--you need the president of the United States enunciating it.
BECKY: Enunciating it. It seems like Barack Obama talks pretty frequently about what he sees, what he'd like to have happen. What's wrong with the message that he's put out to this point?
BUFFETT: Well, I don't think there's anything wrong with the message at all and I think he's--he speak wonderfully, but I think--and I think there should be--there's a necessity that Congress takes the attitude that this is a war and that he is the commander and chief and that--and that a lot of the normal things that go on in Washington are really inappropriate in this setting. But I think--I think basically that it has to be as clear as possibly can be made, and I think only the president can do it, that no one, and, you know, the FDIC limit is $250,000, but I think--I think absolutely that no one should be worried about having their money in a bank in the United States or actually owning their debt.
BECKY: OK. You talk about how this was an economic Pearl Harbor. Dan from Spring Lake Heights in New Jersey writes in, he wants to know was our financial system just hours, days away from collapse?
BUFFETT: In September, I think it was. If there was a week where 200 billion, as I remember, in the first three days or so poured out of the money market funds, which had about 3 trillion in them, the money was just gushing out when Reserve broke the buck. That meant that the commercial paper market was disappearing. You know, the blood was being drained from the American economic body and we had some very prompt, wise, action. Chairman Bernanke, the Fed, I mean, they stepped in and said the commercial paper market is going to work. That made a huge difference. People came in and said the money market funds, you know, you weren't going to lose money in money market funds. They said the same thing about money market funds we should now say about the whole banking system. And actually, we've said it in various ways. If you read that Federal Reserve New York chairman speech, it says it, but it doesn't say it the way the American people will get it. The president of the United States has to say it very clearly that you just don't have to worry about that.
JOE: Yeah, thanks. Returning for one second, Warren, you know, when you speak, the wires just start hitting. I'm going to read two of them to you. One is "Buffett says that the parties need to unite behind Obama." Then the next one is, "Dems should--Buffett says that the Democrats should keep pet projects out of the economic rescue efforts." It just seems like it's nice to say we all need to get along, but we're right back where we started. Who's more at fault here? Is it 50/50?
JOE: Did the Dems put too much in or is it just more partisanship from the Republicans?
BUFFETT: Well, I have--I have taken a vow not to point fingers at anybody. I have taken a few--I have taken a few swipes in the past. I will just say that patriotic Democrats, patriotic Americans will realize that this is a war and if they didn't realize it immediately, I can understand it. It's not--it's not as dramatic as a physical war where the news comes over and you know you're under attack. But it is--it is virtually as serious and I think that once the degree of that seriousness becomes apparent to both parties, I think they will--I think overwhelmingly they will behave well. But that does mean that the Democrats have to behave just as well as the--you can't ask the Republicans to cooperate in the spirit of this and then at the same time try and steamroll them on a whole bunch of other things. You ought to agree that this is the job to get done and when we get done, that doesn't mean you don't do anything else in government. But in terms of the contentious things, just let them wait until we get the economy working. Because if we don't get the economy working...
BUFFETT: ...just forget about the other things.
JOE: There's the rub. There's the rub, though, Warren. You know, there's where we need details on what is absolutely essential and what isn't. And that's where the contentiousness comes in, unfortunately. We--can you just go down...
JOE: Can you go down the list of things and say we need this, we don't need this, we need this, we don't need this, we need this and then we can send it to...
JOE: We can send it to Washington so I can say Warren Buffett says this?
BUFFETT: We need clarity on the financial system, on exact--on what will be done. And bank--incidentally, regulators hate that. When I ran Salomon (in the 1990s), I told everybody, don't ever say we're too big to fail. I mean, it's like waving about 12 red flags in front of a bull to say that to a regulator. He doesn't want to be told he doesn't have any choice. So it's a--it's a phrase they hate to use. I can understand that. But the answer is, the American banking system, overall, is too big to fail and you have to apply that. And incidentally, we have quasi-banks that have very large liabilities and where they would impact the system dramatically if left alone. It may be unfortunate we have them, it may be that we need corrective legislation so it doesn't come up again, but we have to deal with the situation we have now. And frankly, that was recognized in AIG. I mean, everybody hates, you know, what they had to do in that, but the problems they would've had if they just said, `Well, this isn't a bank and the hell with them, they made their mistakes,' that's crazy. We have to deal with all large quasi-financial institutions as well as all of the banks and people can't be worried about them and we can't have a contagion like we almost had in September. I mean, the world did come almost to a stop in September.
BECKY: One person wrote in and this e-mail is one we had prepared for later, but somebody asked about Glass-Steagall. Should it be brought back?
BUFFETT: Well, I think there--you need legislation. I mean, whether it's exactly Glass-Steagall. Glass-Steagall brought in the FDIC. It was a wonderful thing. We need banks to get back to banking. I mean, we have learned that handing these people, you know, exotic instruments and all kinds of ability to do things off balance sheet and this desire to improve your earnings a little every quarter, you can't run a financial institution and show nice, smooth growth and earnings. One way or another, you're going to cheat. And there was a lot of that that went on and we need--we need banks to get back to banking. But we need to get through this situation. We should not be giving lectures to people. And incidentally, the one thing that's very important now is banks--and this may come as a surprise to you. Banking has never been better in one sense. I mean, the banks are getting their money very cheaply, deposits are coming in, spreads have never been wider, all the new business they're doing is terrific. They will earn their way out of it, in most cases, overwhelming number of cases. And they should not be spooked by the idea they're going to have to issue tons of stock at some very low price under the circumstances where the very actions of--that that may be coming keep pushing down the price. So that's spooking, you know, people in the banking business. But the banks can earn their way out of this. I mean, the average cost of funds for Wells Fargo, for example, the fourth quarter last year, was 1.44 percent. I can earn money with money at 1.44 percent. I mean, it's cheap. It's abundant and the spreads are terrific.
BECKY: But Warren, you say that as a way of reassuring shareholders, people who should be looking at the financial system, people who are worried about it. But how do you say that without stoking populist anger, that the banks are making money hand over fist? Why should we keep helping them out?
BUFFETT: Yeah. Well, the ship builders made money during World War II. I mean, you know, I--nobody went around saying Henry Kaiser's making too much money because he's turning out all these ships, or Curtiss-Wright's making too much money because they're turning out plane. They did put in excess profits taxes and all that thing. That was fine. But the focus was on what do we need to do? And if that's kept in mind and Joe asked me about these comments, I am--I am going to take no shots at anybody. It just isn't important. The important thing is we do the right thing going forward.
BECKY: All right. Let's hold that thought, and Joe, we'll be back in just a moment with more.
ASK WARREN TRANSCRIPTS AND VIDEOS CONTINUE WITH PART FOUR
Current Berkshire stock prices:
For more Buffett Watch updates
follow alexcrippen on Twitter.
Questions? Comments? Email me at firstname.lastname@example.org