This is part six 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, Part Three, Part Four, Part Five

BECKY: Good morning, everybody and welcome back to SQUAWK BOX right here on CNBC. I'm Becky Quick along with Joe Kernen. Carl is off today. This morning we are live in Omaha at the Nebraska Furniture Mart with a very special guest. Of course, we're talking about Warren Buffett. He has been answering our questions and your e-mails as well. We've received thousands of e-mails and there is still time to get yours in right now, so viewers you can go ahead and write in at .

We also have this morning some major news, $41 billion merger between Merck and Schering-Plough. Joe is going to have more on those details in just a few minutes, tell you exactly what's happening with that. But meantime, let's get back to Mr. Buffett. This hour we're going to be trying to look to solutions. What should President Obama and Congress be doing right now, how does the president's budget play into the nation's economic recovery? These are all some major questions and fortunately we have someone with a lot of brain power here today to try and answer some of those. So let's get straight to it.

Mr. Buffett, again, I know we've talked about some solutions through the course of the morning, but this is a time when Americans are frightened about what's happening out there. There are a lot of different solutions being batted around and people just wonder what is the best way to go.

BUFFETT: Well, I think they--they're going to have to hear that from the president of the United States. I think there's--six months ago when we talked about it it's an economic Pearl Harbor. And I think that you need a commander in chief at that point. I think that people are confused and scared and they won't quit being scared until--and it doesn't go away fast. It comes on fast, but it doesn't go away fast. Until the confusion is cleared up. But the biggest thing they need clarity on now, I think, is the bank just as they needed it in the early '30s when we put in the FDIC, just as they needed it after the panics of the 19th century when we put in the Federal Reserve.  People have to trust banks. And incidentally they should trust banks, but it should be made very, very, very clear that not just the $250,000, but--FDIC limit--but that anybody that has their money in an American bank or anybody that has the debt of American bank it's going to work out. That doesn't mean banks won't fail. The FDIC will keep taking over banks as they--they've taken over 3600 banks, or savings institutions, since it was set up. Nobody's lost a dime, never cost the government a dime.

BECKY: Mm-hmm.

BUFFETT: So we need clarity on that point. And they can't hear it from Treasury officials or that sort of thing. People need to--at this point they're scared enough so they need to hear it from the American president.

BECKY: I feel like I have heard that from the president, that we will stand behind the banking system and it will be here. What can he say more specifically than that?

BUFFETT: I'm not sure he said it quite that way, and it--incidentally, when it's said, it shouldn't be said, you know, about these guys are all a bunch of bums, but we're going to make sure you--and basically, it's a message that has to come out very clearly. And you know, in the end whether Citigroup ends up being worth $1 a share--it was worth $50 a share some time back--the shareholders, their money may be gone. You know, I mean, there is no moral hazard when you go from 50 to $1, believe me, to being creative. So that--you don't need to worry about that. And the government really doesn't need to put in more money, they just have to say it's good and then if it fails, it fails and then they do what they've done with other failed institutions, they place the deposits elsewhere. I mean, you had Wachovia, I think it was maybe the fifth largest bank at the time in the country. The next morning it was Wells Fargo. Nobody lost a dime in that. You had WAMU and the next morning it was JPMorgan. So we have transferred 8 percent of the assets--deposits successfully, or thereabouts in the last year. So it--but the message has to be--people should not--can't be worried about banks. And they--and a lot of them are.

BECKY: We've gotten mixed messages on what's going to be done with TARP money. A lot of mixed messages. Why do you think that's happened lately? Is it just that it's too difficult of a problem to fix? Is it that there's too many cooks in the kitchen? What's going on?

BUFFETT: Yeah, well there's too many cooks in the kitchen. I mean, if this really is economic Pearl Harbor, you know, Roosevelt on December 8th should not have called in--started holding hearings for three weeks and had 535 members of Congress each giving their own views and in a certain number of cases posing for their local cameras or anything. Now, incidentally, I don't think that Congress would do that if they realized that this was the economic equivalent of Pearl Harbor. I mean, they're patriotic. But you can't have 535 people planning war strategy and criticizing people and finger-pointing and all of that. If you do, you destroy confidence. I mean, people--the American public partly is scared because they see all these different actions going on and they don't--confuse the players and people are criticizing every activity that comes along. I don't think that's very useful in a time of war.

BECKY: Congress might shoot back that this is American taxpayers' money and it's my job to protect the interests of the people who voted me into office.

BUFFETT: Yeah, and it was American--you know, American taxpayers who were paying for the landing at D-Day, too, but we did not hold congressional hearings for a couple of weeks before that with everybody debating where we should land and how many troops we should send in and what day we should come.  And nor did we have in the two weeks after people saying too many people died and you know, we should have sent in more troops or less troops or we should have waited a week to leave. You know, basically, Congress has responsibility, I mean the Constitution defines it, but they ought to realize that there are times when a commander in chief really has to be able to speak with a good bit of both parties behind him. At the same time, when you demand--when you really need that it means that essentially the majority party can't push around a minority party. So you can't use that as an excuse to push through all kinds of things and then expect unity, or substantial unity from both parties in supporting you in the really important war, and this is an important war.

JOE: Hey.

BECKY: Joe?

JOE: Thanks, Beck. Warren, you remember when you made those buys of Goldman and GE, you said that you--it was contingent really on TARP, on the original perception of what we thought TARP was, and that was to get some of these toxic assets off the books. We never--we never did that. We're still waiting. And when the president said, `You're going to hear about some details from Secretary Geithner,' and then our hopes were dashed when we didn't hear any details, that's really--a lot of people point to that day as where we started a renewed downturn. Would you urge the president to really focus with Secretary Geithner on this plan, on the toxic asset plan on some type of private/public partnership to get rid of those? That's what people are waiting for and not seeing.

BUFFETT: Yeah, the interesting thing is that the toxic assets, if they're priced at market, are probably the best assets the banks has, because those toxic assets presently are being priced based on unleveraged buyers buying a fairly speculative asset. So the returns from this market value are probably better than almost anything else, assuming they've got a market-to-market value, you know, they have the best prospects for return going forward of anything the banks own.  The problems of the banks are overwhelmingly not toxic assets, you know. They may have been one or two at the top banks, but they are not going to do in--if you take those 20 banks that are subject to the stresses, they're not going to do those banks in. Those banks have the earning power which has never been better on new business going out of this to build capital positions even if they pay low dividends which they're starting to do now.

JOE: Hm.

BUFFETT: Toxic assets really are not the problem they were. Now, when I said it was contingent--I didn't remember being exactly contingent on TARP, but it was contingent on the government jumping in.

JOE: Right.

BUFFETT: The government needed to act big time in September, I will tell you that.

JOE: So...

BUFFETT: And they did act big time.

JOE: So you are OK with the shift to providing the banks with capital as opposed to the original intention of the TARP for actually getting the toxic assets off the books?

BUFFETT: Yeah, and interestingly enough, they don't need to supply the banks, in my view, with lots of capital. They need to let almost all of--I mean, the right prescription with most of the banks is just let them pay very little in the way of dividends and build up capital for awhile, and they will build up a lot of capital. The government has needed to say--what the government needs to say is nobody's going to lose a dime by having their deposits in these banks. They're going to make lots of money with the deposits.

JOE: Hm.

BUFFETT: The spreads have never been wider. This is a great time to be in banking, you know, if you just get past the past and they are getting past the past. I mean, right now every time a loan is made to somebody to buy a house--and we're making, you know, making millions of loans--four and a half million houses will change hands this year out of a total stock of less than 80 million. So those people are making good mortgages. You want those assets on your books and you get a great spread in putting them on now. So it's a great time to be in banking, but you do have to get past this past. But the toxic assets, in my view, you know, if they've been written down to market, I'd rather buy those assets from the bank than any other assets they've got.

JOE: Hm. OK...

BECKY: Goes to Joe's point about the private...

JOE: ...hey, Beck...

BECKY: Huh?

JOE: Hey, Beck, I want to run something by both of you real quickly. The McDonald's same-store sales we've been waiting for globally, Beck, because this is very interesting. Increased 1.4 percent, which sounds like below recent numbers that McDonald's has been able to post.

BECKY: Mm-hmm.

JOE: You know what February 2008 was? It was a leap year.

BECKY: What?

JOE: It was a leap year and that extra day in February of 2008 accounted for 4 percentage points. So if you factor that in...

BECKY: Wow.

JOE: ...you add them back in it would be 5.4 percent. So the actual number of 1.4 is actually above the consensus, which was .4. US was up 2.8, which was above the consensus of down .6. Europe was down .2. That's actually above the consensus of down .4. So across the board, except for Asia Pacific and Middle East and Africa, that was a little bit below. That was up .7 percent vs. the estimate of up 3.8. But just at first blush, that 1.4 looks like not as good as what McDonald's has been able to post. But in one day--one day is a 4 percentage point difference. See, it would be like being--you're having your birthday. It's like how many presents you get.

BUFFETT: Joe, I'll give you--I'll give you breaking news. Dairy Queen same-store sales have been right up through this, too. But I would hate to own a luxury restaurant in Manhattan or something of the sort. The--we have three classes of jewelry stores, they overlap to some degree, but our high-end jewelry store is down a whole lot. Our--call it the mama bear is down a lot.  And the baby bear is down some. I mean, you just go right--you can just see what the American public doing. The American public has had a reset of their buying habits like you can't believe.

BECKY: Then why did you make your investment in Tiffany?

BUFFETT: Well, we lent Tiffany money at 10 percent. We did not buy the equity. But I think the chances of Tiffany not paying us back--and Tiffany's going to have a bad year now.

BECKY: Right.

BUFFETT: I mean, anybody that's in luxury goods is going to have a bad year now and then, and they may have a couple of bad years in a row. But the American economy's going to be stronger five, 10, 20 years from now. And if a guy can bring home a blue box and have somebody kiss him, I mean, you know, that all--there's always a market for that.

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