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Mar.09

10:49 AM ET

Monday, 9 Mar 2009

TRANSCRIPT & VIDEO: Ask Warren Buffett on CNBC's Squawk Box - Part 7

Posted By:Alex Crippen

Topics:Warren Buffett

Companies:Berkshire Hathaway Inc.

BECKY: Welcome back, everybody, to this special edition of SQUAWK BOX. We are live in Omaha, Nebraska, at the Nebraska Furniture Mart with Warren Buffett. And by the way, we do have a programming note for you. Coming up this evening we have a special with the highlights of today's Ask Warren edition of SQUAWK BOX. You can tune in to CNBC Reports. This is The Billionaire Next Door: Restoring Trust. That's coming up tonight at 8 PM Eastern time.

In the meantime, though, we have plenty more questions that have come in, and, Mr. Buffett, we'd like to get to some of those, as well. Starting off with this, there's a question that came in from Greg Martin in Roswell, Georgia. He says, "How do we best prepare for the inflation that will result from the stimulus, and how severe do you expect it to be?"

BUFFETT: It's hard to tell how severe it'll be. There will be things that government and Federal Reserve can do years from now that will try to counteract it. But we are certainly doing things that could lead to a lot of inflation, and the best asset during inflation is your own earning power. Anything you do to improve your own talents and make yourself more valuable will get paid off in terms of appropriate real purchasing power. If you do something well, whether you're a major league baseball player, you know, whatever it may be, if you're a good assistant, whatever it may be, that's the best asset. The--in my view, the second best asset is a good business. And you might own one yourself, but you might own it through equities.

BECKY: All right. Hendrick writes in from Del Ray Beach, Florida, and says, "Is America considered cheap in the eye of international investors when considering products, whether it be retail, wholesale or goods in general?" And they want to know if now is a time to export.

BUFFETT: Well, you...

BECKY: Yeah.

BUFFETT: You want exports, obviously, to grow. And incidentally, people lose it because the trade balance figures and how much we import. The exports of the United States were 5 percent of GDP if you go back to about 1970. You know, they're about--they got up to about 12 percent. So we make a lot of things the world likes. A lot. Twelve percent of 14 trillion is not a small number. We--we've been very good at that and it's important that we stay good at it, and it's important that, you know, we also import from other countries. But we want to do things to encourage trade and exports. And like I say, we haven't done a bad job on that, it's just we went kind of import crazy and consumption crazy over the last 10 years.

BECKY: All right. Bill writes in from Louisiana. He's got a question about the new tax policy. He says, "Giving to charities is such an important issue for both you and Bill Gates. I know you don't base your giving on tax policy, but the new policy seems to penalize charitable giving." What's your thought on that?

BUFFETT: Well, it'd be--the proposal, I think, reduces the value of deductions to some extent.

BECKY: Right.

BUFFETT: Interest deductions and everything. I think you have to look at the whole integrated policy. And in the end if people can only deduct 28 percent, you know, instead of 36 percent or whatever it may be...

BECKY: Right.

BUFFETT: ...on charitable deductions, you know, I--everything has a--I don't think that's the end of the world. I don't think it'll change--that'll change charitable giving. I think how well the economy works will change charitable giving big time, and I think the best thing for charities in this country is to get the economy working well. And I--the people I know generally, it is not a huge factor, the amount of the deduction. Some people play games with it and all that. I've got $6 billion of carryover--$5 billion of carryovers on charitable deductions. I'm not going to get to use any of them. I mean, it doesn't make--but it doesn't make any difference. I mean, if you're inclined toward philanthropy, I--the difference between 28 and 35 or 6 is going to make a difference, you weren't going to be very charitable anyway.

BECKY: Right. Joe, I know you have a question, as well.

JOE: And along the same line, we can pick and choose different things. And a lot of the e-mailers, actually, and Becky's probably seen them, too, have asked this: Mr. Buffett, on cap and trade, a lot of people think that that's going to hurt the overall economy. And I know you've got Conoco--a stake in Conoco, you've got utilities. Is that the right--do you support cap and trade, that provision of the--of the budget?

BUFFETT: Well, yeah. As you know, that hasn't been enacted yet or anything. But it is part of the budget that was put out the other day that--giving effect to it. Anything you put in that effectively taxes carbon emissions is--somebody's going to bear the brunt of it. In the case of a regulated utility, the utility customers are going to pay for it. I mean, it's going to become, in effect, a tax which we have decided is needed because the market system doesn't really appropriately penalize something that hurts the future but doesn't really hurt us tomorrow morning. But that tax is probably going to be pretty regressive. It'll be determined by individual public utility commissions state by state what customers it gets passed through to. But if you put a cost of issuing--putting carbon into the atmosphere, it--in the utility business it's going to be born by customers. And it's a tax like anything else. If--in terms of ConocoPhillips, it would be less direct, anything of that sort. Or in terms of industry generally.

JOE: Yeah.

BUFFETT: But in terms of the utility industry, it'll be passed through.

JOE: And the coal industry, make it tougher. Are--then are you saying that we should not do that at this point?

BUFFETT: Well, I think--I think we should evaluate it in terms of the economy when we get to that point, but I think we should get the economy straightened. I think job one, job two and job three is the economy, Joe. I think--I think the future does have to have a constituency. I mean, if the market system is going to produce something that over 100 years or 150 years really will change the world in a big way, you better have something that forces the market system to adapt to that reality in the future. Whether the cap and trade--our own guys at MidAmerican Energy, I--who are very smart fellows and who you could have on to talk to about it, generally do not lean in favor of cap and trade. But they would be better to explain the reasons than I. One way or another, society will pay for it, though.

JOE: Yeah. I'm going to take that as against cap and trade.

BECKY: Warren, there's another question that came in from Vishal in India, who writes in, "Charlie Munger describes you as a learning machine. What would be the biggest lesson you've learned in 2008?"

BUFFETT: Well, I've learned that--I would say in 2008 it's been re-emphasized to me the dangers of extreme leverage, whether it's on an individual basis or whether it's societal. And leverage is a lot of fun on the way up, and what it produces on the way down when carried to extremes, whether individual--I mean--I mean the tragedy of somebody on a credit card, which is leverage, what it does to marriages, all kinds of things. Now, when you get where the entire economy, or much of the economy leverages up in a way that embodies societal dangers when it has to deleverage, I think we should have learned a lesson on that. And if you're--if you're dealing--there are a lot of things in life where you don't know whether it's just a little too much or a little too little, but I think we've learned that we want to err on the side, next time, of not allowing people to go on--or big institutions to get as unchecked on leverage as we have allowed them to do here recently.

BECKY: Warren, there are many people who have written in and asked a question somewhere along the lines of do you worry about the idea that we have scared away an entire generation of investors? Will they be afraid to get back in and invest after everything they've seen that's happened?

BUFFETT: We have changed people's consuming behavior and investing behavior big time with what's happened since the economic Pearl Harbor, and there's no question it's going to take people time to get over that. So the answer is they're going to--they're going to spend their money somewhat differently for quite a while, they're going to invest their money somewhat differently for quite a while. In the end, in--if you--if you're a saver, you have--you're going to invest. Now, if you decide to put it in the government securities at practically no yield, you're going to lose in terms of purchasing power. I mean, you still face the problem. So I would hope people would draw the right lessons from this, but there's no question they've had a scar on their psyche, which affects how they're going to behave for a while. And you're seeing that right now.

BECKY: You've talked about what you would like to see President Obama and Congress do to solve this problem. What would you like to see corporate America do, CEOs?

BUFFETT: Well, you know, I think corporate America--you know, I think the idea of complaining about taxes, complaining about this and that and all of it, I think corporate America has plenty of room to behave better. Now, actually, I think they hit bottom in the 1990s. I think there has been some improvement in behavior since then. But corporate--part of the reason, and it's just, you know, maybe a small part, but part of the reason that companies leveraged up like crazy and all that sort of thing is they started--big financial institutions said, `We can increase our earnings X percent a year, and we can--every quarter will be better than the corresponding quarter here.' You can't do it. It--you know, you're going to play games if you do that, and you're going to create SIVs and things to get around capital requirements, and you're going to get into liquidity put options. You're going to get into all these things to play games to get better numbers. You're going to have black boxes, you know, whether it's at AIG, which turned into black holes later on, because you can pull numbers out of those black boxes and you don't have--and for a long--for a while you can get away with it. But I think corporate America has behaved terribly in terms of their attitude toward the sanctity of the numbers they report, and I--it was worse in the 1990s, but I hope they get over that.

BECKY: What about average Americans? What should we be doing?

BUFFETT: I think the average American should be doing everything he can to keep his head above water, basically. I--we have changed the savings pattern just dramatically by the six--the American people just changed it themselves. They didn't get any admonition from the president or anybody else to do it, they just got scared so they're saving. I think that by and large people, to the extent they can, should--they certainly should avoid credit card debt. You know, I mean, I can't make money borrowing money at 18 or 20 percent. We have credit cards. I mean, the American public wants credit cards. So our furniture store issues credit cards and, you know, it's part of the landscape. Just don't be part of it yourself. They--there's--I tell students this all the time. You can't borrow money at 18 or 20 percent and come out ahead. I can't--I'd go broke. So the stay away from debt as much as possible. When you get amount for a reasonable down payment, you find a home you like, buy it. But don't do it till you can handle it. And take on obligations you can handle, avoid the others.

BECKY: Very quickly, are you more optimistic or less optimistic than you were just over six months ago when you told us we were in our economic Pearl Harbor?

BUFFETT: Well, I'm optimistic in the sense that we got past that, and the government did some of the things that were really needed and they did them fast. I am somewhat pessimistic--I'm not pessimistic about it long term. This country will work fine even if we screw it up. But it's important in terms of the speed with which we get back to our potential, it's very important that people work together. And I think the divisiveness and everything bothers me, and the idea of--I understand Congress and their responsibilities, but they really have to realize this is something different. And the--and the president has to do his part in respect to that, too. And so I--I've been--I've been very pleased, actually, in September with the immediate response, because it saved the system to some degree. I've been kind of disappointed as we've gone along in sort of we can't quite get our act together and we can't really get the American public to understand what's happened, what needs to be done and all of that. So I think there's a communications job to be done.

BECKY: All right, Mr. Buffett, we want to thank you very much with your time for us today. You've been very generous.

BUFFETT: Thank you.

BECKY: We appreciate it. And our thanks again to Warren Buffett. That's it from Omaha. We'll see you tonight on CNBC Reports. And, Joe, see you very soon, too.

JOE: All right, thank Mr. Buffett very much for me, too, for all that time. Appreciate it, Becky. Make sure you join us tomorrow. "Squawk on the Street" is next.

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