TRANSCRIPT: Warren Buffett's Live Lunch Interview on CNBC
BUFFETT: I think you've got three very, the people you named are very, very good. And I think Bernanke is very much the key. The Fed came through for us.
BECKY: You haven't commented since the Obama administration rolled out these new regulatory overhaul plans that they've been looking at. What do you think overall about it? There's a consumer protection agency that's involved with this. There's a lot of other different arenas. But is this the right, is this a step in the right direction?
BUFFETT: We'll see how the statute reads. But basically we got way overleveraged in the financial arena. And the American public got overleveraged too. We do need something to address that. We do need something to address institutions where the wrong incentives are in place so that their personal incentives are at real variance with what our national incentives should be. We need something to make sure we don't get into the situation again that we were in last September. And leverage is a big key to it. Now that's a huge problem to attack and how it's written and how it's administered is not an easy job.
BECKY: Can you lay that down as a rule? Should it be that you can't be levered more than 10-to-1? You can't be leveraged up more than 20-to-1? How do you figure out?
BUFFETT: And it's very difficult. And you can't lay down a rule like that, unfortunately. Because just through derivatives you can have an enormous amount of leverage that doesn't show and you can have an inter-connectedness that causes one domino to hit the next. It is not a simple problem. You don't just write down leverage of 10 or 20 to one or something of the sort. There's all kinds of different leverage. You can leverage against home mortgages with big down payments and that will be relatively safe. You can leverage against somebody else who's leveraged and you've got troubles getting compounded. So it's not a simple problem but it is an important problem.
BECKY: Is it one that can be tackled? Is there a solution, a potential solution?
BUFFETT: It's not easy. It's not easy. You need somebody - you need reasonable rules, and you need a very, very good administrator or group of administrators doing it. It's not an easy problem. People like to go to excesses. And the incentives are, in a market system, to overshoot. And it's happened over the years. America's genius has not been in avoiding problems, it's been in surmounting them once they happen. And fortunately, you know, we've come through again on that.
BECKY: So you're not saying it's an impossible task but it doesn't sound like you're very hopeful we can prevent something like this from happening again?
BUFFETT: I think that what started out with a tulip, maybe four-hundred years ago, and continued through the South Sea Bubble and all of those sorts of things, it's in human nature to go to excess. And it's very hard, in a country of 300-million people and a 14-trillion dollar GDP and all of that, to set up a set of rules that will prevent excesses in a market system. But I think there can be improvements made and I think that's what we're shooting for.
WORRY ABOUT INFLATION OR DEFLATION?
BECKY: When we sat down with you here last year, you said inflation was a very big worry for you. What do you see today? Do you worry about inflation or deflation?
BUFFETT: Well, I don't worry about deflation at all. We won't see deflation in any significant amount in your lifetime, which is more relevant than my lifetime. We've taken action in fighting the economic war that we face that certainly sows the seeds of substantial inflation down the road. Not in the next six months or year or two years, but we have done things that raise the probability of really high rates of inflation at some point. We're flooding the system with dollars. We're monitizing debt. We're doing all the things that lead to that. Now those are appropriate things to do. Our economy was like a fellow going down in quicksand last September and up to his shoulders, and somebody tosses a rope. You can tie it around and yank him out with a truck, you may dislocate a couple of shoulders but it's still pays to get him out. And we may dislocate the economy in certain ways. There's really no choice. But we could see a lot of inflation.
BECKY: You mentioned that the financial system was in tatters just last year. It's turned around quite a bit. In fact, some of the big banks have been paying back TARP money, or have made plans to pay back that TARP money. One of your big investments, though, Wells Fargo , has not. Does that put Wells Fargo at a disadvantage?
BUFFETT: Well, it doesn't put them at a disadvantage with the person on the street that's putting in deposits. And they've got the widest spreads, really, in terms of interest income of anybody. But I'm sure they would like to get out of TARP. There's been unanimity among the people in the TARP plan that they want to get out as fast as possible, so I'm sure they'd like to get out at Wells. But from my standpoint, the earning power of Wells is dramatic with or without the TARP money.
BECKY: So, with or without, it doesn't matter to you as an investor?
BUFFETT: It doesn't really, no, no. I wish they didn't have the warrants outstanding that came with the TARP money because that's a call on the future profits of it, but the government set the terms on it. They just signed a blank piece of paper.
BECKY: Over the last few days, Steve Jobs and Apple's board have gotten a lot of attention because of the disclosure, or lack of disclosure of the liver transplant that he had while he was out. You're someone who has also gotten some criticism about your succession plans. What do you think about how the Apple board went about it and do you think that criticism there has been fair?