Warren Buffett Watch
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CNBC Transcript: Warren Buffett Explains His Railroad 'All-In Bet' on America
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Executive Producer
JOE: I'm bringing up an unpleasant subject. No, I'm kidding. Where are those -- You're going to like this. I know that you're going to smile when you answer. What were the warrants on Goldman [GS
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], again? Was it 115?
BUFFETT: 115, yeah. Five billion dollars of stock at 115, yeah.
JOE: I mean, that is just -- anyway, that's at 169. I'm leading to something, Warren. It's 169 now. Do you get the feeling that the financial system right now is not as leveraged as it was? Do we need to fix it now? There's people that say we're just as -- in as perilous a condition as we were before everything happened. Do you think..?
BUFFETT: That's not true, Joe. I mean, I can't speak for every firm. But if you look at -- a lot has been accomplished in the last year. And incidentally, I give enormous credit, last September, to what (Federal Reserve Chairman) Bernanke and (Treasury Secretary) Paulson did. If they hadn't stepped in on commercial paper and guaranteed the money market funds, you and I would be communicating by smoke signals. I wouldn't be able to afford a phone, probably. No, it was -- We were right at the brink a year ago but a lot has been corrected and the system has been changed in a material way.
JOE: What would you say about paying out huge bonuses at Goldman? You okay with that as a huge shareholder?
BUFFETT: Well, as a future shareholder, we're a warrant holder now, but more is coming from us than anybody else in the whole world. People earn a lot of money for their shareholders, I have no problem in paying them. What I don't like is pay for non-performance. But I love pay for performance. It's something we do at Berkshire and I have no quarrel with that.
RENDELL: Yeah. I think -- this is Governor Rendell. I think what really galls the American people is that executive pay on Wall Street doesn't seem to be pegged to performance. If a company does well, I think executives should get bonuses. But if it doesn't do well, they sure as heck shouldn't, and shouldn't get golden parachutes out and things like that. So you're right, it's a little bit like the commercial that's going on now that my broker makes money when I make money. Yeah, but he also makes money with I lose money, and that's what galls the American people most, I think.
BUFFETT: Governor, I hate paying anything to a guy that bats .200. You know, the guy who bats .350, I'll pay a lot to. But Steve Greenberg used to be, the son of Hank Greenberg, was a player's agent, and one time he was representing a center fielder and he asked his dad, Hank Greenberg, he said, 'How much should I ask for as a signing bonus for this fellow?' And Hank said to Steve, he said, 'What did he bat last year?' And Steve said .240. And Hank said ask for a uniform. (Laughter.) That's about what I feel you should give these guys that really killed their firms. Just give them a uniform and send them home.
JOE: We've got a problem, Warren, with the notion that moral hazard is everywhere now, based on the way we've handled this. But then another -- someone else might say look what happened to the CEOs and shareholders of Lehman or a lot of these institutions. Is that a problem with what we've done and have we damaged capitalism permanently?
BUFFETT: I don't think moral hazard. If you take the big firms, if you take Citigroup, if you take B of A, if you take Lehman, if you take Freddie Mac, if you take Fannie Mae, the shareholders of those companies lost anywhere from 60 or 65 percent to 90 percent plus, AIG, of their investments. So I don't think those people think their equity investments are risk-free or anybody that invests in financial institutions has any idea their equity investments are risk-free. The bond holders may feel that they got, will get, a pass. But the preferred shareholders at Freddie and Fannie, you know, under the supervision of Congress, they got totally creamed. You know, any preferred holder at Bear Stearns -- So I think, frankly, the moral hazard argument has been overdone, at least in respect to equity holders. As an equity holder of Wells Fargo [WFC
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], or of M&T Bank [MTB
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], or U.S. Bank [USB
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], as we are at Berkshire, I have no feeling that my common stock investment is any way protected by any government doctrine. So, there is no moral hazard with us in terms of equity holding.
BECKY: Warren, your 34 billion dollar deal is the largest that Berkshire Hathaway has ever completed. It comes a day after David Carr of the New York Times wrote that business news just isn't all that interesting anymore. Bored? What about you? What do you think about the future of business and business news?
BUFFETT: Well, America has -- our system has just gotten started. We've had, you know, a couple hundred years of progress but we have not exhausted our potential in this country. So America is about business. And business in America, you know, have gone to greatness hand in hand. You do not need to worry about CNBC 10 or 20 or 30 years from now. Business will always be important to the American public.
BECKY: You're somebody that has big stakes in media companies like the Washington Post [WPO
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]. You own a newspaper, the Buffalo newspaper. What do you think about the future of newspapers, as well?
BUFFETT: Newspapers have got a terrible future. We own the Buffalo News, as you say and we hope to be the last man standing. I would say we might very well be. But if you looked at the newspaper circulation figures that just got published a couple of days ago, it was just a dramatic decrease. And then the truth is, fewer people, you know, are going to be reading newspapers a year from now and two years from now. Now they are going to continue to get information. Everybody loves to get news. But the indispensability of the paper has been diminished. You know, I used to get -- like the governor, I would get my sports scores -- he probably read the Philadelphia Inquirer or something in those days, and I got them from the Omaha World-Herald. But now I click on at night and I can look at the box score and play- by-play and everything else. So, it's changed.
JOE: But you don't think that capitalism is permanently damaged, Warren? I characterize the coming taxation, the era of taxation, that we're facing, it's like the song It's Raining Men. It's going to be 'raining taxes.' Can they go too high to where you'd be concerned?
BUFFETT: I ran money in the '60s when the top personal capital earned income tax rate was 70 percent. I ran money when the capital gains rate was 39.6 percent, and I never saw anybody lose interest in making money. It certainly didn't affect me but it didn't affect my partners. People have paid a lot higher taxes in the past and the economy has done just fine. We had great gains in jobs in the '50s and '60s with tax rates far higher than they are now.
JOE: But everybody had deductions and rich people, they had a way of not paying taxes.
BUFFETT: No, I don't think so. I know I pay plenty of taxes. The corporate tax was 52 percent and American business prospered. So, this country, you have to have some balance between expenses and income and right now we have this huge gap and one way or another it has to be diminished. But this country has done extremely well with lower tax rates, higher tax rates. Our system works. It unleashes human potential. We can take higher taxes.
GOV. RENDELL: Warren, before you go, I still believe, like you do, that the country is going to bounce back. One thing in the economy that concerns me is manufacturing. If we become a country that doesn't produce anything, that doesn't make anything, I think we're in serious long-term trouble. And right now manufacturing, even though it had a slight uptick in the most recent reports, manufacturing in this country is staggering, foreign competition is hurting us very, very badly. What's your prescription for getting American manufacturing back on track? I think, for example, what the country needs both substantively and economically is a ten-year infrastructure revitalization program because that would key manufacturing in a way that nothing else would. What's your prescription for keeping America strong in the manufacturing sector?
BUFFETT: Well, I agree with you 100 percent on the infrastructure. I thought more of the stimulus funds should have gone to that.
GOV. RENDELL: Three or four times more, in my judgment.
BUFFETT: I agree with you 100 percent. But this country will solve its problems. We're not so good necessarily at avoiding problems, but we're pretty good at solving problems. And I remember back in the early '80s, we thought that Germany and Japan were going to eat our lunch and we'd all just be working at McDonald's and cutting each other's hair or something to keep busy. But we added tens of millions of jobs since then. So, we do come up with things. You can't predict that we'll have a software industry or you can't predict that we'll have a great aircraft industry, but those things come along. And the world right now, 12 percent of our GDP is going to exports and 35 years ago only 5 percent was. So we are making some things the world wants. But I agree with you, Governor, you've really got -- you've got to count on the potential of people that you and I don't even know coming up with new things to do that the world wants. Historically we've been very good at that and I think we'll be good at it in the future.
Current Berkshire stock prices:
Class A: [BRK.A
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Class B: [BRK.B
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