JOE: Warren, we've come back -- the market's come back a long way, as you know.   And you've commented, and I know on any given day you're not going to say whether it's expensive or cheap or whatever.  But have we fixed enough of what got us into the mess to warrant being back at 10,700, or is this a bit of a bubble from all of the Fed accommodations and in all the things that the extraordinary measures we've taken?  Do you have a feeling for whether this is real and supported?

BUFFETT:  Well, I have no feeling at all, you know.  As you've said, I don't know where the market's going to be in a day, week, month or year. I do know that if I had a choice between holding cash or 30-year bonds or owning equities, I wouldn't hesitate for a second to own equities.  You know, the market is up quite a bit from march.  But it's down a lot from three or four years ago.  And if I were going to buy a farm, Joe, and somebody said, well, with great certainty, they said, you know, this is going to be a terrible year in terms of weather, I wouldn't say, well, I'll only pay $1,100 an acre, but I'll pay $1,500 an acre if you'll give me a favorable forecast if I am going to own a farm for 50 years.   I am going to have a few lousy years in terms of weather.  I'll have a few good years and a lot of pretty good years.  And the idea that you try to time purchases based on what you think business is going to do in the next year or two, I think that's the greatest mistake that investors make because it's always uncertain.  People say it's a time of uncertainty.  It was uncertain on September 10th, 2001, people just didn't know it.  It's uncertain every single day.  So take uncertainty as part of being involved in investment at all.  But uncertainty can be your friend.  I mean, when people are scared, they pay less for things.  We try to price.  We don't try to time at all.  And pricing, I would rather own equities today --

JOE: People say all the toxics -- people say all the problems that we had in March at 666 on the S&P that nothing's changed.  Toxic assets are still somewhere.  We're still overleveraged.  You hear that all the time.  That nothing's changed, and here we are 70% higher than where we were.  They say it's just not supportable.

BUFFETT: Well, I would say they're making a mistake in terms what they were selling for in March.  I mean, you know, if, like I say, if I buy a farm near here, you know, and it turns out to be a terrible year and pests come in and there's no rain and all that sort of thing, am I going to sell it for half the price it was selling for a year earlier when I know over the next 100 years there's going to be 90 years that are pretty good and a few bad ones?  It doesn't make any sense to try and time things that way.  Nobody knows what's going to happen tomorrow, ever. The only thing is they get very apprehensive about it at certain times, particularly when other people are apprehensive.  When people get scared, they get scared as a group.  The confidence comes back sort of one at a time.  There has been a lot of things that have been cleaned up in the economy in the last 18 months.  A lot of the toxic assets are in better shape.  There are going to be 4.5 million homes or thereabouts sold in year.  There are 80 million homes roughly in the country.  25 million don't even have a mortgage.  Of the 4.5 million homes that are sold, the people that are buying those are putting down reasonable down payments in many cases, buying much more cheaply, covering it better with their income, so the liars' loans have just disappeared to a great extent, so every day those homes are going into better hands. 4.5 million homes will be in better, stronger hands, people that can handle payments better at the end of the year than the start of the year.  So the system is cleansing itself but it doesn't do it in a day, a week, a month, or even a year.

CARL: Warren, there are those out there who argue that the economy is being held together in a way with tape and glue,right?  With NBS purchases and stimulus measures and cash for clunkers.  Bill Dudley of the New York Fed is out this morning and he says the prospect of another financial collapse, in his words, sort of a reiteration of what he said before, is extremely remote.  Do we have the cushion to withstand another big shock or would you side with what Dudley is saying this morning?

BUFFETT: Well, I think we have the conditions in place to take care of any normal shocks.  If you talk about some, you know, major terrorist activity that is carried off or something, I mean, there are exogenous factors that could cause problems now just like they could have five or ten or 20 years ago. And we didn't know them ahead of time.  But if you're talking about a world where there is nothing of an extraordinary nature, I think the chances of a second financial panic are extremely low.

BECKY: Warren, when you talk, people listen and people are watching right now.  In fact, Jamie Dimon wrote in.  He is watching.  He says he agrees with most of what you're saying.  He wrote in when you were talking about Washington.

BUFFETT: I feel good.  Jamie is a very smart guy and he has run a bank the right way.

BECKY: Well, when you start talking about some of these issues, do you talk to other CEOs, especially who are involved in the financial institutions? What's their take on what's happening in Washington and how much of this, I guess, political rhetoric and the back and forth about the enemies on Wall Street, how big of a concern is that?

BUFFETT: Well, they don't like it, obviously. But Washington doesn't like them-- I mean, it's, you know, bankers get pointed at, whenever there are problems bankers get pointed at and there are some things to point to but I don't think, you know, that's affecting jobs now. I mean, people say, you know, I don't think anybody is not hiring.  If Wells Fargo needs people they're going to hire people, you know.  If they have five or six more percent customers this year than last year, they'll need more people.  They'll need more people in their mortgage department because it's increased their share of market. Businessmen make self-interested decisions, you know, just like all of us, and they're not going to expand if they don't see demand.  On the other hand, if the orders come in, and they will at some point, I mean, I will guarantee you that our brick business and carpet business will be doing a lot better five years from now.  I won't guarantee five months from now.  I don't know when it will change.  When it does we'll be employing more people.

BECKY: Are banks lending money or is it simply what you're saying, people aren't looking to take more money out because they don't see the demand?

BUFFETT: Yeah, well, there are relatively few businesses that need more capital now to support more business.  Now, there certainly is an economy where that wouldn't be true, but the people that need business, that need loans to take care of operating losses are -- that's a mistake to lend them money in most cases and there's all kinds of people that are having financial troubles that would like to borrow money to get their way out of financial troubles.  Most of the time that doesn't work. There are times when it does but most of the time it doesn't.  People wanting money for expansion, where they've got profitable businesses, I don't think are having any trouble getting -- but there are -- you do not want to go around lending money to people using it to cover operating losses. And there are plenty of people that want you to do it.  I -- the bankers I talked to are dying to get loans.  I mean, the last thing they want to do is sit around with money at Fed Funds rates or Libor.  There is no money in that. They want loans.  But they want loans where they're going to get paid back.  They took out a lot of loans a few years ago that weren't so good.  I do not think there is a general reluctance at all among banks to lend.

BECKY: Short of an extreme act like a terrorist act, what's your biggest concern when you look out over let's say the next year and the economy?

BUFFETT: Well, that would be my biggest -- it's going to take time.   You know, next day -- these things take their way to work through.  I mean, people don't have to buy carpet tomorrow.  They don't have to buy brick from us tomorrow.  They don't have to buy insulation from us tomorrow.  Now we're doing business but not the kind of business we will be doing when things get back to normal.  And that will happen, but we are working off excesses. And huge excesses in the leveraging field and it was the first thing I talked about when this happened, that the world was going to deleverage and the only party that could really leverage help was the U.S. government.  Thank God it did.  I mean, Ben Bernanke has taken on a trillion of mortgages, you know, I mean, he's got a great hedge fund now.  I mean, he's got these 5% assets and no cost on the liability side of it.  He should have negotiated a better deal.  He had to buy that trillion.  I mean, things are getting righted.  Balance sheets are cleaning up.  You can take a Goldman Sachs or, you know, the leverage ratio is in half.  Their capital is like it's never been before.  So it's getting righted but, you know, it goes through the wringer and State Farm does wonderfully.  The world will go on and we will have a better world five and ten years from now, but five months from now who knows what it'll be?

CARL: Warren, there is a -- there is a school of thought along those lines that you could have stubbornly high unemployment and could have consumers reluctant to spend but you have companies in the sweet spot of the profit cycle where margins are going up and cash levels are high and productivity is through the moon and you could have the markets diverge somewhat from the overall economy over the next 12 months, don't you think?

BUFFETT: Well, I think markets frequently will diverge from the economy.  That's why I think it's a big mistake for people to start when they think about buying a stock, I think it's a big mistake to start, to think about what's going to happen in the next 12 months or the next six months either to the company or to the -- or to the economy generally.  I do not -- if I'm buying XYZ company I am not concerned about what they're going to earn in the next year. The next year is going to be over and then people are going to be looking at the year after that.  If I'm right about where they're going to be in five or ten years we'll make a lot of money but I can't time stocks based on what they're going to do this quarter and next quarter.  I don't know anybody else that can, but maybe they can.

BECKY: You know, we are just about out of time today, but you've got the shareholders that are going to be coming in here in just about an hour, hour and a half, this morning. This meeting today, you say you think you already have the votes.

BUFFETT: We have the votes, yeah.

BECKY: You feel pretty confident about that.  Will the shareholders be asking other questions?

BUFFETT: No.  This meeting is just about the split because we didn't want to turn this into a second annual meeting.  We'll have the annual meeting on May 1st.  We'll have so many people here you won't be able to believe it and we're going to take questions even a half-hour longer than normal and go from 9:30 to 3:30 even and then, you know, the press the next day and all of that sort of thing.  So this is -- limited today.

BECKY: This vote, you say you have the votes going into it.  Burlington Northern shareholders vote next month.

BUFFETT:   Right. Their vote is tougher because they need -- because we own the shares we do already -- they need 66-2/3% of all shares not owned by Berkshire, not just the ones at the meeting.  So they have a pretty high hurdle right now.  But the vote is coming in well, but this vote is a lot easier.

BECKY:  There's been some legislation proposed in Congress that would regulate more of the railroads.  Do you have any concerns?

BUFFETT:  Well, the railroads are regulated, should be regulated.  On the other hand, it should be what I would call enlightened regulation.  The country needs both our utility business and our railroad business to make investments for the future.  We should earn a decent return on the capital employed.  We shouldn't earn a fabulous return.  We're not entitled to it, but we should earn a decent return and I think regulation over time will provide that and we'll do our share.  We'll invest billions and billions and billions to have our facilities prepared for the society of tomorrow.

BECKY:  All right.  Well, Warren, thank you very much for joining us this morning.  We'll be here through the day talking a little bit more about what happens at the meeting today but, again, thank you for being so generous with your time.

BUFFETT: Thanks for having me.

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