This is part two of an unofficial transcript of Warren Buffett's three-hour long live appearance on CNBC's Squawk Box this morning, Monday, November 14, 2011. (Click here for part one.)
Buffett revealed that Berkshire Hathaway has bought almost $11 billion worth of IBM common stock this year. He also said it is "not clear" that Europe has the will or ability to do "whatever is necessary" to fix its debt problems.
In this section, Buffett talks about the possibility of more quantitative easing by the Federal Reserve and says GOP presidential candidate Mitt Romney has the best chance of beating President Barack Obama in the 2012 election.
BECKY: We were just talking about housing and the issues there, and I figured we'd pick it up with some more questions about how to potentially fix housing. Warren, one of the big questions out there is what could the Fed do, if anything? Because Ben Bernanke recently said that if there's need, they'd consider QE3. Now, you already told us that you didn't like QE2, so what do you think about a potential QE3?
BUFFETT: Well, I don't think it's stimulus that's needed in housing. What's needed in housing is to create more households than housing units. And as soon as that gets tight—and, obviously, it's a local situation, so it's not going to be the same in Omaha as south Florida. But every day we are reducing the housing stock. We are creating more households than housing units at this 600,000 pace of housing starts. You know the answer is coming, you just don't know exactly when. When it comes, it will be a big change. It would be a terrible mistake to try and do some cash for clunkers type thing that would create a whole bunch of houses down the—Schumer had this bill with bipartisan support a few weeks ago that talked about letting people come into the country if they would make a short investment in an owner-occupied house. That could actually change the number of households in the United States. It might not be a big factor, but that is the basic equation. And it is going in our favor, but this wasn't created in a week or a month. Then it won't, you know, it won't be solved in a week or a month, and it won't even be solved this year like I said it might be.
BECKY: Do you think the—do you think the Schumer Bill is a good idea?
BUFFETT: I think, yeah, I think it could be a good idea. I haven't read all the details of the bill, but assuming—I mean, you would want other—perhaps other qualifications as well, but if you could bring households into this country that can afford to buy housing units and that have a source of income, sopping up those units is—you can blow up the units. That's one of the alternatives is to get rid of the supply, but increasing the demand is a good thing. And we're doing that. One of the things you have to understand is that in a recession, initially, household formation goes way down.
BUFFETT: So in 2009, we had very little household formation, but that doesn't continue. The age cohorts were built in 25 years ago went burst, so when hormones still kick in.
BUFFETT: I mean, and we'll form households.
BECKY: So QE3, there are a lot of people speculating that if it did come it would be the Fed buying mortgage securities instead of Treasury securities, securities like they did with the other QEs. But you're saying that's not a good idea? Just in general in terms of stimulating housing?
BUFFETT: Well, I—well, what we have done is we've had two conventional tools to fight recessions.
BUFFETT: And one, you know, one is fiscal policy and we've run huge deficits for that. The second is monetary policy, which the chairman is in charge of, and we have pushed that pedal to the floor. I don't think either one of those is going to very much. But incidentally, I think they've done a lot. I think in this non-housing segment, we have a pretty healthy economy. Just look at profits thorough industry after industry after industry.
BUFFETT: They're terrific.
BECKY: You're talking away from the point, though. Is it a big mistake if Ben Bernanke increases this income after—with QE3?
BUFFETT: I wouldn't do it.
BECKY: Would you be concerned about the market's reaction if he did do it?
BUFFETT: Not necessarily. I don't worry about the market. If the market goes down, you know, I buy things cheaper. So I—go to it, Ben.
BECKY: But we have seen the market react already in terms of higher oil prices and other commodities that have jumped. Is—what is this telling us?
BUFFETT: If you create more money and credit, prices are going to go up at some point. They may not go up tomorrow or next week or next month, but, you know, you can go back to the helicopter, Ben's speech in Minneapolis. I mean, they—if you drop money on households or you drop money on banks or you let—in this case, we build up huge credit balances with the Fed at—by banks; if you do that, eventually you'll get an increase in prices, and if you do enough of it, you get a big increase in prices.
BECKY: Hm. Let's talk a little bit about what we've seen from politics recently. Have you been keeping track of what's been happening with some of these debates, these presidential debates for the Republicans?
BUFFETT: Education, Commerce, Energy. I've got it. I practiced in the bathtub this morning. I'm ready.
BECKY: So you saw the flub from (GOP presidential candidate Rick) Perry, do you—do you think that this takes him out of the race?
BUFFETT: No, I don't think so. I don't—listen, I've been on this program, and I've said billions instead of millions, you know, I—people—they're going to—they're going to get involved in tongue twisters from time to time, or short memory lapses and...
BECKY: Yeah. We talked about this, too.
BECKY: Joe, you mentioned how it's a real human reaction when you see somebody forget and you actually feel bad for them.
BUFFETT: Sure, sure.
BECKY: You do the same?
BUFFETT: I do not change my opinion of Governor Perry by one iota because the guy forgets on national television a third point.
BECKY: So what do you think of him?
BUFFETT: I don't want him to be president.
BECKY: OK. What do you think of the other Republican contenders who are out there? You've got a lot of situations with a lot of different people. Looks like (Herman) Cain has fallen off a little bit, although he's still hanging in. Gingrich had been picking up...
BUFFETT: He's a local product.
BECKY: Yeah. And (Newt) Gingrich has been picking up steam.
BECKY: But Mitt Romney looks like he is leading the pack by far at this point.
BECKY: You think he's going to be...
BUFFETT: I think he's likely to be the nominee. I think the primary process and the—even superimposed with all the debates, tends to push the entire field. And it would do the same with Democrats. It pushes them to more extreme positions. I mean, it just has that nature that 'I'm more of a Republican than you are.' And it would do the same with Democrats, and we're seeing that. It's kind of fun to watch. I don't know whether it's necessarily good for the republic.
BECKY: Who do you think is the best or the strongest candidate to go up against President Obama?
BUFFETT: I think it would probably be Romney.
BUFFETT: I think in the primaries, people tend more to go for extremes. In the general election, they move back to the middle to some degree. And those are the people that turn out. And you need the independents and all of that. And I think, from the Republican standpoint, therefore, Romney would probably be the best choice.
BECKY: The lead story in The New York Times today talks about how the special deficit committee from Congress is, at this point, looking like they may be trying to punt and not come up with any solution by the November 23rd deadline. Does that surprise you?
BUFFETT: Well, we'll see if the approval—we'll see if the approval of Congress will go in to minus territory. Maybe down to 9 percent or something now. The—well, I would say this. I wouldn't judge it too soon because I think the committee did something very smart in terms of staying private for a long time. If you go up there after the first sessions and plant your feet firmly in cement, it makes it much tougher to negotiate more because you go along. Almost any big important negotiation where people have strong feelings on both sides and that has a deadline, the action takes place very shortly before the deadline. So I would not—I would not rule out them doing something significant. I wouldn't bet on it, but I don't think the fact that they haven't walked out arm-in-arm, you know, singing, should necessarily discourage you. I've seen labor negotiations, I've seen negotiations on purchases. When things get down to a deadline time, that is when people start making concessions.
BECKY: OK. Joe:
JOE: All right, thanks. Hey, Warren, back to Romney. I was wondering whether you saw the—one of the lead pieces yesterday in the—in The New York Times about Romney's career in private equityat Bain Capital. And Andrew and I both...
BUFFETT: I did read that.
JOE: Yeah. We were both talking about it and, I mean, the specific instance that they mentioned, I didn't even think that cast Romney necessarily in a—in a bad light because eventually that company was sold for like $7 billion. But his business skill, Warren, in reading that, they said that he was really concerned with not screwing up for the guy, for Bain. And, as it turned out, his due diligence on a lot of those deals was phenomenal. You're a businessman that's done similar things, and I just wonder if you—if you were impressed by the piece or—and also, you've probably had to, you know, in Buffett-owned companies or Berkshire-owned companies, lay off sometimes as part of streamlining a company to make it—make it more profitable.
JOE: And I wonder if you think that's going to be used in an unfair way when he tries to portray himself as a job creator.
BUFFETT: I think a lot of things in the campaign are going to be used in unfair ways.
BUFFETT: I mean, that's what they call opposition research. No, we've laid off people in the last year. We've hired a lot of people. In those five companies that set records, we probably hired 10,000 people, but in our housing-related businesses, we've laid off thousands of people. The only part of the story, frankly, that—I mean, I—that I would—that I wouldn't like myself is the degree to which they tried to pull money out all of the time.
BUFFETT: That's part of it. But as you mentioned, the company was sold for 7 billion later on and...
JOE: He was gone. He was gone by—he was in the Salt Lake City Olympics by the time they paid those—Andrew pointed that out to me. He was—right, Andrew? That's...
ANDREW: That was the—yeah, the one thing that was unclear about the piece was it seemed like...
JOE: He's already gone.
ANDREW: It seemed like he had already left at the time they made the payments.
ANDREW: Unclear to me is whether he participated in the decision to make those payments or not.
BUFFETT: Many, many businesses can be run a lot better, and my guess is that the—a number of the ones that Bain went in to and that Romney was responsible for, my guess is that he ran them better. And part of—part of running a business better is getting more output for the same people or getting the same output with less people. That's a basic function of capitalism, and I would not quarrel with them at all if he had—was working toward those ends. Like I said, the only thing—I read the whole story, and it was an interesting story, but yeah, I don't like the way private equity firms take on more debt so they can pay out dividends to the owners and sort of keep operating on the edge all the time. But there are plenty of good things done by private equity firms, including, I'm sure, Bain and including, I'm sure, by Romney that—where businesses can be improved. I mean, as I remember, that company was owned by Baxter and they kind of throw in—threw in the towel.
JOE: Right, right. Yeah.
ANDREW: Hey, Warren, if you weren't supporting Obama and you were forced to support a Republican candidate, which one would you support?
BUFFETT: Well, this will be the kiss of death, but I would—I would say Romney.
ANDREW: OK. Worth...
ANDREW: Worth putting out there, I was curious.
JOE: All right. I agree.
JOE: I've got some...
JOE: How much time do we—I'm going to talk to Warren at 7. I got—I got some questions, but I—do we have time now or should we—should I...
BECKY: Go ahead, yeah. Go ahead.
JOE: ...should I save it? OK. Because I've been thinking about this all weekend, Warren, and that is the Buffett tax and things like that and how we should do this. And I've been trying to figure out, if we were to go to 90 percent marginal rates on ordinary income would that change your 17 percent tax rate that's been so publicized? If just ordinary income went up to 90 percent, would that change yours at all from 17?
BUFFETT: I think it would, but it wouldn't—it wouldn't change it dramatically. And I'm not 100—I'd want to make the calculation. It wouldn't—it certainly—if you left dividends and capital gains at 15 percent...
JOE: Then it wouldn't.
BUFFETT: ...I don't think it would change it, no.
BUFFETT: What would change my rate and what I advocate—what—and what would change my rate is a minimum rate on incomes of a million or an over...
BUFFETT: ...on taxable income, not adjusted gross income, but taxable income.
JOE: Because I—I'm trying to figure out how we really do get at people that really have—it would—really millionaires and billionaires. And I'm not even sure that I would consider someone that has income of $1 million, I'm not sure that they're the ones that are able to take—I don't know many people that make $1 million that are paying 17 percent in taxes. Most people...
BUFFETT: That—I think you're right—I think you're right, Joe. There are quite—I mean, there are quite a few, but they're not a majority.
JOE: Right, so...
BUFFETT: And anybody that makes—anybody that makes $1 million playing—or five million making center—playing center field for the Yankees or whatever it may be, they're paying perfectly appropriate rates in my view.
JOE: Right, right.
BUFFETT: It's guys like—it's guys like me you want.
JOE: OK, so—but then I think, all right, so we got to do something maybe with dividends and capital gains. But then we have a whole group of people that think that the capital formation would be hurt. We had some people last week talking about dividend-paying stocks being a great place to go right now. But if you were to raise the after-tax—or lower the after-tax yield on those, that might hurt things. I mean, there is an argument made by certain people that you got to be careful what you do with capital gains and dividends. So my idea...
BUFFETT: That's that...
JOE: OK, go ahead.
BUFFETT: OK, go ahead.
JOE: All right, go ahead. So is that true, too? There is a—there are certain people that say that.
BUFFETT: Yeah, well, and somebody that's getting $100,000 or $200,000 dividends, if you—if you put a minimum tax on incomes, we'll say, of over a million and then a—maybe a little higher one on incomes of over 10 million, you will not hit the people who makes lots of income from ordinary income.
JOE: That's what I mean. Yeah. Why don't...
BUFFETT: And you will not hit the—you will not hit the people who get dividends in capital gains that live in Omaha or, you know, live in your hometown. You'll hit—you'll—because those people will not be—they won't be getting $1 million of dividends or something of the sort.
JOE: Right. OK, so...
BUFFETT: If they have a 401(k), they won't be paying anything.
JOE: If we really want to do it, if we really want to say that the wealth of—wealthy have gotten too wealthy over the past 30 years or whatever, what do you think, Warren, of a wealth tax? And let's take a modest...
JOE: ...let's take a modest number. Let's say—I think for someone who makes—who has a net worth of $100 million. Let's say you have $100 million. If you were to do 10 percent, I mean that's modest. You could even do 20 percent on $100 million. And just—if we're going to redistribute, let's just do it and say what we're doing. For a guy like you, I don't know what you got, 50, 60 billion, I mean would you be willing to write a $12 billion check under a wealth tax and having—in one fell swoop we would take 30 years of perhaps a growing income disparity and just move it right over on the—on the ledger. Is that something that would make sense?
BUFFETT: Well, we'll call that the Kernen tax and...
JOE: Because it won't affect me.
BUFFETT: It's kind of—it's pretty difficult to enforce. But—although there is one good way to enforce it, you might have thought of—you might think about this, Joe. You know, the problem is, is how do you figure out what everybody's worth when they got houses and private businesses and all that sort of thing.
BUFFETT: But what you can do is let everybody self-declare, and then for 30 days thereafter anybody can buy all of their assets minus their liabilities for that amount by self-declared. Now, that would be—that would enable you to get an honest figure. But I—and so I think you can call that the Kernen tax corollary.
JOE: I wonder what we'd raise...
BUFFETT: I think it's pretty...
JOE: Do you know what kind of number we're talking about, Warren, that if you took anybody who's got at least 100 million in assets, how many people—are we talking trillions of dollars there?
BUFFETT: Well, just on the top 400 you're talking about a trillion and a half, assuming—one and a half trillion assuming that Forbes is correct. Because the Forbes 400 had an aggregate sum based on Forbes of a trillion. I think 523 billion, something like that. So that's your...(unintelligible).
JOE: OK, so then we're talking—we're probably talking 3 or $4 trillion then, so if we did a 10 or a 20 percent wealth tax...
BUFFETT: No, you wouldn't be—no.
BUFFETT: No, you wouldn't be talking quite that much. But 10 percent of a trillion and a half would be 150 billion.
JOE: That's not—even that's not that much. That's not going to help us that much either. That's...
BUFFETT: No. Joe, the problem is we're going to have to get 15 percent of GDP that's coming in in revenue up to 19, and we're going to have to get 25 percent spending of GDP down to around 21. And what I've talked about will not solve the revenue side. What anybody's talking about will not, in any one event, solve either the revenue or the expense side. But we should be going in the right direction...
BUFFETT: ...and we're going to ask people to sacrifice plenty on promises that have been made to them. So I just say it won't kill us to have a 30 or 35 percent minimum tax on the super rich.
JOE: Right. I'm trying to figure out the best way to—I wish you could do that. I wish we'd get—so you think we could get rid of a lot of deductions and 33 percent. Get rid of all deductions, everybody pays 33 percent no matter what. That would do it? I mean, that would raise some serious dough, wouldn't it?
BUFFETT: That would raise a lot of money. I don't know that I would—I still believe in a progressive rate. And I—and I believe that at the—the ultra rich should pay a rate that's equal to what people think they're paying, which is the highest marginal rate.
JOE: But if you had no deductions and it was—it went up in a progressive way like we do now with no deductions, then maybe that would probably be revenue-generating, not revenue neutral.
BUFFETT: I think you've got to look at the figures and tell me the numbers that you plan.
JOE: All right. All right.
BECKY: Warren, what's it feel like to have a tax law or a tax proposal named after you?
BUFFETT: Well, it was a boyhood dream. No, I guess I could think of other things. You know, I'd rather have some home run that was hit in Yankee Stadium named after me. You know, 'That was the Buffett home run' or something of the sort. But the tax that I'm talking about hasn't really been named after me. I'm really talking about...
BUFFETT: ...a minimum...
JOE: I don't even know what the tax—I don't even know what it is. I'm still not sure what...
ANDREW: I don't think anyone is.
BUFFETT: It's a—it's a—it would be a minimum tax on incomes of a million and over, we'll say, of 30 percent...
BUFFETT: ...and counting payroll taxes, and probably on incomes of 10 million and over it would be 35 percent.
BUFFETT: And anybody that's making that amount from ordinary income wouldn't pay a dime. And it wouldn't change...
BECKY: People are already paying that if they're making it from ordinary income.
JOE: Right, more than that.
BUFFETT: Yeah, and if—and anybody that's getting hundreds of thousands of capital gains that are—or dividends it would not change their rates at all. It's merely to ensure that when you're talking about shared sacrifice that the 400 people at the top who averaged a rate of 19 percent in 2008 that about 80,000 of those, according to the congressional office that made a study out of the 250,000, would pay this minimum tax. Eighty thousand people. that's the number we get in the football stadium at Lincoln on Saturday.
JOE: Why wouldn't you want a St. Louis Cardinal home run? I don't know why you went right to the Yankees? I mean, after the year...
BUFFETT: Well, I would want a St.—I would want a St. Louis Cardinal.
JOE: OK, well, be more specific. After this year, I mean...
BUFFETT: OK. And I get careless when I talk with you sometimes.
JOE: I know you do, I make you nervous probably. All right.
ANDREW: OK. We're going to slip in a quick break and we're going to come back to Mr. Buffett out in Omaha. If you've got comments or questions about anything you see here on Squawk, shoot us an email at firstname.lastname@example.org. Or follow us on Twitter, our handle, @squawk@cnbc—or @squawkcnbc, I apologize. And still ahead much more with Warren Buffett live from Omaha. And our Becky's Back Week rolls on.
Current Berkshire stock prices:
For more Buffett Watch updates follow alexcrippen on Twitter.
Email comments to email@example.com