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CNBC TRANSCRIPT: CNBC'S BECKY QUICK SITS DOWN WITH BILLIONAIRE INVESTOR WARREN BUFFETT TODAY ON CNBC'S "SQUAWK BOX"

WHEN: Today, March 9th

WHERE: CNBC's "Squawk Box"

Following is the unofficial transcript of a CNBC interview with billionaire investor Warren Buffett today on CNBC's "Squawk Box."

PLEASE NOTE: The transcript below is the 8AM-9AM ET hour.

All references must be sourced to CNBC.

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QUICK: Good morning, everybody and welcome back to SQUAWK BOX right here on CNBC. I'm Becky Quick along with Joe Kernen. Carl is off today. This morning we are live in Omaha at the Nebraska Furniture Mart with a very special guest. Of course, we're talking about Warren Buffett. He has been answering our questions and your e-mails as well. We've received thousands of e-mails and there is still time to get yours in right now, so viewers you can go ahead and write in at AskWarren@CNBC.com. We also have this morning some major news, $41 billion merger between Merck and Schering-Plough. Joe is going to have more on those details in just a few minutes, tell you exactly what's happening with that. But meantime, let's get back to Mr. Buffett. This hour we're going to be trying to look to solutions. What should President Obama and Congress be doing right now, how does the president's budget play into the nation's economic recovery? These are all some major questions and fortunately we have someone with a lot of brain power here today to try and answer some of those. So let's get straight to it.

Mr. Buffett, again, I know we've talked about some solutions through the course of the morning, but this is a time when Americans are frightened about what's happening out there. There are a lot of different solutions being batted around and people just wonder what is the best way to go.

Mr. BUFFETT: Well, I think they--they're going to have to hear that from the president of the United States. I think there's--six months ago when we talked about it it's an economic Pearl Harbor. And I think that you need a commander in chief at that point. I think that people are confused and scared and they won't quit being scared until--and it doesn't go away fast. It comes on fast, but it doesn't go away fast. Until the confusion is cleared up. But the biggest thing they need clarity on now, I think, is the bank just as they needed it in the early '30s when we put in the FDIC, just as they needed it after the panics of the 19th century when we put in the Federal Reserve. People have to trust banks. And incidentally they should trust banks, but it should be made very, very, very clear that not just the $250,000, but--FDIC limit--but that anybody that has their money in an American bank or anybody that has the debt of American bank it's going to work out. That doesn't mean banks won't fail. The FDIC will keep taking over banks as they--they've taken over 3600 banks, or savings institutions, since it was set up. Nobody's lost a dime, never cost the government a dime.

QUICK: Mm-hmm.

Mr. BUFFETT: So we need clarity on that point. And they can't hear it from Treasury officials or that sort of thing. People need to--at this point they're scared enough so they need to hear it from the American president.

QUICK: I feel like I have heard that from the president, that we will stand behind the banking system and it will be here. What can he say more specifically than that?

Mr. BUFFETT: I'm not sure he said it quite that way, and it--incidentally, when it's said, it shouldn't be said, you know, about these guys are all a bunch of bums, but we're going to make sure you--and basically, it's a message that has to come out very clearly. And you know, in the end whether Citigroup ends up being worth $1 a share--it was worth $50 a share some time back--the shareholders, their money may be gone. You know, I mean, there is no moral hazard when you go from 50 to $1, believe me, to being creative. So that--you don't need to worry about that. And the government really doesn't need to put in more money, they just have to say it's good and then if it fails, it fails and then they do what they've done with other failed institutions, they place the deposits elsewhere. I mean, you had Wachovia, I think it was maybe the fifth largest bank at the time in the country. The next morning it was Wells Fargo. Nobody lost a dime in that. You had WAMU and the next morning it was JPMorgan. So we have transferred 8 percent of the assets--deposits successfully, or thereabouts in the last year. So it--but the message has to be--people should not--can't be worried about banks. And they--and a lot of them are.

QUICK: We've gotten mixed messages on what's going to be done with TARP money. A lot of mixed messages. Why do you think that's happened lately? Is it just that it's too difficult of a problem to fix? Is it that there's too many cooks in the kitchen? What's going on?

Mr. BUFFETT: Yeah, well there's too many cooks in the kitchen. I mean, if this really is economic Pearl Harbor, you know, Roosevelt on December 8th should not have called in--started holding hearings for three weeks and had 535 members of Congress each giving their own views and in a certain number of cases posing for their local cameras or anything. Now, incidentally, I don't think that Congress would do that if they realized that this was the economic equivalent of Pearl Harbor. I mean, they're patriotic. But you can't have 535 people planning war strategy and criticizing people and finger-pointing and all of that. If you do, you destroy confidence. I mean, people--the American public partly is scared because they see all these different actions going on and they don't--confuse the players and people are criticizing every activity that comes along. I don't think that's very useful in a time of war.

QUICK: Congress might shoot back that this is American taxpayers' money and it's my job to protect the interests of the people who voted me into office.

Mr. BUFFETT: Yeah, and it was American--you know, American taxpayers whowere paying for the landing at D-Day, too, but we did not hold congressional hearings for a couple of weeks before that with everybody debating where we should land and how many troops we should send in and what day we should come. And nor did we have in the two weeks after people saying too many people died and you know, we should have sent in more troops or less troops or we should have waited a week to leave. You know, basically, Congress has responsibility, I mean the Constitution defines it, but they ought to realize that there are times when a commander in chief really has to be able to speak with a good bit of both parties behind him. At the same time, when you demand--when you really need that it means that essentially the majority party can't push around a minority party. So you can't use that as an excuse to push through all kinds of things and then expect unity, or substantial unity from both parties in supporting you in the really important war, and this is an important war.

KERNEN: Hey.

QUICK: Joe?

KERNEN: Thanks, Beck. Warren, you remember when you made those buys of Goldman and GE, you said that you--it was contingent really on TARP, on the original perception of what we thought TARP was, and that was to get some of these toxic assets off the books. We never--we never did that. We're still waiting. And when the president said, `You're going to hear about some details from Secretary Geithner,' and then our hopes were dashed when we didn't hear any details, that's really--a lot of people point to that day as where we started a renewed downturn. Would you urge the president to really focus with Secretary Geithner on this plan, on the toxic asset plan on some type of private/public partnership to get rid of those? That's what people are waiting for and not seeing.

Mr. BUFFETT: Yeah, the interesting thing is that the toxic assets, if they're priced at market, are probably the best assets the banks has, because those toxic assets presently are being priced based on unleveraged buyers buying a fairly speculative asset. So the returns from this market value are probably better than almost anything else, assuming they've got a market-to-market value, you know, they have the best prospects for return going forward of anything the banks own.

The problems of the banks are overwhelmingly not toxic assets, you know. They may have been one or two at the top banks, but they are not going to do in--if you take those 20 banks that are subject to the stresses, they're not going to do those banks in. Those banks have the earning power which has never been better on new business going out of this to build capital positions even if they pay low dividends which they're starting to do now.

KERNEN: Hm.

Mr. BUFFETT: Toxic assets really are not the problem they were. Now, when I said it was contingent--I didn't remember being exactly contingent on TARP, but it was contingent on the government jumping in.

KERNEN: Right.

Mr. BUFFETT: The government needed to act big time in September, I will tell you that.

KERNEN: So...

Mr. BUFFETT: And they did act big time.

KERNEN: So you are OK with the shift to providing the banks with capital as opposed to the original intention of the TARP for actually getting the toxic assets off the books?

Mr. BUFFETT: Yeah, and interestingly enough, they don't need to supply the banks, in my view, with lots of capital. They need to let almost all of--I mean, the right prescription with most of the banks is just let them pay very little in the way of dividends and build up capital for awhile, and they will build up a lot of capital. The government has needed to say--what the government needs to say is nobody's going to lose a dime by having their deposits in these banks. They're going to make lots of money with the deposits.

KERNEN: Hm.

Mr. BUFFETT: The spreads have never been wider. This is a great time to be in banking, you know, if you just get past the past and they are getting past the past. I mean, right now every time a loan is made to somebody to buy a house--and we're making, you know, making millions of loans--four and a half million houses will change hands this year out of a total stock of less than 80 million. So those people are making good mortgages. You want those assets on your books and you get a great spread in putting them on now. So it's a great time to be in banking, but you do have to get past this past. But the toxic assets, in my view, you know, if they've been written down to market, I'd rather buy those assets from the bank than any other assets they've got.

KERNEN: Hm. OK...

QUICK: Goes to Joe's point about the private...

KERNEN: ...hey, Beck...

QUICK: Huh?

KERNEN: Hey, Beck, I want to run something by both of you real quickly. The McDonald's same-store sales we've been waiting for globally, Beck, because this is very interesting. Increased 1.4 percent, which sounds like below recent numbers that McDonald's has been able to post.

QUICK: Mm-hmm.

KERNEN: You know what February 2008 was? It was a leap year.

QUICK: What?

KERNEN: It was a leap year and that extra day in February of 2008 accounted for 4 percentage points. So if you factor that in...

QUICK: Wow.

KERNEN: ...you add them back in it would be 5.4 percent. So the actual number of 1.4 is actually above the consensus, which was .4. US was up 2.8, which was above the consensus of down .6. Europe was down .2. That's actually above the consensus of down .4. So across the board, except for Asia Pacific and Middle East and Africa, that was a little bit below. That was up .7 percent vs. the estimate of up 3.8. But just at first blush, that 1.4 looks like not as good as what McDonald's has been able to post. But in one day--one day is a 4 percentage point difference. See, it would be like being--you're having your birthday. It's like how many presents you get.

Mr. BUFFETT: Joe, I'll give you--I'll give you breaking news. Dairy Queen same-store sales have been right up through this, too. But I would hate to own a luxury restaurant in Manhattan or something of the sort. The--we have three classes of jewelry stores, they overlap to some degree, but our high-end jewelry store is down a whole lot. Our--call it the mama bear is down a lot. And the baby bear is down some. I mean, you just go right--you can just see what the American public doing. The American public has had a reset of their buying habits like you can't believe.

QUICK: Then why did you make your investment in Tiffany?

Mr. BUFFETT: Well, we lent Tiffany money at 10 percent. We did not buy the equity. But I think the chances of Tiffany not paying us back--and Tiffany's going to have a bad year now.

QUICK: Right.

Mr. BUFFETT: I mean, anybody that's in luxury goods is going to have a bad year now and then, and they may have a couple of bad years in a row. But the American economy's going to be stronger five, 10, 20 years from now. And if a guy can bring home a blue box and have somebody kiss him, I mean, you know, that all--there's always a market for that.

QUICK: All right, we have to take a quick break right now, but when we return we'll have much more. Again, we are here with Warren Buffett in Omaha. We'll be taking some of his e-mails or some of the questions you've been e-mailing him as well. By the way, there is still time to get your questions in. You can just send them to Ask Warren@CNBC.com. Or you can click on buffettwatch@CNBC.com. We'll be taking more of those questions, getting answers for you right after this.

President BARACK OBAMA: My friend and Hillary's friend, Warren Buffett... It is true that my friend and supporter Warren Buffett, for example... Let me tell you who I associate with. On economic policy, I associate with Warren Buffett...

QUICK: Welcome back, everybody. Again, we are live with Warren Buffett this morning at the Nebraska Furniture Mart in Omaha. And, Mr. Buffett, you may have just heard that sound. It was candidate Obama, before he was elected, talking about his relationship with you. We know that you supported him, that you voted for him, that you raised money for him. But we also have a question that came in from Robert this morning in New York, and he writes in, "Mr. Buffett, please describe in what capacity or role are you advising President Obama or his staff?"

Mr. BUFFETT: I've had a conversation or two with people--or not his staff, exactly, but in the administration. I've not had, aside from just seeing him at an occasion and just saying hello. But I've not had any real conversations with the president. He is the right president. And incidentally, this is the right country. I mean, we've got the right president, we've got the right country. You know, we're gummed up at the moment, but this is the place to be. And this is the right time. I mean, I wish I was 21 now instead of 78. So this is--the best days of America really do lie ahead. And President Obama is--he's very, very smart. He's got, I think, exactly the right goals. He's articulate and I--you know, he will be the right person to be the commander in chief in this economic crisis. But it is an economic crisis.

QUICK: It is an economic crisis. And in an earlier hour you talked about how we were hours or days away from the cliff with the economy.

Mr. BUFFETT: In September.

QUICK: Back in September.

Mr. BUFFETT: In September.

QUICK: Where are we now?

Mr. BUFFETT: Well, we have done a lot of things that should have been done. I mean, when the--when we--when we guaranteed money market funds, if we hadn't have done that, I mean, it would have been--we would have been going over Niagara Falls instead of--instead of riding up there just above it. If we hadn't done the commercial paper action where the Federal Reserve got into the picture--and their participation has gone down substantially now, but they stabilized that market. We were losing blood by the bucketful in terms of funding and liquidity in September, and the government basically did the right things in order to stem the flow of blood and get the patient so at least you didn't have to work on that aspect of it. And that was vital. I mean, that was--that was Pearl Harbor. And now there's a lot of things to be done. And they can't happen instantly. But the biggest thing right now is clarity as to what will be done in terms of the financial system. And there's been enough mix up with different people saying different things that I think that the--that President Obama is the person to give real clarity to that.

QUICK: We have people asking questions about things that the administration has already put out. In fact, Bob wrote in from Baltimore, Bob Knott, who says, "On a scale from one to 10, how would you assess the value to the US economy of President Obama's recently enacted stimulus plan?"

Mr. BUFFETT: Oh, well, the stimulus plan's going to take a long time to kick in. I mean, there'll be certain things kick in fast. But the stimulus plan is part of the recovery, but it's not the most--it's important to put it in, but there's other things that need to be done now to restore confidence. You're not going to--you're just not going to see that much happen. I mean, there'll be things on TV and all of that. But when you're talking about a $14 trillion economy and you're talking about all the things that are worried--people are worried about and scared--and scared is a better word, because that's what they are. There are things that need to be done up front that actually are more important. But I'm still in favor of having a stimulus bill.

QUICK: There are people who are looking for quick solutions. Theodore in Woodstock, Georgia, writes in with the question a lot of people have asked. He says, "Should the SEC suspend mark-to-market accounting?"

Mr. BUFFETT: Well, that's a--you know, I've always been theological on mark-to-market accounting, because I've seen so much of what people do when they're allowed to use their imagination on balance sheets or income statements. And frankly, American business misbehaved in a big way, particularly in the '90s. But people did play games with numbers. And they probably still do. But it--there was--it was almost accepted as a way of doing business. So I've always been suspicious when you give a CEO a pen and tell him it's the honor system. And anything other than mark-to-market works in that direction. Now, it's true, I think, that mark-to-market has had a--it's been some gasoline on the fire in terms of financial institutions. The markets are, on certain things, are pretty unrealistic, which is why I said just a little while ago that I would like to--I would rather buy the toxic assets at market from a bank than their good--than their best assets. There's more money to be made in those and they've been marked to a level where there's a lot of--you know, where they're probably below fair value, in my opinion. So I'm sympathetic. I think the best way to handle that, though, probably still, is to have the mark-to-market figures, but not have the regulators say, `We're going to force you to put a lot more capital based in on these mark-to-market figures.' I say in our annual report, I mark some--we mark everything to market. I say I don't agree with it in certain cases, and I explain my reasons and shareholders can decide whether they think the reasons are valid or not. I hate to give it up.

QUICK: Joe:

KERNEN: Thanks. I want to drill down on a couple of things, Mr. Buffett. We talk about the--you talk about 535 members of Congress, and that you don't think necessarily that, given a crisis, that you should steamroll or have a lot of things put through just because there's a crisis, you mentioned. I'm just trying to drill down on some of these things that are in the budget, and I'm not necessarily sure they're from Congress. I think President Obama knows what's in that budget and definitely, you know, they have his signature on them. And I'm talking about, for example, the carbon tax. Does that make sense here? Does--which ones do, which ones don't? He was talking about the card check--he was talking about card check in EFCA last week. Does that make sense to you, Mr. Buffett?

Mr. BUFFETT: I think the most--the more contentious of it, certainly card check is contentious, but I would defer pushing a big agenda. And you know, there's this phrase that a crisis, you know, should not be wasted. Well, I think if you said a war should not be wasted and use that as an excuse to push--try to push through everything in sight, I think--I really think it's a mistake. I don't want to try and call from unity among all our managers while at the same--at Berkshire while at the same time imposing all kinds of new actions on them, many of which they disagree with. You know, that's not an argument for doing absolutely nothing but it's a--it is an argument for deferring some of the things that are going to cause...

KERNEN: I'm just--which things? Which things, though, Mr. Buffett? I mean, what would you tell...

Mr. BUFFETT: Well...

KERNEN: You know the president and he takes your advice and he use--he uses your name in talking about who he talks to about the economy.

Mr. BUFFETT: Yeah.

KERNEN: Which things would you urge him to put on the back burner right now? Because they're trying to do everything all at once.

Mr. BUFFETT: I know, and I don't think that's a good idea. But I also don't think it's a good idea to use CNBC as a way to talk to the president of the United States too much. Although I've done a little of that.

KERNEN: All right. I have--I have to--I have to ask you, though. I have to ask you which of the things. I know that they're watching, and I--and I know that they're hearing this from you. But--and I think, you know, there are some people that think they need to hear it.

Mr. BUFFETT: I would--I would err on the side of doing too much on the--if I--you're going to err on the side of doing--like if you're going to land on Normandy, you know, how many troops do you send in? You probably send in more than you think are needed. I mean, and I would say I would err on the side of doing too much on the economy and I would err on doing too little on the side of a whole bunch of other things I cared about.

KERNEN: You mean the banking system in the--in the economy is what you're talking about. OK.

Mr. BUFFETT: I--yeah, yeah, right.

KERNEN: All right.

Mr. BUFFETT: I--yeah. The job is to get--the job is to get that fixed.

QUICK: All right, you counted on--you commented on mark-to-market. What about the uptick rule? We've had several people who've written in about that.

Mr. BUFFETT: Yeah. Yeah, I--there's no--there's no question that it--there's something wrong with people buying stocks and saying untrue things, and there's something wrong with people shorting stocks and saying untrue things. And sometimes it seems like the shorts are a little more eager to spread negative stories than the longs. But I've seen a lot of people on the long side do a lot of things they shouldn't have done, too. I think--I think probably the uptick rule is a good idea. I mean, we had it for decades and the--it--on balance, I probably would have it in. I don't think it's the key to things at all. I mean, I think that--I mean, you can--you can do bear raids of a sort through credit defaults, swaps and all that sort of thing now, and there'll always be people trying to push the bear case. There are people trying to push the bull case all the time. In the end, if you don't owe money on stocks and you own a good business, a good business will not be ruined by somebody selling stock short on an uptick or otherwise. I welcome people shorting Berkshire. I mean, you know what I mean? They're the--they're the sure buyers later on. They have to buy someday, right?

QUICK: Right.

Mr. BUFFETT: Again, doesn't make any difference to me, you know, who--there could be a lot of people sell Berkshire every day, there's going to be a lot of people buy Berkshire every day. If somebody wants to sell it short, buy it later on, that's fine with me. I mean, they're going to have to buy it someday.

QUICK: Here's a question from Michael in Mystic, Connecticut. He says, "After showing support and advising President Obama, what are your thoughts on the president openly criticizing the use of corporate jets by CEOs considering the fact that Berkshire Hathaway owns NetJets..."

Mr. BUFFETT: Yeah.

QUICK: "...and that some of those CEOs are your largest clients?"

Mr. BUFFETT: Yeah. Well, when you say considering the fact we own it means that I do have a dog in this fight, and so I--put me down as biased. But I do think--I use a jet both personally and with business. I mean, I have my own things I pay for, but I use it in business. I would say that net--and I'm probably a biased observer, maybe--but Berkshire has been better off by me having a plane available to go and do deals or whatever it may be. A lot of times it doesn't work out. But net, it's a plus. We have done things I wouldn't have done if we hadn't have had a plane. And I think it's--I think he made a mistake in--I think--I think it's--I think it's a big mistake to start demonizing anybody in this game. I just think that it causes the American people to look backwards. And we don't want villains, we want victory.

QUICK: All right. When we return, we will have more of your e-mails and your questions for Warren Buffett. If you'd like to get in a quick question, you can go ahead and send it to askwarren@cnbc.com. SQUAWK BOX will be back right after this quick break.

Announcer: He's the world's most famous investor, and today Warren Buffett is answering your questions. This is a special presentation of SQUAWK BOX, live from Omaha, Nebraska.

QUICK: Welcome back to SQUAWK BOX here on CNBC, first in business worldwide. We are just one hour away from the opening bell on Wall Street. The futures are under some pressure this morning, but we are letting our viewers get a chance this morning to ask Warren Buffett their questions on everything that's been happening out there, from the economy to investing. And right now we'd like to get to some more of your e-mail questions.

Mr. Buffett, again, thank you for all your time this morning.

Mr. BUFFETT: Mm-hmm.

QUICK: Brent from Morrison, Colorado writes in, he's got a question very specifically about what's happening with taxes. He says, "Which do you think's more valuable to the economy right now? Raising taxes or lowering them?"

Mr. BUFFETT: Well, I think that on people making anything less than a lot of money, I think lowering taxes is a good idea. Now, bear in mind, we're going to spend 3.6 trillion or something like that in the next year. I mean, somebody has to get taxed, and nobody likes to be taxed, so--and I've expressed my views probably in the past that I think that guys like me have gotten off too light and they--just generally, and the IRS just came out with something the other day that the 400 top Americans in 2006 in terms of their taxable income paid at a rate of 17 point something percent, which was the lowest since they've ever started the figures, and they had 29 percent about 12 or 13 years earlier. So I think that too much has been done for me and too little has been done for the people that work here at the Nebraska Furniture Mart. But I don't--we're going to be huge gap in revenue and another 100 billion that helps the people at the lower end I am basically all for whatever the number may be. I don't think anything that helps me is needed one bit in terms of this economy. So I think that, as we move forward, I hope that the tax system gets more equitable, at least as I see it, in terms of treating the people that don't happen to be born just wired the right way and everything. They're paying higher rates than I pay just because I'm good at capital allocation.

QUICK: Is that something that you think should be taken on immediately? Or do you think it needs to wait until the economy gets through the roughest patches?

Mr. BUFFETT: I think, on balance, we ought to defer most of the things that cause people to get very riled up. I think we ought to--I think the message out to continuously be, `We are in an economic war. We're going to solve this together. We're not going to use it as a way to get all kinds of changes made.' And I might like to see a change in the tax code and maybe--but right now I'm for doing the part that helps the people that are the worst off and whatever doesn't cause--whatever doesn't pull us apart. And I don't think we should have lots of things now that cause us to become disunited. We have a common interest and a huge objective, which is to get this economy working well, and that will take people working together.

QUICK: Richard from Forestdale, Massachusetts, writes in his question, number 334 is "Some have opined that the Federal Reserve must, at times, be the lender of last resort. Are the Fed and the Treasury now the spenders of last resort?'

Mr. BUFFETT: Well, the Fed--that's a good question. The Fed has become--I think the Fed of New York, for example, had 9 billion of deposits from banks throughout the country a year ago. Now they have 450 billion. I mean, they have become--can you imagine that? That is a huge change in behavior by banks. They have become the intermediary, almost, for banks. I mean, the Fed is the one place where everybody goes. They can print money, you know.

QUICK: Sure.

Mr. BUFFETT: I mean, basically, so the--they are the--they have a huge role to play in this, and I think they've been playing it well. I congratulate Chairman Bernanke. I mean, he did some important things when he needed to do them, and he should be given a lot of credit for that.

QUICK: Joe, you have a question as well?

KERNEN: Yeah. I'm just thinking of other things.

QUICK: I know where you're going.

KERNEN: No. I kind of feel like I'm a pesky little gnat. I've got one more--one more thought, Mr. Buffett, and that has to do with, you know, trying to narrow the--what we've seen between the haves and have nots, and I know that you think that, you know, that certain people have been treated too well, others not enough. Some say that EFCA and card check would narrow the disparity. In other words, having unions have more of a say, more companies unionized. Is that a good idea? Or do you think, as a business owner, it would be a negative for the economy?

Mr. BUFFETT: I think the secret ballot's pretty important in the country. You know, I'm against card check, to make a perfectly flat statement.

KERNEN: OK.

QUICK: Wow.

KERNEN: That's great, thank you. Appreciate it. OK, Beck.

QUICK: I didn't expect that short of an answer either.

KERNEN: I know. I liked it. I mean, I liked that he gave me an answer. I'm not saying either way how I feel, but I liked that we got it from Warren.

QUICK: (Unintelligible).

Mr. BUFFETT: We have loads of unions at Berkshire, and I mean, dozens and dozens and dozens at our various companies, and I understand the reasons for unionization, I mean. And by and large, I think certainly the people that are in unions have not been well treated by the tax code that we've had all the time. I think card check is a mistake. I think that...

KERNEN: I think it's important for--to hear from things like that. We all support the president, obviously, and we all want to get out of this mess that we're in right now, but that doesn't mean that people like you and people that he admires and listens to can't point to certain things and say maybe that's not such a great idea and that's why we have this dialogue. Right?

Mr. BUFFETT: Right.

QUICK: All right.

Mr. BUFFETT: Yes, sir.

KERNEN: Very good.

QUICK: All right. Let's bring in another question from a viewer. Steven from Brookeville, New York, writes in, and this is circling back in a way to some of your comments on the banks earlier, but he says, "President Obama recently stated that buying stocks is a potentially good deal if you've got a long-term perspective on it. So if President Obama were asked about whether buying bank stocks," and Steven lists stocks like Citibank, Bank of America, Wells Fargo, JP Morgan, "Is it a potentially good deal for those with a long-term perspective? What do you think he would say about that, and how would you respond to that question?"

Mr. BUFFETT: Well, I don't know what he would say.

QUICK: Yeah.

Mr. BUFFETT: He doesn't consult me on his portfolio. I would say that if--well, there's certain banks that are basket cases. I mean, here are--here are 3600 banks since 1934 that the FDIC, one way or another, banks and saving institutions, they've had to bail out.

QUICK: Hm.

Mr. BUFFETT: But they didn't bail out the stockholders. So you can--you can lose everything if you buy stock in a bank, and you should be able to lose everything. You just shouldn't lose anything if you loan them money or a deposit. So the question is, whether banks, which have terrific earning power going forward, will be forced to sell stock at ridiculously low prices. And if you take the great majority of banks, which will do fine earning their way out of it, although they'll be more names on this list, you know, a year from now. But if they don't have to sell stock at distressed prices, I think a number of them will do very, very well. I mean, and we own some bank stocks, and I like owning them and I like owning them in the quantities we own them. And the only fear I have, frankly, is that in some kind of a situation, they might be forced to issue a lot of common stock and they don't need to do it. They've reduced their dividends, so they can build equity and they'll build equity at a very rapid rate with the spreads that exist now. So the banking system largely will cure itself. Citigroup may be a special case. I mean, and I'm afraid that in a sense, the American public has sort of taken its view of all banks from what they read about Citigroup all the time. But there are 7,400 banks or something like that in the United States and most of them arejust fine. You look at the banks around Omaha, you know, they are not going broke. We had a bank in Loup City, Nebraska, go broke about a month ago, and we'll have another bank go broke someplace in Nebraska, you know, in the next two or three months. But, by and large, they're in good shape, and they are putting on assets with spreads that are terrific.

QUICK: You said that the banking system will take care of itself, that it will earn its way out of this.

Mr. BUFFETT: Most of it.

QUICK: Does that mean you think the American taxpayer money that's already been spent on these banks is good? That we'll get that money back?

Mr. BUFFETT: I think it's good with overwhelmingly most of the banks, but I think that we're--a good bit of the money is, you know, I think, I think it's--it can be questionable in a few cases, yeah. It can be questionable in a few.

QUICK: You're talking about AIG and Citigroup are some of the names.

Mr. BUFFETT: Well, you're--we're talking about anything you want to talk about.

QUICK: AIG and Citigroup are the big names that pop up.

Mr. BUFFETT: Yeah. Well, AIG isn't a bank, but there's a lot of money in there.

QUICK: (Unintelligible).

Mr. BUFFETT: And it was a huge risk to the system, and it shouldn't be--conditions shouldn't be allowed to recreate itself in the future. But the very fact it shouldn't be allowed to recreate itself in the future, does not that mean that the wrong thing was done in terms of stepping in there in September. That was the right thing. That weekend, you know, we had Lehman and Citi--I'm sorry, AIG was the same weekend Merrill, which got bought by B of A that weekend, but the dominos were lined up. They were lined up and they were huge dominoes, and it's a good thing that they didn't start toppling.

QUICK: OK. I want to get to a question that came from an investment club of seventh and eighth graders who invest $1 million in fake money every year. This is the Grizzell Middle School Investment Club in Dublin, Ohio, and the question is, where do you think gold will be in five years and should that be a part of value investing?

Mr. BUFFETT: I have no views as to where it will be, but the one thing I can tell you is it won't do anything between now and then except look at you. Whereas, you know, Coca-Cola will be making money, and I think Wells Fargo will be making a lot of money and there will be a lot--and it's a lot--it's a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that. The idea of digging something up out of the ground, you know, in South Africa or someplace and then transporting it to the United States and putting into the ground, you know, in the Federal Reserve of New York, does not strike me as a terrific asset.

QUICK: There's another question that came in from Keith in Rolla, Missouri. We talked a little bit earlier about GM. You said there needs to be a different plan that's put into place. Do you think it can happen outside of bankruptcy? But his question is, "If GM files for bankruptcy, how will that affect Ford and Chrysler?"

Mr. BUFFETT: It would be tough. I mean, Ford has tried very hard to stay out of the government operation, but it would affect the whole economy and I--and particularly now. And I--that's why net I think it would be a mistake to let it go that way, but I think the government ought to hammer out everything it can to make the business model viable at a 12 or 13 million unit a year, and we'll see what they do on that.

QUICK: OK. If we want to get back to some questions, again, about TARP and things that have gone through, there's a question that came in from Jeff in Stockton, New York, who said, "Wouldn't it have been a better idea when the $700 billion TARP was passed by Congress to give it to us?" He means, we the people. "Example, if $30,000 for married couples, 15,000 to singles, get put back into our economy, it'd be up and running." He thinks he can buy a house, purchase an automobile, put money in our banks. People have asked a lot of questions like that. Would it have been better to give everybody $30,000, $100,000?

Mr. BUFFETT: Well, the math is a little off because there's close to 120 million households and TARP was 700 billion, so if you divide 120 million, it comes out to a little less than $6,000. But if you could've restored--it was essential that people believe in the financial system. The machine won't work without that. If they believe in that and you're just going to send out $6,000 to every household in the United States, I'm not sure that would've been better for economic activity. But I am not inclined to look back and say this would've been better than that. I mean, if there had been four fewer ships in the Pearl Harbor, then Pearl Harbor would've been better, probably so. We'd have four more to go out, you know, the next day. But forget it. You know, we've got to go forward.

QUICK: All right. We're going to sneak in a quick break right now. We do have plenty of more e-mails that are coming in, though, and we'll get to many of those when we come back. And by the way, Joe, you also have details on that deal of the day coming up. We'll hear more on that as well, right?

KERNEN: Yep. Merck and Schering-Plough, plus the same store sales results from McDonald's, which are a little different because of leap year. SQUAWK BOX will be right back.

KERNEN: You know, around here, if you're going to do a merger, we're just so happy you do it on a Monday.

(Joe Kernen reports on Merck acquiring Schering-Plough; McDonald's same store sales figures)

KERNEN: All right, coming up, we will have more of your e-mails for Warren Buffett and some parting words of wisdom from the world's most famous investor. SQUAWK BOX coming right back.

QUICK: 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?"

Mr. 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.

QUICK: 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.

Mr. BUFFETT: Well, you...

QUICK: Yeah.

Mr. 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.

QUICK: 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?

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

QUICK: Right.

Mr. 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...

QUICK: Right.

Mr. 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.

QUICK: Right.

Joe, I know you have a question, as well.

KERNEN: 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?

Mr. 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.

KERNEN: Yeah.

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

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

Mr. 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.

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

QUICK: 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?"

Mr. 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.

QUICK: 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?

Mr. 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.

QUICK: 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?

Mr. 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.

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

Mr. 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.

QUICK: 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?

Mr. 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.

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

Mr. BUFFETT: Thank you.

QUICK: 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.

KERNEN: 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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