Warren Buffett was on CNBC this morning for a three hour interview. He discussed topics including, Berkshire’s purchase of IBM, tax policy, US-China relations, infrastructure spending, David Sokol, the European crisis (utter-mess), the depression in housing, the folly of investing while using macro forecasts, insider trading and David Sokol and more.
Below are the links to all the videos followed by some select quotes and full transcript:
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“They’ve discovered they have a fundamental flaw, which is that they can’t print money.”
“It’s not clear who can say ‘we’ll do whatever it takes’ there.”
“There’s tens of billions of debt coming due every month in Italy… stopping a run is tough. You don’t get half of your confidence back.”
“It’s very, very stuff to stop a run.”
“We believed Bernanke an Paulson and the President when they said that in September 2008… there’s nobody with comparable authority.”
“Time works against you.”
However Buffett thinks Europe will be stronger in 5-10 years.
On European banks
“I haven’t bought any.”
On Berkshire Hathaway/economy:
Buffett wouldn’t recommend QE3, but he’s not too worried if he does do it.
“Of our 70 plus businesses, all but about 5 are doing better than they were ago.”
Housing is getting killed and Buffett called it a depression.
“I did not change my opinion of Governor Perry one iota because of a flub… I (still) don’t want him to be President.”
“(Romney) is likely the nominee.”
Bought a huge stake $10.7b in IBM, making it Berkshire’s largest holding after Coke. He also added to Wells Fargo, which is the third largest holding. Buffett did very little selling, and joked that “I like to buy”.
In this section, Buffett speaks extensively about Europe and also talks about a ‘depression’ for Berkshire companies related to the still-struggling U.S. housing market.
JOE KERNEN: Good morning. The “full Monti.” Mario Monti takes over the Italian government after Silvio Berlusconi leaves to a chorus of hallelujah. Boeing lands one of the biggest deals in aviation history. And legendary investor Warren Buffett joins us live for the next three hours to tackle Europe, the markets, and the supercommittee. It’s Monday, November 14th, 2011. SQUAWK BOX begins right now.
JOE: Is he there with you right now?
BECKY QUICK in Omaha, Nebraska: He is. He’s sitting right here and he’s listening.
WARREN BUFFETT: What’s a synonym—what’s a synonym for “gravitas“?
BECKY: What’s a synonym? That’s a good question.
BUFFETT: I was thinking some other words.
JOE: Yes. Wow, he looks—God, you look—you look—you look healthy and rosy cheeks.
ANDREW ROSS ANDREW: He looks great, doesn’t he?
BECKY: Thank you.
JOE: It’s like 5:00 or 4:00 out there, isn’t it?
BECKY: It’s 5:00 out here, and we are, and we’re ready to go. And we were just talking about it and, Warren, you had your thinking cap on early this morning, right?
BUFFETT: Been up for hours, was thinking in the bathtub.
BECKY: And we know what happens when he thinks in the bathtub. The last time he did this he came up with the Bank of America investment, so, guys, we’ve got a lot of different things we’re going to be covering over the next three hours. And, Warren, you’re ready to go, right?
BUFFETT: Fire away.
JOE: Has he—has he seen pictures of (Becky’s baby boy) Kyle?
BUFFETT: I have…
BECKY: I didn’t show him any new pictures this morning, no.
BECKY: I haven’t but I will.
JOE: Has he taken care of college yet?
BECKY: No, unfortunately not.
JOE: That was a nervous laugh.
BECKY: But I will show him some of those pictures…
JOE: That was a nervous laugh I just heard from you. Just an idea. I mean, it’s not—you know, you’re doing this for us. Actually, we owe you anyway. You’re right.
BECKY: Yeah, I paid Joe to slip that in for me.
BUFFETT: I see. OK.
JOE: That was pretty…
JOE: You know what you’ll get, Becky?
JOE: One of those boxes of See’s candies.
JOE: That’s what—that’s usually—or a brick. That’s what he sent me, a brick.
JOE: I’m not sure what that was supposed to mean. Anyway, let’s check…
BUFFETT: Joe, you’re in my will. It says, “To my friend Joe Kernen, who wanted to be mentioned in my will: hi, Joe.”
JOE: “Hi, Joe.”
ANDREW: “Hi, Joe.”
JOE: Yeah, I’m going to use your—I already stole your epitaph, though, on the tombstone, Warren, and that is, “He lived to be really, really, really old.” That’s the one I’m going to use.
BUFFETT: I like that one.
JOE: Yeah, that’s a good one. All right, we’ll get back to you. Let’s check on the markets this morning.
BECKY: Come on, we’re going to play right in. We’re going to jump right into these questions. Warren Buffett is with us for the next three hours. And, Warren, we just heard Ross talking about the situation in Europe. That’s been driving the markets for quite a while at this point, and a lot of people feel better now that they see Mario Monti in (Italy) and Lucas Papademos in Greece. Do you feel better about the situation at this point?
BUFFETT: Well, I feel better about those two developments, but they have a situation that—where they found a—kind of a fundamental flaw, which is that they can’t print money. And when you have a loss of confidence, that begins a run, which has occurred to some degree on both sovereign debt and banks over there. And it’s—in 2008 we had our own run in the United States, and it took—it took the full power of the United States and some very strong action. The ability—or the belief that the authorities would do whatever it took, and we did believe that, and it led us out. But it’s not clear who can say, ‘We’ll do whatever it takes,’ over there and that they’ve got the ability to do whatever it takes. It’s going to have to become much more clear as to—as to who can do what and that they will do it, that—they need both the will and the ability.
BECKY: (German Chancellor) Angela Merkel is already pushing for reforms to the EU to deal with exactly that problem. She’s hoping to get changes in place and voted on by all the countries that are involved by next year some time. Short of that, do you worry what happens to the euro?
BUFFETT: Yeah, well, runs don’t necessarily—markets are stronger than everything. I mean, when you—we’ve seen that time after time. And used to be when you had a run on banks, you know, that the tellers started paying out slowly and they piled up gold in the teller window. But now you do it electronically and, in effect, just by not rolling over debt, you have runs. I mean, the—there’s tens of billions of euros coming due every month in Italy, and you not only need to take care of any added deficit but you have to take care of the rollover. And stopping a run is tough. You don’t get half your confidence back. And what would it take if—for you to put your savings in an Italian bank or…
BECKY: Well, I was going to ask you that. You’ve sold all of…
BUFFETT: We sold—we sold everything. Yeah.
BECKY: …everything you had in European sovereign debt.
BUFFETT: More than a year ago, yeah.
BECKY: So what would it take for you to go back into these markets?
BUFFETT: Well, we haven’t done it. I mean—and it’s something I look at every day. And I’m sure people in Italy that have deposits in euros in Italy think, you know, there’s something rather strange here when I can get 5X and—or close to a—well, 3X, essentially, in Italy and get X in Germany and they’re both denominated in euros. And whether Germans are deciding they’ll put their money in Italy, I—you know, I doubt it. It’s very, very tough to stop a run. It takes—it takes a belief, widespread belief, that the people in authority will do whatever it takes to stop it and they have the ability to do whatever it takes. We believed Bernanke and Paulson and the president of the United States when they said that in September of 2008 even though the issue was somewhat in doubt. There’s no one with comparable authority. And getting 17 people to agree to reforms next year is not necessarily a great answer.
BECKY: You know, you first talked to us about this—I believe it was last spring when we were in India. And you mentioned that you had some serious concerns about the euro and some questions about whether it would break apart. Do you feel better about the euro at this point or more concerned than you were last spring?
BUFFETT: Well, time works against you in this situation because people have become more worried and the spread between everybody else and Germany, even France against Germany, has widened, so that just means the world is seeing the line getting a little longer. And that means, you know, people react with emotion, but emotion becomes reality in a situation like this. So I would say that they’re doing some things. And Europe’s got all kinds of strengths. I mean, Europe is not going to go away. Ten years from now we will be selling more goods and buying—to Europe and buying more goods from Europe, and they will have more GDP per capita. But getting from here to there may be a problem.
BECKY: You think it’s officially a run on Europe at this point?
BUFFETT: Well, it’s partially. I mean, you are—European banks are losing US funding, and therefore they’re disposing of US assets. They depend more on wholesale funding than on deposits, compared to the United States’ banks. They’re larger relative to their economies than most US banks. We think our banks are too big, many people. But those banks are even bigger relative to their economies, and they do depend on wholesale funding; and wholesale funding, you know, is not sentimental. And our money market funds have had large investments in European banks, are pulling them down. European banks need more capital, and the sooner they get it, the better.
BECKY: Where can they get it? I mean, if you’re talking about a loss in confidence, can they get it from anywhere in the private sector?
BUFFETT: Well, they’re stocks are selling at X. Can they sell more stocks—stock at 90 percent of X or 80 percent of X? That was forced on the banks here in the United States. They didn’t like it. I didn’t like it as a stockholder of banks, but we had—on a Monday, we had Bernanke and Paulson come in and say to, I think it was 11 banks, `You’re going to take,’ you know, `X billions of dollars.’ And before they left the room they did it. Whether they’ve got that kind of muscle over there, you know, can speak with a—that strong a single voice is another question. But they—the banks can’t raise capital. And the government could always say, `Look it, you raise capital or we’ll supply the capital, and we’ll put it in at one euro per share so you better do it at two euros per share.’
BECKY: Would you be a buyer of some of the banks if they started trying to raise additional capital?
BUFFETT: I’d look. But I—whether I’d be a buyer, I’d have to understand the banks better than I understand them. I—we do not own stock in any banks that are members of the eurozone.
BECKY: Have you been looking at any of these banks?
BUFFETT: I look. Anytime something goes down a lot, I look.
BECKY: Did you see anything you like so far?
BUFFETT: Not enough to write a check. That’s the test.
BECKY: So there are a lot of concerns about what happens in Europe right now and how this is going to affect the United States. We spoke with Mohamed El-Erian on Friday and his big concern is that the United States is already nearing a sort of stall level in the economy and that these problems in Europe could really push us into an all-out stall.
BUFFETT: Well, I’d like to comment on the first thing first.
BUFFETT: I think, to some extent, we’re not looking at this economy quite correctly in that we have, as you know, more than 70 businesses and some of those businesses have many businesses. So we’ve really got a cross section of American business. Of the 70 plus businesses, all but about five are doing considerably better than was the case a year ago, and they were doing better then than two years ago. They’ve been in a steady recovery.
BECKY: What’s “considerably better”?
BUFFETT: Well, if you take our five largest businesses outside of insurance…
BUFFETT: …that would be the Burlington Northern Railroad, that would beMidAmerican Energy, that would be Marmon, which has over 110 businesses serving basic industry, it would ISCAR, which makes cutting tools for—used throughout the world—I mean, it’s a barometer of industry—and it would take our new acquisition, Lubrizol. Every one of those companies will set a record for earnings this year. In aggregate they will earn $9 billion pretaxed, and it’s a record for all five. And they—and they cut across industry. And if you look at many of our smaller businesses, our recreational vehicle business, our farm business, you name it, they’re all doing well.
What is getting killed and what is in a—not in a recession but in a depression is anything connected with residential construction. And that includes things like our carpet business, our insulation business, our brick business. Those businesses are in a depression. You have a huge segment of the American economy that’s doing really quite well. Then you have this other segment which is in a depression, and that depression has much more effect on unemployment, I believe, than is generally realized. When that comes back, and it will come back—I don’t know when, but it will come back—when that comes back, when we get a million housing units, annually, started, I think unemployment will go down a lot.
BECKY: When you first started looking at some of these things earlier this year, you had said maybe by the end of this year we’d start to see a turn in housing.
BUFFETT: Looks like I was wrong. That—that’s one of the problems of appearing on these shows. No, I—we don’t see any evidence, but that’s—in a sense that’s good. I mean, we have—we have households, and we have housing units. We built way too many housing units compared to households. Surprise, we had this huge inventory. We’re now creating more households than housing units. We’re drawing down on the inventory every day. I don’t know how long that takes. I know when it’s through, when we’ve reached something close to a balance, that we will have at least a million households being formed annually. We’ll have at least a million housing units being created, and unemployment, in my view, will be a lot lower.
BECKY: OK. I think Joe has a question for you from Studio 2. Joe?
JOE: Yeah, Warren, it—based on this piece [subscription required] in The Journal today about all the developers that bought all this farmland. Like, they were paying, like, 90,000 an acre for it, so now all the farmers are coming around and they’re buying it back for—this is perfect. You know, sell high, buy low. They’re buying it back for 10, 15, 20,000 an acre instead of 90. You have said many times that if you could own, vs. gold, all the farmland in the United States, you’d rather have that than all the gold in the world. Have you gone in and looked at any farmland, any real estate like that?
BUFFETT: No. I own one farm that I bought about 25 years ago my son farms, and so we’re exposed to farming in the Buffett family. He’s going to take care of me if it turns out that farms are really the thing to have instead of businesses. But I believe in owning productive assets…
BUFFETT: …whether it’s farms, apartment houses or businesses. And they’ll do very well over time, and sometimes one class is doing better than another. But if you own any of those things over the next 20 years in the United States, I think you’ll do well.
JOE: I’m wondering if you’ve decided how to play also—and it would be a big help—maybe you haven’t because it just—there’s so many political considerations, but the—you’re big in utilities. I understand that. That makes a lot of sense. But whether it would be renewable or natural gas or clean coal or just buying oil assets, is there a way to just—to game the system for the future of what we use for energy?
BUFFETT: Well, through that American energy—I believe that our two utilities are the top two industrial utilities in the United States in terms of their ownership in wind generation, and we are just in the process of negotiating a contract on some solar. I got a call on Saturday that we just got approved in Iowa for some additional wind generation as well, so we’re in that field. In terms of oil, it’s kind of interesting. If it turns out that oil becomes worth far more money, that helps our railroad enormously because trucks use approximately three times as much diesel fuel per ton mile carried…
BUFFETT: …as railroad. So we might—we would be a huge beneficiary if it turns out that oil rises in price…
JOE: Yeah, it would…
BUFFETT: …but I—go ahead.
JOE: No, it was just based on the (delay of TransCanada’s planned Keystone) XL last week, I’ve seen now that Canada might go to Asia with a lot of the oil, and I was just wondering what you thought of the, you know, delaying that XL pipeline and whether that factored into any investments you have.
BUFFETT: Well, it doesn’t factor in to anything. It’s a very hot issue, obviously, in Nebraska. I am no geologist. I don’t understand, you know, what the effects might be, so I stay out of that one just because I—there’s all kinds of things I don’t understand.
BUFFETT: And you’ve just hit on one of them.
BECKY: Although the question became that was laid out in the Journal on Friday last week is this is 20,000 potential jobs vs. the environmental impact and with that prism, do you think that the administration focuses on jobs as much as you think they should be?
BUFFETT: Well, you can say if you build anything—if you build a tomb for me, you know, if I start building a huge tomb, and I employ 20,000 people to haul granite blocks across the plains of Nebraska to build this tomb, which will make everybody forget about Egypt, that creates jobs, too. But everybody cloaks everything in job creation.
BUFFETT: So I’m very suspicious when people say, you know, `This will create jobs,’ and `If I open up a hamburger stand, it’ll create jobs.’ So it—there’s a lot of rhetoric there that gets a little loose. If you’re really seriously hurting the environment, you know, you can—you can have those 20,000 people start building me a tomb.
BECKY: Instead. OK. Andrew’s got a question for you, too. Andrew?
ANDREW: Hey, Warren, I want to go back to housing for a second. Given your views on where you had hoped housing would be at the end of this year, and the fact that we’re not there yet, do you think there’s a role either for government or that the banks need to be playing it a different way than they are to either refi or to modify the way these loans have been put together?
BUFFETT: Yeah. Well, refi doesn’t really change the number of housing units or change the number of households, but it certainly changes the burden of the payments on somebody that, you know, is financing at 6 and could finance at 4. So I think things that help people refi that have good credit histories and all of that sort of thing, I think—I think that could be quite useful. It doesn’t change the basic equation. The one that…
ANDREW: Do you think the banks aren’t being helpful enough?
BUFFETT: Well, it isn’t so much the banks. I mean, Freddie (Mac) and Fannie (Mae) are, you know, have guaranteed close to half the mortgages. You would need them more than anybody else to have a policy on refis. They—they’re the ones that affect a very high percentage of the smaller mortgages. The banks may service those mortgages for Frannie—for Fannie and Freddie, but they’re just their agents.
ANDREW: Would you like to see Fannie and Freddie take a more aggressive approach? Would you like to see the president try to mandate some kind of approach for Fannie and Freddie in terms of how they deal with these mortgages?
BUFFETT: I would be in favor of anything that took people who had been making payments regularly, but because their house doesn’t qualify in terms of value to get refied, but to let them make similar payments, for example, and have a greater amount apply against principal, but I—you’ve got to be very careful with these programs because people learn how to game them very quickly. So it makes it very important how you—how you draft them. But certainly somebody that’s paying 6 1/2 or 7 percent interest pays it straight through, their house is under water, and they’re going to keep making the payments, I would—I would try to get them in a market rate, if I could figure out a way to do it without having a whole bunch of people game the system.
BECKY: Hm. You know, there are a lot of questions around how you can fix the housing market, if there’s any way to fix it, aside from just waiting. Ben Bernanke is another key player in this and maybe we can talk about that in just a moment, but we have a new mandate here on Squawk Box, we have to take commercial breaks.
BUFFETT: Oh, how capitalistic.
BECKY: Exactly. How unfortunate and how capitalistic. So let’s slip in a quick break and when we come back, we can talk a little bit more about that. And, Joe, I’ll let you take things away from here.
JOE: Yeah, I do remember—we used to not with Buffett, we wouldn’t…
BECKY: Yeah. I think we got caught on that.
JOE: Yeah, he could—he could buy all the advertising on the show. I’m trying to get, you know, I’ve got a lot of ideas for spending more Warren’s today.
JOE: I don’t know why. Anyway, coming up, much more from Warren Buffett live from Omaha.
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 equity at 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 Buffet 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 Buffet 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.