Warren Buffett’s Full Interview with CNBC (Video)

Warren Buffett's Full Interview with CNBC (Video)

Buffett Watcher on ‘Oracle of Omaha’

Jeff Matthews, “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett” author, discusses Buffett’s views on the economy and investing in Berkshire Hathaway.

Bowles: Going Over Fiscal Cliff Could Cause Recession

Discussing what will happen if the U.S. goes off the so-called fiscal cliff, with Warren Buffett, Berkshire Hathaway CEO,former Sen. Alan Simpson, (R-WY); and Erskine Bowles, former chief of staff to President Clinton.


we’ll hear from google next week so we’ll get some answers.and alan simpson, i got him to say that 50% was in someeuropean countries, once i want gets above 50 he would have aproblem with it but 50% — 50%? 50, 5-0. everybody ran with this interview yesterday because he said our ideas were zombies and disparaged all of cnbc and our one led with him saying that 50% was an acceptable level.but he also said — he favors a free market welfare state is what he favored but can you imagine someone saying that 50% is an acceptable level? run with 21 from this interview. no higher than 21. that’s unanimous. no higher than 21? we can do 21. we can do 21 and, you know, there will be certain years in the future because business is cyclical. that’s why you have to get itdown. it’s harder now because of the ageing of the population to get to it 21 but can you. you have to work at it but you can get to 21. if you’re really serious. would there be any negativeconsequences for 50%? yeah. i know, it’s laughable. and yet — it’s laughable. i know. can i throw one more out there real quick. larry summers came on this broadcast, talked about, since the cost of a loan to right now, interest rates are so low we should move forward, spend a lot of money on projects that we would otherwise have to do in the next 10, 20, 30 years.given what you’ve talked about today, have you had a chance toread that or see what he had to say. what do you think? look, i’m spending for spending money we spend today more wisely.i could give you lots of examples, having run a university, having worked in state government, having worked in the federal government. you know, it’s a little bit like this guy who was the nobel prize winning scientist who said his nobel project was running out money. he turned to his team we’re running out of money now we have to start thinking. that’s what we got to do.we’re running out of money we got to start thinking and maketough choices, tough political choice. we can do it. the way to get to 18.5 or 19 is to get to 18.5 or 19. you can design a plan, joe can design a plan. most people, everybody would be a little unhappy with something but certainly be better than floating alo like we’re doing now. we need something done. the real driver is health care. it doesn’t matter what you call it. forget the obamacare label. you call it elvis presley care. there’s nothing in it that has cost containment. not a thing. people say will it will happen. it won’t happen. and the reason is very simple. you’re going have pre-existing conditions of a 3-year-old that will live to be 60. one person in the united states weighs more than the other two. you got diabetes a and b. you got to do some tort reform. you got to do something with docks. 10,000 a day turning 65. hospitals have to keep one set of books instead of two. come on. let’s quit fooling each other. this is absolute madness and this baby is on automatic pilot and will stuck up all the discretionary budget of the united states. so i say to people what do you love? well i love education, i love this, i love that. well, pal, that stuff will be wiped out unless you put thescrews to this system. we said 400 billion we would knock it off and not let it go over 1% of gdp a year. what more can you do?gentlemen, in the commercial break you were joking around and you asked if there wasn’t anybody we haven’t insulted yet.anybody left? we’ll t to think of one. we’ll get to you. if we have not offended you, please write to us. on a serious note, youmentioned at the beginning of the interview that you werelooking for 10 million signatories to sign off. if somebody is interested in getting involved what do you. that’s where we want our people to go. we’re bringing in names there. that is our social media campaign number that we’re going to be launching next week. when you look out across everything happening, we started this interview erskine you said you think we’ll go off the fiscal cliff. yeah. what happens at that point? i think if they don’t — if they don’t turn around very quickly and fix it shortly thereafter then i think it could be a disaster for the country. 7 trillion worth of economic events. it will have an effect of at least 1.5% decline in gdp next year. that’s enough to put us back into recession. dick durbin kept asking where is the tip point. we don’t have to do it. this is not only the most predictable economic crisis but the most avoidable if we come together, put partisanship aside and pull together. we have 30 seconds left.warren from the market’s perspective if we do go off the fiscal cliff if we don’t how do you — i have — this country works over time. we’ll do the right thing in the end. we just wait until the very end. i until think the luckiest person that’s ever been born in the world is a baby boirn the united states today. i’ll stick with that. i love owning businesses in the united states. we’ll invest $9 billion almost in the united states at berkshire this year. i’m a bull on america. i think we have to run it right. that’s all. i don’t want anybody to get discouraged how this world will turn out because it can to be done. you got people like this working on it. gentlemen, we can’t thank the three of you enough for joiningus this morning and you two gentlemen for all your hard buffet, mr. simpson, mr. bowles, thank you very, very much for your time and we hope to check in with you again soon. back to you in studio.

Fixing Deficit Problem ‘Doable,’ Says Bowles

Insight on resolving the U.S. deficit, with Warren Buffett, Berkshire Hathaway CEO,former Sen. Alan Simpson, (R-WY); and Erskine Bowles, former chief of staff to President Clinton. “If Congress doesn’t act, we’ll face the most predictable economic crisis in history,” says Bowles, adding that if he had to bet, “I’d say we are going over the fiscal cliff.”


we get back to becky in sun valley, idaho, with our special debt reduction summit. becky, i came this close to calling it our debt reduction task force. i love and miss jonathan walt, right? it’s really kind of a task force. something that sticks with us, it is.this is a supersized task force. this is the mother of all taskforces, you might say, joe. unknown. oh, i don’t know if you heard senator simpson, he said fathers unknown. we’re going to jump back into this conversation, and gentlemen, we have already talked an awful lot about what needs to happen with tax reform, probably one of the hot button tickets but as we were just talking off camera here, another thing that you mentionederskine, you’re very concerned we need to also be doing a lotabout cutting spending as well. why don’t you tell us how theplan really would attack that. we cut spending by about $3 trillion over the next decade, and again, that gets us to the $4 trillion which is the minimum amount you have to reduce the deficit in order to stabilize the debt and get it on a downward path as a percent of gdp, and we don’t spare anything. the problem is so big right now that you have to make significant cuts in have to make significant cuts in the entitlement have to make significant cuts in the spending into the tax code if you’re going to produce enough deficit reduction to stabilize the debt. what is significant? 5%? 10%? just for people to get their heads around, what’s really coming? all of it is doable, okay? we spend today about $760 billion a year on defense. get this one — no you tell it. well, this is madness.750 billion, $760 billion is the usa, and the other countries, major countries of the earth including russia and china combined spend $540 billion. now, the only thing beinghallowed out here is your brain. this is impossible. think of it again, 750 for us alone and every other major, all these evil, even, you know, china and russia, combined, 540. there’s also a situation which is when you get into this, you see you get savage. i’m a vet van. i was proud to serve. there is a thing called tricare, and it’s for military retirees, and give them anything, 2.2 million, there’s not a great cohort of them and some of them have had very little active duty but they’ve been in the guard, the reserve, have their own health care plan and the premium is 470 bucks a year, and no copay, takes care of alldependents and costs us $53 billion a year. leon is trying to do something with that, and what’s he getting from the professional veterans? getting his head mashed. here is how crazy defense is. just think about this. the u.s. has a treaty withtaiwan that we’ll protect taiwan if they’re invaded by the chinese.there’s only one problem with that. we got to borrow the money from china to do it! that’s crazy! that is a little tricky there. the entitlements are a big part of what we have to focus on, and what we’ve been trying to do is figure out how we can slow the rate of growth in health care to the rate of growth of the economy. but the richest country in the world has ever seen, $48,000 of gdp per capita, enormous, but no matter how rich your family is, you can overpromise and that’s what we’ve done and you have to get your promises in line with your capacity.and today not only are our promises too big out our outcomes are not so great. you take health care. we spend twice as much as any other countr in the world on health care, whether you talkabout it on a per capita basis or percent of gdp and you know,that might be okay if our outcomes were twice as good asanybody else’s but on outcome, on almost any outcome measure you look at, we rank somewhere between 25th and 50th in things like infant mortality and life expectancy, and preventable zet and anybody who doesn’t think those 50 million people who don’t have health care insurance don’t have health care, they get crazy. they get health care but get it at the emergency room at five to seven times the cost of being in the doctor’s office and you know who pays for it? we do. we pay for it in higher taxes and higher insurance costs. well, this brings us to the question of whether the health care plan, the health care law fixes any of this. we’ve got to slip in another quick break, we’ll come back with that and i know joe has a question as well, gentlemen, thank you very much. we’ll be back with more with the special conversation from sun valley, right after this. special conversation in sun valley right after this.

Simpson on Raising the Retirement Age to 68

Warren Buffett, Berkshire Hathaway CEO;former Sen. Alan Simpson, (R-WY); and Erskine Bowles, former chief of staff to President Clinton, discuss jobless claims and import prices, and the stalemate in Congress. “We tried to do the things that really made a difference for people who desperately need social security,” says Bowles.


we’ve been talking about solutions and better than expected news, 350,000 but if you look at the unemployment picture and last monthly jobs number there are concerning things happening here. when we have unemployment at 8.2%, how much does it take for people to talk seriously about these measures to try and help us? austerity is a tough thing forpeople when you’re looking at numbers like this. they’re talking seriously around the country, where you need them talking seriously is in washington. just one example, everyone knowsyou’re going to have to change the debt limit. the leaders of each house should get it done in five minutes. why spend weeks posturing and huffing and puffing and accusing the other side of bad faith and all that. just raise it and get on to the next problem. i would think you could get reid and mcconnell and pelosi and boehner, just say we’re going to raise it, so why should we go through the charade of everybody blaming each other. they’ve already spent it. and to waste weeks on that and to hold the legislation hostage over it, that’s for school kids and you know, let’s just get down to what needs to be done. i mean, if berkshire were in trouble financially, charlie and i and everybody else the directors we’d sit down and say we have to figure out a plan to get out of this and we’ll do it today. is anything going to happen before this election, gentlemen? no.we thought the easiest thing would be to have some vert safefor 45 years and lord came the aarp and the senior groups andthe cat food commission, just absolutely stupefying and wesaid take the lowest 20% and give them 125% of poverty? that will cost some money and give the older olds from 80 to 85 a percent kick a year and keep the progressivity and raise the wages subject to the tax. we did all that stuff and then get nailed by groups who really, really don’t care. the aarp, i asked theirleadership, where they patriots in here or just marketers. that did not go withal that day either. it was just one of those days.we recommended raising the retirement age one year, 40 years from now, we want to give people a chance to get ready. it’s like, you know, give me a break. i’m for anything 40 years from sob who could be affected by this, i would even take itsooner than that. i’d say okay let me know what i’m getting ready for, tell me what’s coming rather than having a crisis where you look like greece and have to pull back the promises you’d made to people over 40, 50 years. and at the same time we took care of a truly disadvantaged, we raised the minimum payment to125% of poverty, we gave people between 81 and 86 and 1% bump up because when every economist, republican or democrat told us their private pitching funds generally run out.we tried to do the kinds of things that made a difference for people who desperately need social security as that you knowsounding board for them. and not one person will argue with this number, that if you do nothing, in the year 2033, they moved it up three years in one year, you’re going to waddle up to the window and get a check for 27% less. in f nothing’s done. what is smart about that? when we said raise the retirement age to 68 by the year 2050, and the aarp said, how will people ever be able to prepare for that? well, we said we think they can figure it out. we just know they can, try to help them do that. andrew’s got another question. sorry, andrew? hey, guys, this question i’ll start with warren but all three can jump in. the president proposed extending the bush era tax cuts for those making less than $250,000. number of democrats, including senator schumer and others have come out and said 250 is the wrong number, it should be $1 million. warren, you have the buffettrule. how do you think about this? well, i am generally in favor of making the tax code more progressive, certainly when the most recent figures for the 400 highest incomes in 2009, incomesthat averaged $200 million per taxpayer showed that over half of them paid less than 20% in a combination of income taxes andpayroll taxes, which means that they, those, over half of thempaid less than 23 of the 24 people in our office, the only one lower was me. i think there’s some changes needed but i say let’s — if they aren’t going to do anything i’m for doing that, but why not just solve the problem? i mean, why just — why workaround the edges? i am for what these gentlemen propose.gentlemen, senator simpson and mr. bowles, what do you think about those proposals? there’s proposals out, with unis to extend the bush tax cuts for another year and the president has laid out his proposal. what’s the right solution for right now?well, between november 6th, when they will do nothing, nothing will be done, politically nothing will be done between now and november 6th. it’s just posturing and guy also get up and say we can get this terrible thing resolved without touching precious medicare, precious medicaid, precious social security and precious defense. let me tell you, that person would be described as a phony that’s going to do that in this election. we think, naively enough, that if you have the guts to do something along the lines what we suggest, the people will reward you, and it won’t come now, but in four months, as this thing closes in, man, you know, people are going to say hey, if i don’t do something they’re going to throw me out for sitting here doing this b.s. and mush that i’ve been pouring out. can you imagine sitting at berkshire, and you know you have the equivalent of a $7 trillion economic event hitting in december, you know, that if you do nothing, it will have an adverse effect on the economy ofat least 1.5% next year which is enough to throw us back intorecession, and you’re not doing anything? it’s crazy. in an election year, why pay them? pay them three years out of four.they’re only going to work three years out of four. of course we have an election every two years, too, it’s crazy. andrew, sorry, did i cut you off before? the question i had is, i completely understand that we have a much bigger tax reform and reform broadly that we need to get to and i guess i was just trying to understand from both gentlemen, given where we are and that maybe we won’t get any movement, if the million-dollar number, the 250 number, i know it’s peanuts on a relative basis to the bigger scheme, where they come out. andrew, eight not exactlypeanuts, because the difference between the 250 and the 1million is about $366 billion, and we’ve got to pay for that some way. that’s — we’re always ready to reduce revenue but we’re never willing to pay for it in any way. i really think talking about the bush tax cuts is almost a waste of time. what we should be doing is talking about how do we reform the tax code to broaden the base, simplify the code, take some small portion to reduce the deficit and take most of it to reduce rates, so we’ll beglobally competitive. that’s what makes sense. but that’s not going to happen between november and january, right? no, but what you could do is set up a framework between november and january that would call for that, you’d have to have some real specificity — what is it? specificity. you got a framework, yeah, you fellows worked on it for ten months. that could be set up as something to say here’s what we will get to, maybe it doesn’t kick in january 1. becky, one of the things we’ve done is taken that 67-page report that you’ve read and we’ve now put it in legislative language. why not have an up and down vote on it. yeah. anybody in the past could say, i read their 67-pagereport, but it was a little vague, so if i saw legislative language, i would then get enthused. well, baby, you got it right now and that’s what they have in front of them, ald then we say, do what you’re supposed to do. if you don’t like it, take it out, amend something, get in the game. so erskine has pushed that sobeautifully, but if you send the bush tax cuts just like that, it’s between 3.8 trillion and 4.2 trillion in ten years added to the pile. i mean, madness. now you’re talking some real money.and if i had been in congress at that time with what we had todo, and i’m not being a smart alec, why would you give a tax cut when you’re fighting two wars, borrowing money hand over fist and give a tax cut. i think the american people came up when reading their newspapers saying what’s going on? madness?we’ll continue the conversation in a moment but for right now andrew back over to you.

Buffett, Simpson & Bowles on Debt Reduction

“Reform is the cop-out word,” comments Warren Buffett, Berkshire Hathaway CEO, discussing solutions needed to reduce the nation’s growing debt, with former Sen. Alan Simpson, (R-WY), and Erskine Bowles, former chief of staff to President Clinton. “We have to have about a $trillion of revenue,” adds Bowles.


let’s get straight back to our conversation with our threenewsmakers of the hour, warren buffett, alan simpson, erskinebowles. gentlemen, we had just been talking about the problems but let’s start talking about some real solutions. what needs to happen? i know there are a lot of different ways to get to the numbers, but the basic number is warren, something you’ve talked to us a lot about on this program, what do you need to get for revenue and what do you need to get for spending? you know, 2.5% is, if that’s average of gdp, that actually is sustainable. debt-to-gdp will not go up over time and these gentlemen were charged with bringing it down to 3% and came in i think at 2.2% or something of the sort, so you have to get expenditures, in my view, down to about 21% of gdp and revenues up to 18.5 or 19, and you can get hundreds of people that could draw up plans, thousands that i would accept, he would accept, and they wouldn’t all be identical but it’s an obvious problem, the need of a solution is obvious and most of the aspects of the solution are pretty obvious to everybody and you can argue around the edges, and the democrats don’t want to talk about reducing expenditure, they want to talk about reform and the republicans don’t want to talk about revenues, they want to talk about reform. reform is the copout word. i know your plan, gentlemen, had six points or six basic parts that lays out, a huge part of it is tax reform and people that we’ve talked to i think spin it in different directions. they use tax reform as theircode for doing whatever they want to do. your plan was not revenue neutral. it was to raise revenue, and to do that how?what we wanted to do was first of all, in order to stabilize the debt and get it on a downward path as a percent of gdp, you’ve got to have at least $4 trillion of deficit reduction, so that’s kind of like your bogey. if you talk about anything less than that, you’re just kidding yourself. what we said is look, let’s take a trillion of that from revenue and $3 trillion from spending cuts.and how did we get to revenue? we said what makes the mostsense is to broaden the base, simplify the code, start off with getting rid of all of the, of this back door spending in the tax code. we only raised last year $1.3 trillion in total tax revenuecoming into the country, and you know why? because we had $1.1 trillion worth of spending in the tax code. it’s literally and if you were to eliminate that, okay, you could take rates to 8%, up to $70,000, 14% up to $210,000, have a maximum rate of 23%, could you take the corporate rate to 26%, and could you pay for a territorial system so all of that $1.5 trillion is captured overseas could be brought back here and if you just used 8% of that money from eliminating those taxexpenditures so you’re using 92% of it to reduce rates, 8% isabout $100 billion a year, that over ten years is $1 trillion. that’s where our $1 trillion of revenue comes from. it’s not revenue neutral by any stretch of the imagination. we have to have about $1 trillion of revenue and the reason you have to have that is if you take it all out of cuts, you’ll truly hurt the disadvantaged or you’ll disrupt a very fragile economic recovery, or you won’t haveenough to invest in education, infrastructure and high value-added research. what we need to invest in to grow the economy. gentlemen, i know andrew ross sorkin has a question as well. hey guys, we had paul krugman on the program yesterday, and there’s been, you know, depending on which side of the aisle you come from, you can like this plan and say or rather you can dislike this plan and say that the tax cuts are too harsh or too much or this or that. he said that this proposal was regressive, and i’m curious how both of you think about that critique. well paul krugman is a little hyper, and when this started for me, he said that i would, never saw a spending cut i didn’t love, or some snide little crack but i think he needs to rest. he needs some solace. he needs to sit in sun valley and someone hold his hand and say, poor, poor dear. he just gave in to ranting. he had a really, really, really tough weekend. i guess he spoke to a spanish, i guess the guy from the austrianschool of economics and it’s all over — check it out on the web,but apparently it didn’t go so well for the eminent mr. krugmanwith this guy. i don’t know, check it out. you might enjoy it, from the sound of your tone. joe, you also might tell him to check the analysis that we had done and we tried to make sure that as we reform the tax code we kept it just as progressive as it is today.and how did you do that? how did you ensure by going back?there are things like you get rid of second home mortgageinterest deduction, you cap it at $500,000, those are all things designed to help people at the bottom. actually if you look at it,becky, only 27% of the people itemize. 73% of the people don’t even itemize so they don’t take advantage of the mortgageinterest deduction, so what we said is, well you can — 12.5% non-refundable tax credit, that helps the little guy. i mean paul krugman talks about the little guy all day long. the little guy will be wiped out, and stimulus? i mean, i get a kick out of this, they say well we can get ourselves out of this with consumer spending. what consumer is ready to spend in this atmosphere? right. i mean this is madness, and a stimulus, you’re not going to get a nickel’s worth of stimulus from either party or they’d go home and get cremated. we have a $1.3 trillion stimulus right now. we’re spending $1.3 trillion more than we take in. we have a huge deficit and these guys are not talking radicalism. for 50 years after world war ii, more or less revenue was in the 18.5% or so range and spending was in the 20.5% range, and it really worked quite well. this is not something the country s you know, we’re not talking about something we never attained or anything of the sort, it’s just we’ve drifted into this situation where we’re not getting enough revenue and we’ve overpromised on expenditures. we’ve got a rich country but a rich country can overpromise. we’ve never had less money coming into the country since the korean war.

Bowles: ‘We Are Going Over the Fiscal Cliff’

“Everyone know we need something done, and they did their job and Congress has not done its job,” says Warren Buffett, Berkshire Hathaway CEO, commenting on the Simpson-Bowles plan to reduce the federal deficit, with former Sen. Alan Simpson, (R-WY), and Erskine Bowles, former chief of staff to President Clinton. “Deficit solutions are painful, but there’s no other way out,” explains Sen. Simpson.


we are in sun valley as you mentioned and we are joined by our dream line-up this morning, warren buffett, who has been with us for the last half hour and joining us and sitting down with us right now are former senator alan simpson and erskine bowles, former chief of staff for president clinton, two gentlemen we have been hoping to get on the program for an incredibly long time, because of simpson-bowles, bowles-simpson and everything that’s happening with the fiscal cliff. gentlemen we thank you for agreeing to sit down with us this morning. thank you. warren buffett can attest to this, but when we go around and talk to ceos, it is almost universal among them when theysay if they had a chance and could vote for bowles-simpson orsimpson-bowles, they would put this in immediately and theycan’t understand why this hasn’t happened already. it’s not limited to ceos either. but i think if you polled fortune 500 ceos, it would certainly be 80%. i wouldn’t be surprised if it’s 90%, that would not only think it should be done. they think these fellows are heroes and so do i. what we’d like to say is first of all, thank you for the work you’ve already put in to this point and ask you what you think can happen, because the fiscal cliff is coming, it’s a huge issue. to this point no one has listened to your advice and taken you up on this. how much more of a desperate situation are we now than when you first came out with the proposals? here i am, these are the numbers guys. i do the color. erskine can tell you but let me tell you, this is a giant among pygmies on this kind of thing. r are not dealing with it. he strung the original package together with his patience andbrilliance because he was the last guy balancing the budget soship them out a little bit. i’m not saying. doesn’t get any better than that. oh, no. let me say something about these two, they sat down with republicans and democrats and they were given a charge to come up with a plan that got it down to 3% of gdp and they got it below that, got a majority of the republicans to vote for it, got 11 out of 18, they did exactly what they’d been asked to do, and they came up with a plan, no plan is know, everybody comes up with a little different one buteverybody knows that we need something done, and they didtheir job and congress has not done its job. we got some know, i think if i had to tell you the probability, i’d say the chances are we’re going of the over the fiscal cliff and he hate to say it but i think that’s probably right, but we worked hard to try to get common sense to overrule politics, and that’s a tough thing in washington, as al can tell you. we’ve been around the senate and the house. we probably have as many as 45 to 47 senators, equal number of republicans and democrats, whoare in support of our efforts. we’ve got about 150 housemembers again relatively equal. we put together a ceo fiscalleadership council, which is, has over 100 fortune 500 ceoswho are actively working to try to influence congress to dosomething that makes just plain common sense, and we’ve got a social media campaign that we’re working on, where we hope to get about 10 million signatures of people around the country to tell congress, come on, let’s put partisanship aside, and let’s pull together and let’s face this enormous fiscal problem that we have coming up. with all that on your side, why do you think that the odds are we do go over the fiscal cliff? because it’s politically painful. it’s really tough to get beat. and it’s not going to get less painful in the future. that’s the other thing about it. if you had some kind of a disease you might not want to have somebody open you up and cure it but if you knew it was going to get worse next week, next month, next year, you’d face reality.the problem is real. the solutions are all painful. and there’s no easy way out, but i was talking, warren, a couple of weeks ago, to american university’s graduates and i just threw away what i was supposed to say and i said they ought to be mad at us, at our generation for shirking our responsibilities and kicking thecan down the road. we’ve got to face up to this. this is our generation’s problem and we got to fix it. senator, you’ve beencriticized for coming out and speaking your mind on some ofthese topics. if i could do it with less earthiness, it would be good. no, no, give us a little earthiness. i’m waiting for that. i know, you bait me. i’ve known this fine gentleman for years. he says, tell me that joke about the coast is clear. i do tell it to him, but i do — it’s frustrating for me, here in politics, and i loved it, you’re entitled to be called ool, boob, idiot, whatever, but people try to nail me with a guy that hates veterans and hates seniors and the cap food commission, that just steams me and they say are you thin skinned? i say hell yes but i just punch back and never lost an election because an attack unanswered is an attack believed and when people lay that stuff on me that’s distorting my persona, i fire back, and i could do it but i grew up with irrigators and they had a terrible vernacular. what’s your joke about the coast is clear? it’s quick, this couple hit the sack, 3:00 in the morning the phone rings. guy answers and says how the hell do i know? that’s 2,000 miles from wyoming.hangs up, his wife says who was it? he says some nut called and asked if the coast was clear, i don’t know. he’s just warming up, folks. believe me. mr. bowles you’re the numbersguy. tell us how bad this number is when we go over the fiscalcliff. i think if we don’t get these politicians to come together andwe face the most predictable economic crisis in history. i think it’s absolutely clear that the fiscal path we’re on is not sustainable and for me, the best analogy is these deficits are like a cancer, and over time, they will destroy the country from within. here’s an easy way to understand it from a math viewpoint. if you take last year 100% of a revenue that came into the country, every nickel, every single dollar that came into thecountry last year was spent on our mandatory spending andinterest on the debt. mandatory spend something principally entitlement programs, medicare, medicaid and social security.every single dollar we spent last year on these two wars,national defense, homeland security, education, infrastructure, high value-added research, every single dollar was borrowed and half of it was borrowed from foreign countries. that is crazy, crazy. it’s a formula for failure in any organization. and right now we are faced with the benefit of incredibly low interest rates.what happens as interest rates start to climb? we’re spending right now $250 billion a year on interest, at these incredibly low rates. that’s more, to put it in perspective than we spend at thedepartment of commerce, education, energy, homelandsecurity, justice interior and state combined, and if interest rates were at their average level in the 1990s over the first decade of this century we’d be spending over $650 billion. senator, warren buffett has said that part of this is the problem that congress didn’t act on this and didn’t pick it up but the president also didn’t act and didn’t follow up with what he had set out.who do you blame for where we are right now? well we try to stay away from the blame game because people will often say how did we get here? it’s easy how we got here. we were told to bring home the bacon for the last 70 years. go get the highway, go get me some money, go raise this, do this, do this, and you got reelected by bringing home the bacon, and now the pig is dead. but let me tell you what happened. the president would have been torn to bits, his base would have said you are dealing with entitlements. you’re dealing with medicare and you promised you’d never hurt we poor seniors and never doanything to all this vulnerable population. well, you know, that was his promise, and anything he would have done at that time would have been rejected unanimously by republicans. if he had said, i’m for this, it would have gone to the house or the senate and they would have said if he’s for this, boy, we’re going to nail him and just vote against it for no other reason than in other words we cannot do politics as usual. this has to be a whole new way of looking at the situation. and one of our members, dick durbin, give him a lot of credit. durbin voted for this and tom corbin, two fine men with totally everyone ideology and philosophy on politics and durbin kept saying where is thetipping point and that’s the key. because when the tipping pointcomes and the guys who gave us money want more money for their money, inflation will kick in and all these things andinterest and guess who will be hurt the worst? the little guy, that everybody talks about, day and night, what fakery, what phoniness. i tell you what, when we come back, we have to slip in a quick break, gentlemen, but when we come back we’ll talk about some solutions, some of the specifics that you laid out, and get into some of those details. right now, andrew i’ll send itback over to you.
Buffett on Europe’s ‘Fundamentally Flawed System’
Europe is trying to put patches on something that leaks, says Warren Buffett, Berkshire Hathaway CEO, commenting on the EU’s current fiscal problems, adding “the system cannot survive” the way it is currently designed. Buffett also weighs in on the Libor rate scandal; and JPMorgan’s Jamie Dimon, calling him “one of the best bankers in the world”, despite the company’s huge trading losses.


we’re live in sun valley joined by warren buffett. mr. buffett let’s get back to what we were talking about with europe before.sure. the spreads blew back out again and all of the fixes wethought we’d seen from the ecb at this point seem to be lastingfor less and less time. back above 7% for some of thesebonds. what’s this mean? where are we headed? well it means that a fundamentally flawed system was designed some years back and we’ve been trying to or they have trying to patch it during the th couple of years, and it’s hard to change a very fundamental, important system with patches particularly with the patches should go and what kind of patches you should use so it’s not an easily solved problem. at this point as you mentioned it’s hurting the economy there as well, startingto drag down in a major way. particularly in the last few months, yeah. what’s the end result over the next six months or so? ten years from now, europe will be working fine, but people will be consuming more there. they’ll get it worked out, but there is no obvious answer and that becomes more and more apparent as they go along and like i say, they’re trying to put patches on something that’s got a lot of leaks. but patches on something that has a lot of leaks, you could have a lot of different solutions to the end of that. is the euro still going to exist ten years from now? europe will but will the euro know? i don’t know. and i don’t think they know. it certainly can’t exist as originally designed. we’ve found out that trying to have a common monitor@unit when you don’t have common fiscal policy and cultures and work rules and all kinds of things just doesn’t work, and how they’ll resolve that is anybody’s guess. obviously it depends on who’s in charge, who the leaders are, and leader there is seem to get voted out every time a new election comes along. yes. so if there’s a constant changing set of players at the table, how is there a good solution? i would not know the solution myself. henry kissinger said a long time ago, if i want to call europe, what number do i dial, and essentially that’s the problem. when we had our crisis in 2008, everybody knew theresponsibility was on with the president behind him, and aslong as they knew where they were going, they had the will and the ability to do things that were needed to do, but exactly who has the ability, when you don’t have a printing press, it’s a different animal. we’ve been watching the headlines over the last several weeks, and the manipulation of libor is just the latest in a series of scandals that has to break down the public’s trust in what happens with financial institutions, what happens on wall street. what do you think about what’shappened with libor and how big of a deal is this? well, it’s a big deal. it’s a big deal. i mean, you’ve got the base rate for the whole world, including some loans we have in the past, and so the idea that a bunch of traders can start e-mailing each other or phone each other and play around with that rate is animportant thing, and it is not good for the system. does it shake your confidence in the system? i’ve got a lot of confidence in the system over time. our system works. we are sitting here in sunvalley in pretty good circumstances, compared to a couple other years ago so we’re not working any harder than 200 years ago or not any smarter but we live far differently so our system works over time but it sure shakes your faith in certain institutions, i’ll put it that way but not the whole system. i know andrew’s got aquestion for you as well. before andrew talks aboutjpmorganarren, i wanted to ask, bob diamond, very goodexecutive. in the past, goldman had pr and ethics issues. you said — i don’t think you want blankfein to lose his job and the officers at walmart and i’m wondering whether this is anovershoot, diamond is unceremoniously dumped. he was an american in london, and i mean, wouldn’t you rather have him stay, if you were a barclays’ shareholder? well i’m not a barclays shareholder but i don’t think he had any choice but to go. something a libor, and he wasn’t in charge of all of barclays at that time, but there are a lot of things that went on in that trading room that who knows who was aware of what, and i don’t know anything specific about it, but that was not — it was not a rogue trader, let’s put it that way. you don’t have a differentopinion based on whether you own shares of the stock, though? not on this but i may know less about it. sometimes maybe. i haven’t followed barclays. you know, at solomon we had some problems and they had to go. warren, talking about trust in a company that you do own a stock in, jpmorgan, we’re going to hear from jamie dimon tomorrow what their earnings are and we’re going to try to hear more about what happened to the sour trade. your views on the trade itself, your confidence in the company, your confidence in mr. dimon. yeah, i think jamie dimon is one of the best bankers in the world, and if i had a bank — i like john too at wells fargo. if i owned a bank in omaha and could get jamie to run it for me i would feel very happy.jamie understands banking, he understands risk and it’s asignificant loss, but jpmorgan lost billions and billions andbillions of dollars on loans. i mean, if you got a couple trillion-dollar balance sheet you’re going to have some lossessomeplace. do you have any different views as a result of this about the volcker rule or part of the regulations of dodd-frank?m partner charlie is more of a testament than am i on this but i think there are good reasons to restrict the activities that banks can be in. the activities that led to these losses you would preclude jpmorgan from participating in the future? it’s hard to say what those activities are. if they’re truly hedging risk, you know, there’s certainly a lot to be said, if you’re running a bank and you want to hedge interest rate risk, hedge foreign exchange risk. that’s perfectly proper. we do it in our energycompanies, we have transactions all the time to hedge risk. if somebody goes off the reservation and starts turning hedging positions into speculative positions, you may have a problem but that was not policy at jpmorgan. that was one fellow’s near as i can ascertain that went very big in a position that wasoriginally designed as a hedge position and then he put a hedge on a hedge, and pretty soon they had what they call a texas hedge. warren, can we go back to libor for a moment, too? sure. you mentioned that you have some contracts and some things that are based off of libor. sure. that have been there, i’m guessing derivatives and other things that have been in that? yeah, we own some auction rate municipals for example, priced off libor, a couple billion. what happens, if libor was manipulated, do you have a case to go back and have a complaint, to have a lawsuit, to have anything that comes up with any of this? well, i think there certainly will be a bunch of lawyers that think that. if you can pin down the everyone that did something to you and there may well be some kind of a case.we bought these securities in the market auction ratemunicipals that have, that are tied to libor. i have a feeling that, for any one entity, the amount might be very, very small. 3 there will and things that are priced against this. the numbers would stagger you. so how big of a problem could this turn out to be down the today? it could turn out to be a big problem but we don’t know what banks did what at this point, but — well, go back to our solomon experience, you had one fellow with a couple of bond issues and that caused a lot of trouble, and you get libor and you’re talking about the whole world. right, and everybodyassociated with it. and of course you’re in this terrible position, if you have millions of contracts based on libor and one side profits from a given price being out of line, and the other side loses, you’re not going to collect from the fellow that got the benefit and if you’re in the middle of the trade you’ll have the people on the losing side of each trade come after you, so it’s very asymmetrical for the person who has a punch of trades on it. it could be a potentially huge can of worms. it is a can of worms. i will guarantee it is a can of worms. okay. warren, we’ll have much more in a moment. we thank you for your time.

Buffett Sees Pick-Up in Residential Housing

Warren Buffett, Berkshire Hathaway CEO, discusses the outlook on the U.S. economy; the decline in Europe over the past several months; and a pick-up in the homebuilders space, adding a strong comeback in housing is necessary for an overall recovery.


ross sorkin. becky quick is in sun valley, idaho, with a special guest who will join us for the rest of this show. we didn’t decide you were at dollar mountain so we don’t know where you are, but you have noticed, nothing costs $1 anywhere around that mountain, on that mountain or any of the vicinities near that, but it is dollar mountain. yes, that’s right, joe. the inappropriately-named dollar mountain, we’re over sun valley and joined by a special guest, warren buffett. mr. buffett thank you for joining us this morning. good to be here. we couldn’t think of a better time to have you on because there are so many questions about what’s been happening with the economy, what’s beenhappening with the jobs picture. why don’t you tell us whatyou’re seeing now in your businesses. for a couple of years i’vebeen telling you everything except residential housing wasimproving at a moderate rate, not crawling but not galloping but the last two months it’s been sort of the opposite. the general economy in the united states has been more or less flat, and so the growth is tempered down, but the residential housing we’re seeing a pickup, and it’s noticeable, it’s from a very low base and it doesn’t amount to a whole lot yet but it’s getting better, and so we’ve got a flip-flop on that. what happened? we talked in the past you had said when housing turned that would be when the u.s. economy would turn. what happened? it hasn’t turned that much yet but it is picking up but at the same time, the rest of the economy i would say is slowing down. it’s not heading downward but it’s not growing at the rate that it was earlier, and then it’s kind of interesting in europe, for a year or so, in most places, i mean forget about greece for the moment but generally in europe, you didn’t have a big slowdown. you had a lot of worry in all of that but in the last couple months in europe, particularly in the last month, it’s pretty much across europe things are really starting to slip pretty fast. we’ve heard this from a lot of ceos who joined us in the last several weeks but what business lines in particular do you look at and do you see these things kind of popping up? i look at all of thebusinesses we have and then i talk to people in otherbusinesses, and it’s pretty clear that that’s what’s going on right now, that there’s certain figures i can’t tell you where i get them, but they — europe is really, it’s headed downward in the last, i don’t know, six weeks or so, and it wasn’t going that way before, it wasn’t doing that well, but it hadn’t really hit the skids. is that because of consumers or because of businesses, confidence and spending slowing down. spending slowing down andwhen spending slows down, business reacts. i mean, they’re not seeing the same kind of spending so they’re pulling their horns some. of the things that you can talk b the numbers that you do see concern you the most? well it’s pretty general,becky. like i say, it has not turned down in the united states. our freight carloadings are up week by week. i normally get them today but i’m not home. last week, they’re up, although the eastern railroads were down moderately. lot of that’s coal butnevertheless just across the board, looking at retail sales and jewelry or furniture or you name it, yards of carpet are down.carpet business is better. on the other hand, if you look at, we’re the largest home builder in the country, clayton homes. that’s up, brick is picking up but these are from low levels but you are seeing, and our real estate brokerage firm, second largest in the country, pending sales are up by a reasonable amount but from a very low base. with everything else, with not a reversal but a slowdown in the growth, what happened six weeks ago to spook people, to spook businesses? i don’t know the answer to that. i know the result. you can argue in europe why it was delayed so long. i mean, becauseeurop e has really been, you can see this coming, it was two years ago we sold all our spanish and italian and even french bonds, we were overly cautious probably but that was two years ago. so europe, with all that’s going on, it probably kept it from having any kind of gains but it didn’t really seem to sink in, but i would say the last, well i know the last couple months, and with some acceleration, it’s been hitting over there. we’ve watched the jobs picture, and the last unemployment, the last unemployment numbers at 8.2% from that last big government report last friday. is that a chicken and egg cycle? are people watching the jobs number and getting spooked by it or is the jobs number kind of — well, you’re right. there is some circularity to it, but i don’t know the answer as to exactly why it’s happening and i don’t know what it will be three months from now or six months from now because three months ago i didn’t know what it would be today, and the u.s. economy is doing better than virtually any big economy around the world. this economy has come back a long way with the exception of housing, from where it was a few years ago and you can see it in corporate profits, but i thought it would take housing, i still think it would take housing coming back significantly to move us generally significantly upward and i still think that’s true, but so far, the little pickup in housing has not been near enough to offset whatever is going on in the worldgenerally. the fed came out with their minutes yesterday, and obviously they’re concerned about the economy. they say that they could step in to do something else but i guess the question becomes what would it take to get them to step in and what could they do at that point? i have my own doubts, i’m sure chairman bernanke would disagree with me and he knows a lot more about it than i do. i get — when you have interest rates down to zero, not only here but in the major countries in europe, and you have the, you have a 15-year treasury inflation protected so-called tips security, in a negative yield, 15 years people arewilling to put their money out at a minus rate in real terms, that — that’s about as far as you can go. you can talk about more easing or that sort of thing, but you know the banks are sitting with enormous amounts of money at the fed. they don’t want to be sitting with the money at the fed. it’s bringing in a quarter of apercent. they’re not happy having that money at the fed. they just aren’t seeing that much demand for loans. although they’re picking up a little, i mean, but it’s nothing like people would like to see. i don’t see what the fed does that’s dramatic. does that mean we’re in a wait and see pattern? to some extent. it also means that they shouldn’t be bicycling like crazy at the fed while — maybe they should be bicycling like crazy but while congress sits there on the sidelines and you know, basically squabbles.what should congress be doing at this point? we’ll talk more with simpson and bowles a little later this morning but you think there’s something congress should be doing right now? i think people have a feeling that congress is inept, and sort of paralyzed by the desire of each side to make the other side look bad. i think that has got to be a factor in general confidence. you know, if you see your government not functioning, it’s not really the most — it’s not the biggest spur to activity that you can imagine. maybe not a confidence booster so to speak. so i think it’s hard for the fed to offset the congress in terms of changing public opinion. okay, we’re going to have more with warren buffett in just a moment, but andrew, i know we have to cut in for a commercial break so i’ll send it back to you. we will do that. thank you for that becky, thank

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