Home Videos Why Warren Buffett Said No To Lehman Brothers And AIG In 2008

    Why Warren Buffett Said No To Lehman Brothers And AIG In 2008

    Warren Buffett’s Berkshire Hathaway is famous on Wall Street for having the cash to make deals happen, even during a crisis. But in 2008, he turned down both Lehman Brothers and AIG when they asked for help. In an interview with WSJ, he explains why.

    Why Warren Buffett Said No To Lehman Brothers And AIG In 2008

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    Here is extraordinarily contagious. And we saw that in September of 2008. Like we've never seen it before and financial markets.

    On Saturday I had a longstanding commitment to go to Edmonton and my wife and I went up with another couple and we checked into our hotel room about six o'clock or so. An amazing day I got a call I didn't think anybody knew I was there.

    I said I'm going to this performance with another couple send me a fax. Describe exactly what you want and tell me how much you will pay. So I came back from the performance and those facts and so I called the manager of the hotel the someplace and he said no there's no facts and they couldn't figure that out. Well they called me on a cell phone which I did a little flip phone which I still have. And that was beyond my technical comprehension to figure out. That's what they did because actually they said they'd send the fax and the following summer I was writing in Sun Valley with my daughter and she said there's a message on your phone. I said I don't know how to. Bring it up and so she brought it up for me. And of course that was the message from that Saturday night saying Call us and do this or that. So a little bit late. So you don't think that message would have changed. No I could not make it comment like that. This is a 10k that. Of Lehman.

    Brothers and just goes back a little before the panic. Lehman was looking for money at that time and they approached Bircher. I came down to the office at night made these little notes on here of things that were red flags and you'll see a number of pages here. And you had to get to page 150 or 200 but there was an there was clearly a lot of trouble there. By the time I got through them I decided that we were not in a position. On Monday the Lehman. How. Are you feeling. Do you think. An Lehman weekend on Friday preceding the weekend. I got a call from AIG and AIG was going to run out of money the following week. They've done some very foolish things in their financial products operation. So I looked at this and finally decided that there was no way that I could come up with a cash offer that could be done in the following week. Or really by the following month. But so I call them back late that night. I wanted to convey to them promptly but I just wasn't a prospect. I came back on Sunday to get a long previously scheduled dinner. But before we'd gone with I'm still getting more calls on AIG and I went through I'd behaved reasonably well. I was still wondering what was going on obviously with AIG and New York. But there was nothing to be done. AIG was just going to run out of money big time. And the next day or two and Lehman was going to go under unless something was happening that I didn't know about. One of the lessons of the 2008 09 experience what with the 2008 experience was the fact that every company in the United States was a domino and those dominoes were placed right next to each other. So when they started toppling everything was in line and they were very very close to it. And it's really like the old movies you know where there's a robot on the bank to get this guy's money. If you have a right to a bank and there's a big line in front of the bank and you put your money in the bank you're going to get in line. And if the present the bank comes out and says our capital ratio is 13 percent you don't care because you know you don't know what capital ratio is and you don't know whether he knows what it is. And you know he's probably lying to you a company like Lehman or or any major financial institution depends on people being willing to do business with him tomorrow and lend them money tomorrow and take their word the next day. And nobody has to do business with Lehman or or any other institution. Once they lose confidence it's all over.

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    Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver