If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef. Likewise,if you are going to buy a car from time to time but are not a car manufacturer, should you prefer higher or lower car prices ? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years,should you hope for a higher or lower stock market during that period ? Many investors get this one wrong. Even though they are going to be net buyers of stocks for years to come they get elated when stock prices rise and depressed when they fall.

-------

In response to a question from Barbara Kiviat of Time on how he and Munger control their emotions, Buffett replied: "[It] comes about from having an investment philosophy grounded in the idea that a stock is a piece of a business. If you look at it that way, there's no reason to get excited whether some analyst is recommending it or the company is splitting the shares two-for-one, or whatever. The only way to drive the extraneous thoughts out of your mind is to have a philosophy. And for us that philosophy comes from Benjamin Graham and The Intelligent Investor, especially chapters 8 and 20. It's not very complicated stuff."

"You have to have the right temperament. I tell the students who come visit me that if you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don't need extraordinary intelligence to succeed as an investor. You need a philosophy and the ability to think independently...It doesn't make any difference what other people think of a stock. What matters is whether you know enough to evaluate the business," he opined.

"You should be able to write down on a yellow sheet of paper, 'I'm buying General Motors at $22, and GM has [566] million shares for a total market value of $13 billion, and GM is worth a lot more than $13 billion because _______________." And if you can't finish that sentence, then you don't buy the stock. [Note: Buffett mentioned GM for illustrative purposes only.] All this requires some temperamental detachment from other people's behavior. Both Charlie and I have a natural instinct in that direction. We value our opinions more than others' -- perhaps to an extreme!"

Kiviat followed up by asking whether they mind being regarded as "a bastion of calm" by others. Buffett simply stated, "I think they're probably right," while Munger was more loquacious: "Not only are they right, but it's a huge advantage to us to get the reputation of being wiser and stronger than other places. Would any of you object to being considered wiser and stronger when you're trying to get anything in life? The key is not to be seduced by crazy ideas, but instead just stick to the fundamentals year after year. Academia doesn't get too interested in us -- we're too simple. What would the professors do? A great many of the formulas [they use to analyze securities and markets] are dead wrong. They exist purely to give the intellectual class something to do. We don't do anything just exercise our intellectual proclivity for mathematical formulas."

Then Buffet said one of the most remarkable things I've ever heard him say: "There's no reason we should become fearful if a stock goes down. If a stock goes down 50%, I'd look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month."

 Look at that sentence again. What Buffett is actually saying is that most people's emotions work backwards: They get greedy when stock prices go up and fearful when they go down. Instead, if you are a true investor, you should shop for stocks the same way you shop for anything else: Look for sale prices, and never regard falling prices as inherently bad news. Instead, falling prices create the opportunity to buy even more of something that was already worth owning.

In that single sentence Buffett captured the difference between investing and speculating: An investor, like Buffett, wants the price of a stock to fall below the value of its underlying business so he can buy even more and hold for as long as possible. A speculator (like Jim Cramer) only wants the price of a stock to go up, with no regard for the value of the underlying business at all, so he can sell as fast as possible. To the investor, the market's opinions do not matter. To the speculator, they are the only thing that matters.

Korea and China vs. U.S. regional banks

When a Korean journalist asked whether Berkshire would buy any other Korean companies in addition to its existing holding in steelmaker Posco, Buffett revealed that he had bought "a number of" Korean stocks for his personal portfolio "a few years ago," when "that stock market got about as cheap as any market I've seen in my lifetime."

But most Korean stocks are too small to have a significant impact on Berkshire's portfolio, so Buffett and Munger don't expect to put much money there. Nevertheless, "Korea represents sound value," said Munger, and Buffett added: "It's one of the better stock markets in the world."

Later, in answering a question about whether the credit crisis has turned regional bank stocks into good values, Buffett said: "It's hard to get much conviction on how [the management] will behave and whether they tell the truth. There's a lot of leeway [in the accounting procedures and the reported financial statements]. Talking to the CEOs isn't very useful. When they're lying, they believe it themselves a lot of the time. I want to see how people behave in different situations."

In short, Buffett is not bullish on regional banks. Munger, however, was more upbeat: "For somebody who's very diligent, you've identified a prospecting territory that has some promise. It wouldn't necessarily work for us [because BRK needs to buy very large blocks of stock], but it might work for others."

Buffett wasn't done criticizing the impervious financial statements of US banks: "If you had $1 million," he retorted to Munger, "it would be easier to go through a manual of Korean stocks than to select a few good American banks." This time Munger agreed: "I'd take the Korean stock market so much faster than the American banks that it'd make your head spin."

I don't think, by the way, that Buffett and Munger were trying to say that the Korean stock market is a steal. They were, instead, merely pointing out that investors need to think for themselves and to cast a wide net. If you run out today and buy a bunch of Korean stocks without researching them first, you're not following Buffett and Munger's advice, you're violating it.

A Chinese reporter asked whether Berkshire will be buying more stocks in China now that its market has fallen by almost half, and what the next year will hold for Chinese investors. Buffett's answer held a lesson for investors based anywhere. "We're not in the business of forecasting what the market will do in the next year," said Buffett. "But if a market goes down, we like that. There's no way Charlie and I get upset when stocks go down. We like it, because falling prices give us the opportunity to buy more good businesses at better prices."

"We don't predict stock prices," he went on to day. "All we know is, the lower they go, the more interesting they get. I think it was Agatha Christie, who was married to an archeologist, who said: 'I don't mind getting older, because the older I get, the more interested my husband becomes in me.' Well, the lower stock prices go, the more interested we get in them...We are not looking at any stocks in China now, but China will always be on our radar screen."

Valuing stocks

Asked how he evaluates financial stocks when so many have balance sheets complicated by derivatives, Buffett said: "There are some that I can't value. I probably couldn't value them even if I worked there, even if I were in charge, and even if I had a year to do it. It's just too complicated [with such large positions in complex derivatives]....Most of them, I'm agnostic. I guess that means I don't trust them. When you're buying stock in a financial institution, you should have a reason to be quite comfortable with the risk-assessment capabilities of the people in charge...to have a real fix on the people running the institution. We can't do that with a lot of [banks]. We just can't figure out what they're doing most of the time.... [the accounting doesn't] really spell out where the institution stands. So you'd better know more about the people running it than any set of figures can give you."

Buffett added that not long ago, he read the 270-page 10-K annual report of a bank he was curious about. "After a couple of hours," he said, "I had about 25 pages marked with big question marks that I couldn't answer." (This raises the obvious question: If Warren Buffett can't understand the financial statements of big banks with derivatives, who can?)

Munger summed up the complexity of derivatives this way: "Wall Street is always going to go where the money is and not worry about the consequences. First they invent things they shouldn't sell to anybody, then they end up selling them to their grandmothers."

Munger commented later, "Many of the present troubles were richly deserved. A lot of financial institutions behaved with a combination of stupidity and over-reaching, and that's not a good combination. I think the world is right to exact a large penalty. Capitalism wouldn't exist without failure."

Added Buffett: "Capitalism without failure is like Christianity without hell. These institutions not only brewed the Kool-Aid but drank it. [Some of the banks and mortgage companies] were like an arsonist who got caught in the house after he set it on fire."

Munger's final word on the subject: "In some of these institutions, the main product is not banking, it's testosterone." 

-----

(Fortune) -- In a presentation he made to students at the Wharton School earlier this month and a subsequent interview with Fortune, Warren Buffett shared his thoughts on everything from the economy to the credit crisis and the Bear Stearns bailout.

In this Web exclusive, we present further excerpts from his talk with the students, in which the megabillionaire offers his insights on judging managers, buying businesses, what metrics - if any - he relies upon, and why he views his job as similar to painting the Sistine Chapel.

Q: You said before that one of the things you look for in businesses you're buying is good managers who are honest, capable, and hard-working. To me, that's a hard judgment to make if you haven't known him for long on a personal level. How do you go about figuring that out about somebody, and how long does it take you to make that evaluation?

WB: Well, almost always, we're buying businesses where the managers come with it, so I do have a record [I can judge]. If I had to pick out the five people in this group here who would be the best managers, I wouldn't know how to do it. I mean, you all have great IQs, you have great academic records. You've all shown the energy to get into school and push hard and all that. So you'd have all these attractive qualities.

Can I pick out the five best? I don't think I can do it. What I can do, when I've seen somebody run a business for 20 years, is decide whether they're going to keep behaving in the future as they have in the past, if I keep the conditions that caused them to behave that way in the past. So when I buy a business - it's the biggest question I ask myself if I decide it's a good business - is "Do they love the money, or do they love the business?" Now, if they love the business, we can do business. If they love the money, we can't.

Now, let's say they love the business, as our managers do. They sell me a business for a billion dollars and can hardly wait to get to work in the morning.

In that situation, I'm the only guy that can mess it up. I can take that out of them. I can't put it into them. But I say to myself, "Why do I go to work in the morning?" I've got enough money. I've got Social Security now, even. [Laughter] I'll make it, you know? The kids won't get much, but that's their problem. So I say, "Why do I go to work in the morning?"

Well, there are two reasons. I love painting my own painting. I come down to the office, I get on my back, and I start painting. And I think I'm in the Sistine Chapel. It's my painting. Now, if somebody says, "Use more red paint instead of blue. Paint a seascape instead of a landscape," I would hand them the brush in five seconds and I'd say-I'd say a few other things, too - but I'd say, "Do your own painting. I'll go paint what I want to paint." I get to do my own painting. And then I get applause - if I deserve it. And I like that. I like having the painting admired, and I like to get to paint my own painting. That's so much more important to me than getting my golf score down three strokes or beating somebody at shuffleboard or something. I mean, it is the ultimate pleasure.

Now, if that turns me on, why won't it turn on these people who have built their own businesses? They have spent their life creating a wonderful painting. Now, for one reason or another, maybe tax reasons, maybe sibling reasons, who knows what, they need to sell it, they need to monetize it.

They come to me, and they know that at Berkshire they're going to keep the brush, they're going to keep doing the painting, and I have to look at them and decide whether they are people that really care about their painting or care about the money. [One giveaway is] if they auction the business. We've never bought a business at an auction. Never. Anybody that wants to auction off their family or auction off the creation of a lifetime, that's not what we want.

I tell people you've got two choices. You've spent a lifetime building this business. Or maybe your father built the business and you carried it on. Maybe your grandfather. You've given up vacations sometimes. You worked on weekends and all these things to create this really incredible painting that you're bringing to me. Now, if they want to auction it, they're not for me.

I tell them they have two choices. They can sell it to us, and it'll be in the Metropolitan Museum of Art. We'll have a wing for their painting. People will come and admire it, which they do. And they will say, "That's one hell of a painter." And you get to keep painting. Or you can take this marvelous painting and you can sell it to a porn shop. [Laughter] And he'll take the thing and he'll make the boobs a little bigger, something like that. And put it in the window. And a guy will come over in a raincoat a few years later, and he'll buy it, post it in his window, and it'll become a piece of meat, basically. We get the ones who care about having in it the Metropolitan Museum.

I got a fax almost three years ago on a Wednesday from a fellow I'd never met about a company I'd never heard of. This fellow named Peter Liegl ran Forest River over in Elkhart, Indiana. He sent me a couple pages, and said, "This is the sort of thing it looks like you're generally interested in."

I called him up that day. I said, "Pete, send me the last few audits. FedEx it, and I'll call you tomorrow afternoon." Never met him, never heard of the company. (It's a recreational vehicle company.) So I got in on Thursday morning, and I called him that afternoon. I said, "Pete, here's what I'll do. And if it works for you, fine." I'd never met the guy, but I could still tell by just the way he presented it and his thinking on it. And he said, "Fine. I'll come over next week with my wife and daughter, who own the stock."

And they came over late in the afternoon. I said to him, "Pete, what kind of salary would you like"; this is a company that did a billion seven last year. That's not the way they teach you to do it in business school, but I don't want anybody working for me that has a compensation system they're unhappy with. These people don't need me. They've got all the money they need. I'm going to [invest] hundreds and hundreds and hundreds of millions of dollars [in their businesses]. And he said, "I don't know." And I said, "Well, just tell me because I want you to be happy. You have to run this thing." "Well," he took a little while, "Well," he said, "I looked at the proxy statement, you make $100,000. I wouldn't want to make more than you do." So that became his salary.

Then I said, "You should get paid for exceeding the figures [on which I'm basing the decision to buy the company]. So," I said, "I want you to have a percentage interest in future earnings above this level," which we worked out. But he offered $100,000 and I offered the percentage above that. He has run the business magnificently since then. I've never been to Elkhart, Indiana. I've never seen this place. I hope it's there. [Laughter] Pete may have some 11-year-old kid in there that says, "What figure shall we send Warren?" [Laughter] The guy has done a remarkable job.

If I told Pete whether he should build a new plant, whether he should bring out a new model, whether he should change dealer firms, he'd tell me to take a hike. You know, why shouldn't he tell me to take a hike? He doesn't need the job. As long as that thing is a lot of fun for him, he's going to keep running it. And he'll run it for a long time.

[I get offered all] kinds of deals from LBO operators. I would just love to bet against the projections of every one that they give me. They hand me these books, which I don't even want to look at, but they hand me the books, and of course they always just project like that [points upward like a graph that only increases]. I would just love to make a career out of betting against the figures presented in those books, but I don't get a chance to do that. If you ever get a chance to short investment banker books, that would be a great activity.

Q: When you purchase a subsidiary, you've mentioned that you allow them to reinvest capital if they're able to go above a certain hurdle rate. So I was wondering how you decide what the cost of capital should be on a risk-adjusted basis.

WB: Well, we don't think about cost of capital or risk-adjusted. I mean, we don't want to take any risk, and we don't. That doesn't mean we don't do things that are wrong and all that, but we are not doing anything that risks real losses.

You know, GEICO spends 800 million on advertising. I may spend $200 million that's wrong this year at GEICO or something. But I recognize the things that I can't further refine. What we do with capital is we just look for the best thing we can do at any given time. I mean, in the end, we're going to retain everything.

We don't want to do anything that doesn't create more than a dollar's worth of value for every dollar expended. And we'll do the best we can. And as I said earlier [regarding stock holdings], we would have sold the thing to do something that offered even better opportunity. We won't do that with businesses at Berkshire. That's a pledge I make to people. If they sell me the business, it's going to stay in the Metropolitan Museum forever. I may make a mistake.

If it's going to permanently lose money, I reserve the right to sell it, and if it has labor problems, I reserve the right to sell it. That's in the back of the annual report every year. They've been there for 20-plus years, those principles. But we believe in them. We follow through on them. So we won't dump a business that way. But about 200 million a week comes in to me every week. I like it, too. [Laughter] And it's my job to figure out how to allocate that.

The smaller capital expenditures, or even fairly large ones at the subsidiaries, they just do them themselves. They don't need me, because if some guy comes in to me and talks about something in the yarn plant or something in Georgia, what the hell do I know about it? I mean, they can always present it in a way that makes it look good. If I say the internal rate of return we demand is 15.83, it'll be 15.84. I mean, you just can bet on it. I've never seen a project that doesn't meet your hurdle rate, you know, if they really want to do it. We don't go through those charades. And it saves my time, saves their time.

If we get into bigger deals, then I get involved. Buying businesses of any size and things of that sort. But we just look for the most intelligent thing. And our cutoff point is where we don't think we're creating more than a dollar of value for every dollar we lay out. Marketable securities, to some extent we just look for the things we think have the best expectancy, but we're not buying - there isn't one security that I've got in the portfolio that I look at as-in terms of risky - in the sense of permanent capital loss. They can go down 50%.

Berkshire Hathaway (BRKA, Fortune 500) stock itself has gone down 50% three times since I bought the first stock in at 7 3/8. In 1974 it got cut in half. In 1987 it got cut in half. In 1998, 2000 or so it got cut in half. So that doesn't make any difference. I mean, I just don't worry about it. I worry about permanent loss of capital. I worry about making the right businesses. I worry about keeping the managers happy. Everything else pretty much takes care of itself. 

http://money.cnn.com/2008/05/01/news/companies/Buffet_Q_A_at_Wharton.fortune/index.htm?postversion=2008050209

BFT:庞大的资金量,不要恐慌,在恐慌中大笔买进

巴菲特的投资不计较短线的得失,而这个短线可能是几天、几个月,甚至有可能是几年,如巴菲特对中国石油H股的投资。2000年4月,中国石油H股上市后不久,巴菲特就以1.10港元到1.20港元之间的价格买进11.09亿股中石油H股;随后又以1.61港元至1.67港元不等的价格增持8.58亿股中石油H股。在随后的3年里,中国石油H股的股价多次在1.30港元到2.20港元之间出现起伏,巴菲特的投资也处在赢利与亏损之间反复,但巴菲特一直持有到了2007年的三季度才开始全面抛售。这种在连续3年时间内都可以不赚钱甚至允许亏损的做法,是一般的投资者所做不到的,投资基金面临着赚钱的压力,更不可能做到。

　　巴菲特对高盛与通用电气的投资都是一种低风险的投资,这也是一般的投资者不可能做到的。因为巴菲特买进的都是优先股,其年收益率确保10%。而持有这种优先股,即便是两家公司破产了,巴菲特也有优先参与破产清算的资格。而一旦行情走好,巴菲特又可以在未来5年的任意时间内,以当前约定的低于目前市场价的价格买进这两家公司的普通股。如此一来,一旦5年内股市行情走好,巴菲特又可以稳赚一笔无风险收益。这样的投资机会,一般的投资者没有,在中国股市中更难有。

　　而且,巴菲特庞大的资金量可以支持其在股票下跌的情况下越跌越买,使股票下跌成为巴菲特买进廉价筹码的机会。而巴菲特的做多,并不等同于抄底,巴菲特自己也坦言:“我无法预计股市的短期波动,对于股票在1个月或1年内的涨跌,我也不敢妄言。”但作为一般的投资者,由于拥有的资金非常有限,要做到越跌越买是不可能办到的。因此,同样的投资,巴菲特肯定可以迎来股市的黎明,但一般的投资者很有可能就在股市黎明前的黑暗里倒下。

　　因此,投资者与其机械地学习巴菲特,还不如走在巴菲特的身后寻找机会。由于巴菲特信奉的是价值投资的原则,并且巴菲特拥有的资金量又很庞大,这就决定了巴菲特的买进与卖出都要把握一定的提前量。而且,从巴菲特投资的历史经验来看,巴菲特对于顶部和底部的判断要比市场早数月至半年。所以,投资者大可在巴菲特买卖完成之后再作出自己的投资决定。毕竟市场是充满了投机性的,涨要涨过头,跌也要跌过头。而这“涨过头”与“跌过头”之处,就是投资者走在巴菲特身后的机会所在。

巴菲特今年令人称奇的地方有两个方面。一是当大家都没钱的时候,巴菲特有那么多的钱。今年以来,巴菲特累计花了280亿美元进行投资（以前他一年一般会做进50亿到80亿美元的投资）。如果加上可口可乐和富国银行在近期大约200亿美元的投资（巴菲特为二者的大股东）的话,巴菲特累计动用了500亿美元的资金进行大规模的收购。所以,你会发现在全球流动性巨幅萎缩时,每个公司、每个家庭,甚至到每个个人,都显得流动性非常困难的时候,但巴菲特却有那么多钱,这是第一个比较惊奇的方面。第二个比较惊奇的方面是大家都非常恐慌的时候（现在有报道说欧洲的很多分析师晚上根本睡不着觉,因为每天都要面对第二天可能狂跌10%、20%的局面）,但巴菲特却在大笔买进、大笔投资,这给人感觉也非常奇怪。我觉得巴菲特在金融海啸中的惊艳表现,至少给我们三个启示:

　　其一,他给我们认识金融海啸一个很好的视角,告诉大家不要恐慌。从巴菲特过去五十年的投资情况来看,基本上都是胜利方。巴菲特在目前状况下大幅投资就是告诉大家金融海啸最终会过去的,海啸过后的世界经济、美国经济仍然将保持较好的增长势头。

第二个启示就是,无论什么时候都不应该满仓。巴菲特这几年的浮存金始终保持在400亿、500亿的规模,他做到了攻守平衡。但我们很多投资者一下就满仓了,但这个时候满仓,用巴菲特的话讲就是在裸泳,潮水一退下来你的风险就出来了。所以,巴菲特的整个投资过程告诉我们,一定要控制风险。只有控制了投资风险,才可以在市场出现系统性风险的时候,你还有资金去买进。

　　第三个启示是在恐慌中大笔买进。这已经是操作层面了,在大家非常恐慌的时候他却大笔买进。我们再看看现在中国的情况,中投公司在黑石上亏了50%-70%,平安在富通上亏了70%-80%。这样的情况之后,整个中国,上至中投公司,下到上市公司都吓傻了,都不敢动了;并且我们看到学界的观点基本上认为中国不要动,因为你不了解情况。但我们认为,如果这样,中国可能正在丧失一次非常好的进入欧美成熟金融市场、实施金融超越的一个机会。整个国际局势变化跟赛车一样,别人的赛车坏了,你这个时候不加码上去就失去了一次超越机会。

　　股神巴菲特在金融海啸中大举买入的行为,给了我们鲜明的启示:在市场恐慌中要敢于大笔买进。

Why Buffets buys WellsForgo at 28-30?

needs to study wellsforgo annual reports to find out why buffets recommend to put all his personal portforlio to buy wells forgo, what is the good site about wellsforgo? how to compare it with chinese banks?

http://quicktake.morningstar.com/StockNet/PrintReport.aspx?Country=USA&Symbol=WFC

Buy American. I Am.

Buy American. I Am.

By WARREN E. BUFFETT  from nytimes

Omaha

 

1974, NOV,1 fortune: now it's the time to invest and
1979, Aug,6 fortune:Those awaiting a 'better time' for equity investing are highly likely to maintain that posture until well into the next bull market

1999 NOV,22 fortune:expecting too much

he strictly look at price - he was buying -400 from up 400 he stops buying.

 

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

 

http://money.cnn.com/magazines/fortune/fortune_archive/2001/12/10/314691/

By Warren Buffett; Carol Loomis

December 10, 2001

(FORTUNE Magazine) – Two years ago, following a July 1999 speech by Warren Buffett, chairman of Berkshire Hathaway, on the stock market--a rare subject for him to discuss publicly--FORTUNE ran what he had to say under the title "Mr. Buffett on the Stock Market" (Nov. 22, 1999). His main points then concerned two consecutive and amazing periods that American investors had experienced, and his belief that returns from stocks were due to fall dramatically. Since the Dow Jones Industrial Average was 11194 when he gave his speech and recently was about 9900, no one yet has the goods to argue with him.

So where do we stand now--with the stock market seeming to reflect a dismal profit outlook, an unfamiliar war, and rattled consumer confidence? Who better to supply perspective on that question than Buffett?

The thoughts that follow come from a second Buffett speech, given last July at the site of the first talk, Allen & Co.'s annual Sun Valley bash for corporate executives. There, the renowned stockpicker returned to the themes he'd discussed before, bringing new data and insights to the subject. Working with FORTUNE's Carol Loomis, Buffett distilled that speech into this essay, a fitting opening for this year's Investor's Guide. Here again is Mr. Buffett on the Stock Market.

The last time I tackled this subject, in 1999, I broke down the previous 34 years into two 17-year periods, which in the sense of lean years and fat were astonishingly symmetrical. Here's the first period. As you can see, over 17 years the Dow gained exactly one-tenth of one percent.

--DOW JONES INDUSTRIAL AVERAGE Dec. 31, 1964: 874.12 Dec. 31, 1981: 875.00

And here's the second, marked by an incredible bull market that, as I laid out my thoughts, was about to end (though I didn't know that).

--DOW INDUSTRIALS Dec. 31, 1981: 875.00 Dec. 31, 1998: 9181.43

Now, you couldn't explain this remarkable divergence in markets by, say, differences in the growth of gross national product. In the first period--that dismal time for the market--GNP actually grew more than twice as fast as it did in the second period.

--GAIN IN GROSS NATIONAL PRODUCT 1964-1981: 373% 1981-1988: 177%

So what was the explanation? I concluded that the market's contrasting moves were caused by extraordinary changes in two critical economic variables--and by a related psychological force that eventually came into play.

Here I need to remind you about the definition of "investing," which though simple is often forgotten. Investing is laying out money today to receive more money tomorrow.

That gets to the first of the economic variables that affected stock prices in the two periods--interest rates. In economics, interest rates act as gravity behaves in the physical world. At all times, in all markets, in all parts of the world, the tiniest change in rates changes the value of every financial asset. You see that clearly with the fluctuating prices of bonds. But the rule applies as well to farmland, oil reserves, stocks, and every other financial asset. And the effects can be huge on values. If interest rates are, say, 13%, the present value of a dollar that you're going to receive in the future from an investment is not nearly as high as the present value of a dollar if rates are 4%.

So here's the record on interest rates at key dates in our 34-year span. They moved dramatically up--that was bad for investors--in the first half of that period and dramatically down--a boon for investors--in the second half.

--INTEREST RATES, LONG-TERM GOVERNMENT BONDS Dec. 31, 1964: 4.20% Dec. 31, 1981: 13.65% Dec. 31, 1998: 5.09%

The other critical variable here is how many dollars investors expected to get from the companies in which they invested. During the first period expectations fell significantly because corporate profits weren't looking good. By the early 1980s Fed Chairman Paul Volcker's economic sledgehammer had, in fact, driven corporate profitability to a level that people hadn't seen since the 1930s.

The upshot is that investors lost their confidence in the American economy: They were looking at a future they believed would be plagued by two negatives. First, they didn't see much good coming in the way of corporate profits. Second, the sky-high interest rates prevailing caused them to discount those meager profits further. These two factors, working together, caused stagnation in the stock market from 1964 to 1981, even though those years featured huge improvements in GNP. The business of the country grew while investors' valuation of that business shrank!

And then the reversal of those factors created a period during which much lower GNP gains were accompanied by a bonanza for the market. First, you got a major increase in the rate of profitability. Second, you got an enormous drop in interest rates, which made a dollar of future profit that much more valuable. Both phenomena were real and powerful fuels for a major bull market. And in time the psychological factor I mentioned was added to the equation: Speculative trading exploded, simply because of the market action that people had seen. Later, we'll look at the pathology of this dangerous and oft-recurring malady.

Two years ago I believed the favorable fundamental trends had largely run their course. For the market to go dramatically up from where it was then would have required long-term interest rates to drop much further (which is always possible) or for there to be a major improvement in corporate profitability (which seemed, at the time, considerably less possible). If you take a look at a 50-year chart of after-tax profits as a percent of gross domestic product, you find that the rate normally falls between 4%--that was its neighborhood in the bad year of 1981, for example--and 6.5%. For the rate to go above 6.5% is rare. In the very good profit years of 1999 and 2000, the rate was under 6% and this year it may well fall below 5%.

So there you have my explanation of those two wildly different 17-year periods. The question is, How much do those periods of the past for the market say about its future?

To suggest an answer, I'd like to look back over the 20th century. As you know, this was really the American century. We had the advent of autos, we had aircraft, we had radio, TV, and computers. It was an incredible period. Indeed, the per capita growth in U.S. output, measured in real dollars (that is, with no impact from inflation), was a breathtaking 702%.

The century included some very tough years, of course--like the Depression years of 1929 to 1933. But a decade-by-decade look at per capita GNP shows something remarkable: As a nation, we made relatively consistent progress throughout the century. So you might think that the economic value of the U.S.--at least as measured by its securities markets--would have grown at a reasonably consistent pace as well.

That's not what happened. We know from our earlier examination of the 1964-98 period that parallelism broke down completely in that era. But the whole century makes this point as well. At its beginning, for example, between 1900 and 1920, the country was chugging ahead, explosively expanding its use of electricity, autos, and the telephone. Yet the market barely moved, recording a 0.4% annual increase that was roughly analogous to the slim pickings between 1964 and 1981.

--DOW INDUSTRIALS Dec. 31, 1899: 66.08 Dec. 31, 1920: 71.95

In the next period, we had the market boom of the '20s, when the Dow jumped 430% to 381 in September 1929. Then we go 19 years--19 years--and there is the Dow at 177, half the level where it began. That's true even though the 1940s displayed by far the largest gain in per capita GDP (50%) of any 20th-century decade. Following that came a 17-year period when stocks finally took off--making a great five-to-one gain. And then the two periods discussed at the start: stagnation until 1981, and the roaring boom that wrapped up this amazing century.

To break things down another way, we had three huge, secular bull markets that covered about 44 years, during which the Dow gained more than 11,000 points. And we had three periods of stagnation, covering some 56 years. During those 56 years the country made major economic progress and yet the Dow actually lost 292 points.

How could this have happened? In a flourishing country in which people are focused on making money, how could you have had three extended and anguishing periods of stagnation that in aggregate--leaving aside dividends--would have lost you money? The answer lies in the mistake that investors repeatedly make--that psychological force I mentioned above: People are habitually guided by the rear-view mirror and, for the most part, by the vistas immediately behind them.

The first part of the century offers a vivid illustration of that myopia. In the century's first 20 years, stocks normally yielded more than high-grade bonds. That relationship now seems quaint, but it was then almost axiomatic. Stocks were known to be riskier, so why buy them unless you were paid a premium?

And then came along a 1924 book--slim and initially unheralded, but destined to move markets as never before--written by a man named Edgar Lawrence Smith. The book, called Common Stocks as Long Term Investments, chronicled a study Smith had done of security price movements in the 56 years ended in 1922. Smith had started off his study with a hypothesis: Stocks would do better in times of inflation, and bonds would do better in times of deflation. It was a perfectly reasonable hypothesis.

But consider the first words in the book: "These studies are the record of a failure--the failure of facts to sustain a preconceived theory." Smith went on: "The facts assembled, however, seemed worthy of further examination. If they would not prove what we had hoped to have them prove, it seemed desirable to turn them loose and to follow them to whatever end they might lead."

Now, there was a smart man, who did just about the hardest thing in the world to do. Charles Darwin used to say that whenever he ran into something that contradicted a conclusion he cherished, he was obliged to write the new finding down within 30 minutes. Otherwise his mind would work to reject the discordant information, much as the body rejects transplants. Man's natural inclination is to cling to his beliefs, particularly if they are reinforced by recent experience--a flaw in our makeup that bears on what happens during secular bull markets and extended periods of stagnation.

To report what Edgar Lawrence Smith discovered, I will quote a legendary thinker--John Maynard Keynes, who in 1925 reviewed the book, thereby putting it on the map. In his review, Keynes described "perhaps Mr. Smith's most important point ... and certainly his most novel point. Well-managed industrial companies do not, as a rule, distribute to the shareholders the whole of their earned profits. In good years, if not in all years, they retain a part of their profits and put them back in the business. Thus there is an element of compound interest (Keynes' italics) operating in favor of a sound industrial investment."

It was that simple. It wasn't even news. People certainly knew that companies were not paying out 100% of their earnings. But investors hadn't thought through the implications of the point. Here, though, was this guy Smith saying, "Why do stocks typically outperform bonds? A major reason is that businesses retain earnings, with these going on to generate still more earnings--and dividends, too."

That finding ignited an unprecedented bull market. Galvanized by Smith's insight, investors piled into stocks, anticipating a double dip: their higher initial yield over bonds, and growth to boot. For the American public, this new understanding was like the discovery of fire.

But before long that same public was burned. Stocks were driven to prices that first pushed down their yield to that on bonds and ultimately drove their yield far lower. What happened then should strike readers as eerily familiar: The mere fact that share prices were rising so quickly became the main impetus for people to rush into stocks. What the few bought for the right reason in 1925, the many bought for the wrong reason in 1929.

Astutely, Keynes anticipated a perversity of this kind in his 1925 review. He wrote: "It is dangerous...to apply to the future inductive arguments based on past experience, unless one can distinguish the broad reasons why past experience was what it was." If you can't do that, he said, you may fall into the trap of expecting results in the future that will materialize only if conditions are exactly the same as they were in the past. The special conditions he had in mind, of course, stemmed from the fact that Smith's study covered a half century during which stocks generally yielded more than high-grade bonds.

The colossal miscalculation that investors made in the 1920s has recurred in one form or another several times since. The public's monumental hangover from its stock binge of the 1920s lasted, as we have seen, through 1948. The country was then intrinsically far more valuable than it had been 20 years before; dividend yields were more than double the yield on bonds; and yet stock prices were at less than half their 1929 peak. The conditions that had produced Smith's wondrous results had reappeared--in spades. But rather than seeing what was in plain sight in the late 1940s, investors were transfixed by the frightening market of the early 1930s and were avoiding re-exposure to pain.

Don't think for a moment that small investors are the only ones guilty of too much attention to the rear-view mirror. Let's look at the behavior of professionally managed pension funds in recent decades. In 1971--this was Nifty Fifty time--pension managers, feeling great about the market, put more than 90% of their net cash flow into stocks, a record commitment at the time. And then, in a couple of years, the roof fell in and stocks got way cheaper. So what did the pension fund managers do? They quit buying because stocks got cheaper!

--PRIVATE PENSION FUNDS % of cash flow put into equities 1971: 91% (record high) 1974: 13%

This is the one thing I can never understand. To refer to a personal taste of mine, I'm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the "Hallelujah Chorus" in the Buffett household. When hamburgers go up, we weep. For most people, it's the same way with everything in life they will be buying--except stocks. When stocks go down and you can get more for your money, people don't like them anymore.

That sort of behavior is especially puzzling when engaged in by pension fund managers, who by all rights should have the longest time horizon of any investors. These managers are not going to need the money in their funds tomorrow, not next year, nor even next decade. So they have total freedom to sit back and relax. Since they are not operating with their own funds, moreover, raw greed should not distort their decisions. They should simply think about what makes the most sense. Yet they behave just like rank amateurs (getting paid, though, as if they had special expertise).

In 1979, when I felt stocks were a screaming buy, I wrote in an article, "Pension fund managers continue to make investment decisions with their eyes firmly fixed on the rear-view mirror. This generals-fighting-the-last-war approach has proved costly in the past and will likely prove equally costly this time around." That's true, I said, because "stocks now sell at levels that should produce long-term returns far superior to bonds."

Consider the circumstances in 1972, when pension fund managers were still loading up on stocks: The Dow ended the year at 1020, had an average book value of 625, and earned 11% on book. Six years later, the Dow was 20% cheaper, its book value had gained nearly 40%, and it had earned 13% on book. Or as I wrote then, "Stocks were demonstrably cheaper in 1978 when pension fund managers wouldn't buy them than they were in 1972, when they bought them at record rates."

At the time of the article, long-term corporate bonds were yielding about 9.5%. So I asked this seemingly obvious question: "Can better results be obtained, over 20 years, from a group of 9.5% bonds of leading American companies maturing in 1999 than from a group of Dow-type equities purchased, in aggregate, around book value and likely to earn, in aggregate, about 13% on that book value?" The question answered itself.

Now, if you had read that article in 1979, you would have suffered--oh, how you would have suffered!--for about three years. I was no good then at forecasting the near-term movements of stock prices, and I'm no good now. I never have the faintest idea what the stock market is going to do in the next six months, or the next year, or the next two.

But I think it is very easy to see what is likely to happen over the long term. Ben Graham told us why: "Though the stock market functions as a voting machine in the short run, it acts as a weighing machine in the long run." Fear and greed play important roles when votes are being cast, but they don't register on the scale.

By my thinking, it was not hard to say that, over a 20-year period, a 9.5% bond wasn't going to do as well as this disguised bond called the Dow that you could buy below par--that's book value--and that was earning 13% on par.

Let me explain what I mean by that term I slipped in there, "disguised bond." A bond, as most of you know, comes with a certain maturity and with a string of little coupons. A 6% bond, for example, pays a 3% coupon every six months.

A stock, in contrast, is a financial instrument that has a claim on future distributions made by a given business, whether they are paid out as dividends or to repurchase stock or to settle up after sale or liquidation. These payments are in effect "coupons." The set of owners getting them will change as shareholders come and go. But the financial outcome for the business' owners as a whole will be determined by the size and timing of these coupons. Estimating those particulars is what investment analysis is all about.

Now, gauging the size of those "coupons" gets very difficult for individual stocks. It's easier, though, for groups of stocks. Back in 1978, as I mentioned, we had the Dow earning 13% on its average book value of $850. The 13% could only be a benchmark, not a guarantee. Still, if you'd been willing then to invest for a period of time in stocks, you were in effect buying a bond--at prices that in 1979 seldom inched above par--with a principal value of $891 and a quite possible 13% coupon on the principal.

How could that not be better than a 9.5% bond? From that starting point, stocks had to outperform bonds over the long term. That, incidentally, has been true during most of my business lifetime. But as Keynes would remind us, the superiority of stocks isn't inevitable. They own the advantage only when certain conditions prevail.

Let me show you another point about the herd mentality among pension funds--a point perhaps accentuated by a little self-interest on the part of those who oversee the funds. In the table below are four well-known companies--typical of many others I could have selected--and the expected returns on their pension fund assets that they used in calculating what charge (or credit) they should make annually for pensions.

Now, the higher the expectation rate that a company uses for pensions, the higher its reported earnings will be. That's just the way that pension accounting works--and I hope, for the sake of relative brevity, that you'll just take my word for it.

As the table shows, expectations in 1975 were modest: 7% for Exxon, 6% for GE and GM, and under 5% for IBM. The oddity of these assumptions is that investors could then buy long-term government noncallable bonds that paid 8%. In other words, these companies could have loaded up their entire portfolio with 8% no-risk bonds, but they nevertheless used lower assumptions. By 1982, as you can see, they had moved up their assumptions a little bit, most to around 7%. But now you could buy long-term governments at 10.4%. You could in fact have locked in that yield for decades by buying so-called strips that guaranteed you a 10.4% reinvestment rate. In effect, your idiot nephew could have managed the fund and achieved returns far higher than the investment assumptions corporations were using.

Why in the world would a company be assuming 7.5% when it could get nearly 10.5% on government bonds? The answer is that rear-view mirror again: Investors who'd been through the collapse of the Nifty Fifty in the early 1970s were still feeling the pain of the period and were out of date in their thinking about returns. They couldn't make the necessary mental adjustment.

Now fast-forward to 2000, when we had long-term governments at 5.4%. And what were the four companies saying in their 2000 annual reports about expectations for their pension funds? They were using assumptions of 9.5% and even 10%.

I'm a sporting type, and I would love to make a large bet with the chief financial officer of any one of those four companies, or with their actuaries or auditors, that over the next 15 years they will not average the rates they've postulated. Just look at the math, for one thing. A fund's portfolio is very likely to be one-third bonds, on which--assuming a conservative mix of issues with an appropriate range of maturities--the fund cannot today expect to earn much more than 5%. It's simple to see then that the fund will need to average more than 11% on the two-thirds that's in stocks to earn about 9.5% overall. That's a pretty heroic assumption, particularly given the substantial investment expenses that a typical fund incurs.

Heroic assumptions do wonders, however, for the bottom line. By embracing those expectation rates shown in the far right column, these companies report much higher earnings--much higher--than if they were using lower rates. And that's certainly not lost on the people who set the rates. The actuaries who have roles in this game know nothing special about future investment returns. What they do know, however, is that their clients desire rates that are high. And a happy client is a continuing client.

Are we talking big numbers here? Let's take a look at General Electric, the country's most valuable and most admired company. I'm a huge admirer myself. GE has run its pension fund extraordinarily well for decades, and its assumptions about returns are typical of the crowd. I use the company as an example simply because of its prominence.

If we may retreat to 1982 again, GE recorded a pension charge of $570 million. That amount cost the company 20% of its pretax earnings. Last year GE recorded a $1.74 billion pension credit. That was 9% of the company's pretax earnings. And it was 2 1/2 times the appliance division's profit of $684 million. A $1.74 billion credit is simply a lot of money. Reduce that pension assumption enough and you wipe out most of the credit.

GE's pension credit, and that of many another corporation, owes its existence to a rule of the Financial Accounting Standards Board that went into effect in 1987. From that point on, companies equipped with the right assumptions and getting the fund performance they needed could start crediting pension income to their income statements. Last year, according to Goldman Sachs, 35 companies in the S&P 500 got more than 10% of their earnings from pension credits, even as, in many cases, the value of their pension investments shrank.

Unfortunately, the subject of pension assumptions, critically important though it is, almost never comes up in corporate board meetings. (I myself have been on 19 boards, and I've never heard a serious discussion of this subject.) And now, of course, the need for discussion is paramount because these assumptions that are being made, with all eyes looking backward at the glories of the 1990s, are so extreme. I invite you to ask the CFO of a company having a large defined-benefit pension fund what adjustment would need to be made to the company's earnings if its pension assumption was lowered to 6.5%. And then, if you want to be mean, ask what the company's assumptions were back in 1975 when both stocks and bonds had far higher prospective returns than they do now.

With 2001 annual reports soon to arrive, it will be interesting to see whether companies have reduced their assumptions about future pension returns. Considering how poor returns have been recently and the reprises that probably lie ahead, I think that anyone choosing not to lower assumptions--CEOs, auditors, and actuaries all--is risking litigation for misleading investors. And directors who don't question the optimism thus displayed simply won't be doing their job.

The tour we've taken through the last century proves that market irrationality of an extreme kind periodically erupts--and compellingly suggests that investors wanting to do well had better learn how to deal with the next outbreak. What's needed is an antidote, and in my opinion that's quantification. If you quantify, you won't necessarily rise to brilliance, but neither will you sink into craziness.

On a macro basis, quantification doesn't have to be complicated at all. Below is a chart, starting almost 80 years ago and really quite fundamental in what it says. The chart shows the market value of all publicly traded securities as a percentage of the country's business--that is, as a percentage of GNP. The ratio has certain limitations in telling you what you need to know. Still, it is probably the best single measure of where valuations stand at any given moment. And as you can see, nearly two years ago the ratio rose to an unprecedented level. That should have been a very strong warning signal.

For investors to gain wealth at a rate that exceeds the growth of U.S. business, the percentage relationship line on the chart must keep going up and up. If GNP is going to grow 5% a year and you want market values to go up 10%, then you need to have the line go straight off the top of the chart. That won't happen.

For me, the message of that chart is this: If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200%--as it did in 1999 and a part of 2000--you are playing with fire. As you can see, the ratio was recently 133%.

Even so, that is a good-sized drop from when I was talking about the market in 1999. I ventured then that the American public should expect equity returns over the next decade or two (with dividends included and 2% inflation assumed) of perhaps 7%. That was a gross figure, not counting frictional costs, such as commissions and fees. Net, I thought returns might be 6%.

Today stock market "hamburgers," so to speak, are cheaper. The country's economy has grown and stocks are lower, which means that investors are getting more for their money. I would expect now to see long-term returns run somewhat higher, in the neighborhood of 7% after costs. Not bad at all--that is, unless you're still deriving your expectations from the 1990s.

Buffet's comment on bailout and US economy

Warren Buffett: I Haven't Seen As Much Economic Fear In My Adult Lifetime - Charlie Rose Interview

http://www.cnbc.com/id/26982338/print/1/displaymode/1098/

Warren Buffett says, "In my adult lifetime I don't think I've ever seen people as fearful, economically, as they are now... The economy is going to be getting worse for a while.". Buffet tells Rose that the freezing of credit markets is "sucking blood" from the U.S. economy, which he compares to a heart attack victim "flat on the floor."

Earlier today, Buffett criticized Congress for not acting sooner on a financial rescue plan: 

"You've had an economy that's like a great athlete that's had a heart attack, cardiac arrest, and the paramedics that have come, (and are) arguing (about) who was at fault, the athlete should have been checking his blood pressure more carefully.  The important thing is to apply the resuscitator.  It doesn't help spending time worrying about who is to blame for the patient having the heart attack."

Buffett told us he still thinks Congress will "do the right thing" but will "feel better after the votes have been counted."  He warned that there will be "terrible, terrible" problems if Congress doesn't take action, sooner rather than later.

Here is a complete transcript of tonight's Warren Buffett interview with Charlie Rose, airing on PBS.  It was provided to CNBC by the program.

Charlie Rose: 
We are in San Diego, California this afternoon for a conversation with Warren Buffett.  He is a man congressional leaders, the administration, and the Federal Reserve want to talk and talk to.  He is the legendary chairman and CEO of Berkshire Hathaway.  Its success has made him the world's richest man.  He's admired for his investment results over a long period of time.  He is trusted for his common sense and the fact that he's warned over the years, in his annual letter to stockholders, about some of the things that are contributing to the crisis facing America and the global economy.  For all those reasons, we have come to see him in San Diego where he is attending the Fortune Magazine's most powerful women's summit.  Later, he will be interviewed at a conference by the Fortune reporter and long time friend, Carol Loomis.  We come this evening from the studios of our public television affiliate in San Diego, KPBS.  I thank my friend, Warren Buffet, for taking time in a busy schedule to talk to us.

Warren Buffett: 
My pleasure, Charlie.

Charlie Rose: 
Let me talk of the news of today.  You have announced an investment of $3 billion in General Electric, along the same terms as the the Goldman Sachs --

Warren Buffett: 
Yeah, almost identical.

Charlie Rose: 
Why GE?

Warren Buffett: 
Well, I got a call this morning from a friend of mine at Goldman Sachs saying they might be interested in such an investment.  I'm familiar with the company.  I've known the management, the current management, Jack Welch before Jeff Immelt.  I've known him for decades.  And so I understand their businesses.  We do lot of business with him, and GE has been -- I think it's the longest running stock in the Dow Jones industrial average.  It will be 100 years now it will be around.  I hope I'm around then, too.  And it was an attractive investment.  And we have had a lot of money around, over the last two years, and we're seeing things that are attractive now.

Charlie Rose: 
Are you looking at other things?

Warren Buffett: 
I look at everything, Charlie.  That's my job.  I really do.  I mean every day, I think about everything, yeah.

Charlie Rose: 
I know, but cash is said to be king now.  Are you sitting on a lot of cash so that this is the time for Berkshire Hathaway and Warren Buffet to look carefully at a lot of opportunities.

Warren Buffett: 
Yeah, we want to use cash.  The reason we haven't used our cash two years ago, we just didn't find things that were that attractive.  But when people talk about cash being king, it's not king if it just sits there and never does anything.  There are times when cash buys more than other times, and this is one of the other times when it buys a fair amount more, so we use it.

Charlie Rose: 
There is a time to accumulate and a time to spend.

Warren Buffett: 
Absolutely.  You want to be greedy when others are fearful.  You want to be fearful when others are greedy.  It's that simple.

Charlie Rose: 
What are they now?

Warren Buffett: 
They're pretty fearful.  In fact, in my adult lifetime, I don't think I've ever seen people as fearful economically as they are right now.

Charlie Rose: 
Why is that, do you think?

Warren Buffett: 
Well, it's because they -- they have seen the credit market seize up.  They're worried about money market funds, although the latest proposition from government should take care of that.  They've seen eight percent of the bank deposits in the United States get moved very skillfully, I might say, within the last couple of weeks from institutions that they thought were fine a few months ago to other institutions. They are not wrong to be worried.

Charlie Rose: 
Is it being felt as people often point out on Main Street?

Warren Buffett: 
Well, I've read about all the sales today.  If you're an auto dealer, you're feeling it.  If you're a furniture retailer like we are, you're feeling it.  If you're a jewelry retailer, you're feeling it.  I know some of these businesses because we're in them.  Yeah, it's being felt, but it will be felt big time more if we don't do something about it, what's going on.

Charlie Rose: 
The Senate will vote sometime this evening.

Warren Buffett: 
Right.

Charlie Rose: 
Are you satisfied with that rescue plan?

Warren Buffett:
Well, I don't think it's perfect, but I don't know that I could draw one that's perfect.  But I'd rather by approximately right than precisely wrong, and it would be precisely wrong to turn it down.  We need -- we have a terrific economy -- it's like a great athlete that's had a cardiac arrest.  It's flat on the floor, and the paramedics have arrived.  And they shouldn't argue about whether they put the resuscitation equipment a quarter of an inch this way or a quarter of an inch this way, or they shouldn't start criticizing the patient, because he didn't have a blood pressure test or something like that.  They should do what's needed right now.  And I think they will.  I think the Congress will do the right thing.  I think that they've -- you know, they got into certain arguments and they start worrying about assessing blame, and there is a little demagoguery, but in the end, something this important, they'll do the right thing.  So this really is an economic Pearl Harbor.  That sounds melodramatic, but I've never used that phrase before.  And this really is one.

Charlie Rose:
Go through why that is true beyond the fact that there is a freeze on credit, beyond the fact that nobody is making loans, beyond the fact that banks don't lend to backs beyond the fact that treasury bills are at a low.

Warren Buffett: 
Yeah.  When 40 billion of treasury bills are sold like they were last week, seven day treasury bills, at a yield of 1/20th of one percent, that means the whole country is basically at the point virtually, or a lot of the country is at the point of putting the money under the mattress.  One twentieth of one percent away from where it's betting to put it under the mattress.  You don't want 300 million Americans putting their money under the mattress.  This economy doesn't work well without the lubrication of credit and trust.  And that's been lost.  It's a huge problem.  What you have is you have the major institutions of the world all wanting to deleverage.  They want to take down their assets and liabilities.  What seemed so easy to borrow against a year ago now looks like rat poison to them.  So they're trying to deleverage.  There is only one institution in the world that can leverage up in a way that's all a countervailing force to that, and that's the United States Treasury.

Charlie Rose: 
Are you approving of what has been taking place along the stages that got us to where we are now, whether it's Bear Stearns or Lehman Brothers or AIG, Freddie Mac and Fannie, or what you've done with Goldman Sachs and the rest?

Warren Buffett: 
Yeah, I think basically the right things have been done.  But no one saw the tsunami coming fully.  And so when Bear Stearns came along, it looked like if you stopped the flood at that point, you didn't have to worry about being downstream from it.  And I think the Fed did the right thing there.  And I really thought that would probably halt runs on other major institutions, but it didn't.  We have seen wave after wave.  And admittedly, there's been somewhat of an ad hoc response.  I'd rather have an ad hoc response than no response at all.  And I don't think -- I don't think the treasury could remotely have gone to Congress three or four months ago and laid out that scenario of what's happened and been credible and gotten the necessary tools.  I think it took a crisis like this --

Charlie Rose:
And asking for the power he is asking for and the level that he was asking for.

Warren Buffett:
No, they wouldn't have gotten it.  So I think it's been, you know, kind of like a tragic play to this point.  But at this point, I think it's clear, and will be clear to the majority of the Congress.  I think it's clear to the American people that there is only one countervailing force to a world where financial institutions are trying to sell instruments every day and where credit has dried up, and that's the United States Treasury.

Charlie Rose:
But at the same time, there has been, and Congressmen and women will tell you this, a resistance across the country because they think, as you well know, it's a bailout of Wall Street and that they are sitting there in their own economic life, and nobody's coming along to say, We're here to help you.  We're from the government.

Warren Buffett:
Well, the patient that's on the floor with the cardiac arrest is not Wall Street.  It's the American economy.  I mean, that's --

Charlie Rose:
Do you think they understand that yet?  Because that's --
[talking simultaneously]

Charlie Rose:
-- communication.

Warren Buffett:
Yeah.  I think they probably don't.  And I think any time you couple the term "Wall Street" with "bailout" or something like that, you know -- I don't like what's going on in Wall Street.  I don't like what's going on with the executive compensation.  You know, but I don't want to give a lecture to this body that's out there.  You know, I mean, having had the heart attack, I want to get it back functioning.  And as a practical matter, I mean if you were Bear Stearns, and you were a shareholder, you know, you lost 90 to 95 percent of your money.  A good many lost their jobs.  They lost very cushy lives, many of them.

Charlie Rose:
Right.

Warren Buffett:
If you were at Lehman, the same thing happened.  If you were at AIG, the shareholders are getting creamed on these things.  And those shareholders are not just a bunch of big shots in Wall Street.  Those are pension funds, and those are investors all over the country.  I wouldn't worry too much about that.  Justice won't be perfect on it.  I mean, you may be very mad at some guy that walked away with a huge golden parachute, but that really isn't the important thing.  I mean, if Pearl Harbor came along, you could have said the planning was wrong by the military ahead of time or maybe the battleships shouldn't have all been in the harbor and all that kind of thing.

Charlie Rose:
Right.

Warren Buffett:
It doesn't make any difference.

Charlie Rose:
It's Pearl Harbor.  [unintelligible]

Warren Buffett:
I mean, the job is Pearl Harbor.  And you better not spends weeks and weeks and weeks trying to assign blame or deciding on a complete plan for fighting the whole war, you know, and letting a committee decide where the battleships should go and all of that.  You better spring into action with the best people you have.

Charlie Rose:
You have never seen anything like this in your life.

Warren Buffett:
No, I haven't.

Charlie Rose:
There are those who argue that we are headed for a recession, you know?  And they look at depression as the great fear.

Warren Buffett:
Sure.

Charlie Rose:
Is that a possibility if this plan doesn't work?

Warren Buffett:
Yeah, it's a possibility, yeah.  We have about 6.1 percent unemployment now.  I mean, we've been in a recession, by any common sense definition, because if you look at the American public, they've got 20 billion -- 20 trillion, I should say, worth of residential homes.  They've got 20 trillion worth of stocks, very roughly.  Those are the two big assets of American families.  They are both down dramatically for different families.  But 95 percent of the people at least are worse off in terms of their residential wealth plus stock wealth from a year ago or two years ago.  That is bleeding into the real economy.  I mean, that's bleeding into auto sales and jewelry sales and furniture sales and all that.  But that wave is just starting to hit.  And if the paralysis we have in the credit markets, if every company continues to feel all we want to do is get our balance sheet down, sell assets, you know, it's just the start of what can happen.  Unemployment's going to go up under any circumstances.  I mean, it's the 6.1 is going to go higher.  But whether it goes and quits at 7 or whether it quits as 10 or 11 or 12 depends on, among other things, the wisdom of Congress, and then the wisdom of, in terms of carrying out the plan that Congress authorizes.

Charlie Rose:
Would you say that this plan which you have argued very strongly the Senate ought to pass and the House ought to pass is simply the plan that we have, and I don't have a better idea.  But it's essential for the confidence of the nation and the system?

Warren Buffett:
Yeah.  I just worry about whether it's enough.  But I think it is --

Charlie Rose:
Enough what?

Warren Buffett:
Every day that goes by, I mean, if you don't react to Pearl Harbor for a week or two weeks or three weeks, you're behind in the war that you otherwise would have fought.  But it's very important that the determination of the US Congress to do what is is needed be made evident this week and by the actions of most of the members.  I mean, you're not going to get total assent.

Charlie Rose:
What makes you confident that this plan will work?  I mean --

Warren Buffett:
Well, I think you've got -- I don't think you can have a better secretary of the Treasury than Hank Paulson, you know.  I mean, he is in there at the wrong time, probably shouldn’t have taken the job.  He’s a friend of mine.  But he knows markets, he knows corporations’ work, he knows money, and he’s got the interests of the country at heart.  And so, you’ve got the right -- you’ve got a wonderful person with Sheila Bair, most of the viewers have never heard of Sheila Bair. Sheila Bair, in the last two weeks, has taken eight percent of the deposits in the United States and seamlessly moved those over to sound institutions which in turn have gotten more capital, ended up, it’s been a magnificent job.  Eight percent of the deposits in the United States, 10s of millions of depositors.  And nobody’s ever heard of her.  She’ll never get a golden parachute or any severance pay or anything.  She’s done a great job.  We’ve got some great public servants.  We have I think the right people in there to get the job done, and then they need more tools.

Charlie Rose:

And those more tools might be in addition to what’s in this plan?

Warren Buffett:

Well, they need plenty of money and they really need plenty of flexibility to carry out this plan.  They also need in my view to very much tie it to market prices.  I have said, Charlie, that the 700 billion, if they buy mortgage-related securities or mortgages themselves at current market prices, they’re going to make money over time because the United States government has staying power and it has a low cost of borrowing.  And if I could take one percent of that 700 billion pot and take the gain or loss from it and be their partner, and they would buy the stuff at market, I'd make a lot of money.  It’s -- I mean you have hedge funds and people like that buying these assets to yield 15 or 20 percent, I mean, that’s the buyer for these people that are trying to unload them.  The U.S. Treasury has got borrowing costs like nobody else has.  They can borrow basically unlimited amounts.  They can stay there for years and years.  These assets will be worth more money over time.  So when Merrill Lynch sells a bunch of mortgage-related assets at 22 cents on the dollar like they did a month or so ago, the buyer goes -- is going to make money, and he’s going to make a lot more money if it happens to be an institution like the U.S. government which has very, very cheap borrowing costs.

Charlie Rose:

So you are saying to those taxpayers who are worried about what’s going to happen to the $700 billion, chances are good that when these securities are purchased and sold, you’ll get a lot of your money back.

Warren Buffett:

I think [inaudible].

Charlie Rose:

Or all of your money back, and maybe something else [spelled phonetically].

Warren Buffett:

I would bet on it.  I mean, if I got a chance to take one percent of the deal either way, I would make that bet.  When Berkshire Hathaway laid out three billion dollars for GE today, we didn’t spend it, we invested it.  When the Federal government buys the mortgages, they’re not spending it, they’re investing it.  Now, they’re investing it in distress type assets but they’re buying them at distress prices if they buy them at market.  It’s the kind of stuff I love to do.  I just don’t have 700 million.  Maybe we could go in it together.

[laughter]

You know, with your money and my brains, I mean, there’s no telling how far we’d go.

Charlie Rose:

Whatever, I’ll take the deal, whatever you want to do.  There is this, though, I mean, in terms of alternatives, some people have suggested for example that why don’t we -- why isn’t America doing what Berkshire Hathaway is doing?  Why isn’t that a better deal for America?

Warren Buffett:

I don’t think it would be crazy to have a model or an entity model on the Reconstruction Finance Corp.  That goes back to 1932, although it was really implemented in ’33 under Jesse Jones, and it invested in mostly banks initially and preferred stock and that sort of thing.  So there are two things needed in the system, the one that’s needed overwhelmingly is liquidity.  I mean, when people are trying to [unintelligible], there has to be somebody there to buy.  And they don’t have to buy at a fancy prices, but to buy.  And then there’s also a capital problem with some of the institutions.  We have provided capital here with a couple of institutions recently.  The Federal government did that in the ‘30s for the RFC and I think there could well be a proper role for government in that.

Charlie Rose:

Would that have been a better idea today?

Warren Buffett:

It wouldn’t have been big enough today.  And it wouldn’t have been -- you couldn’t have -- if you’d set up at RFC today and you gave them $100 billion invested in the [spelled phonetically] capital, there’d be a very cumbersome type of application process and everything, these assets are getting shoved out day by day, and loans are coming to a commercial papers not being renewed.  I mean, the commercial paper market, when that dries up, you know, that’s just like sucking the blood out of the economic body of the United States.  And that’s happening.  So I would say that an RFC-like thing might make sense.  I probably would do it myself.  But I don’t think trying to combine that with what’s going through now, I think what is needed now is liquidity.

Charlie Rose:

All right.  There are those who -- you just said you would do it yourself -- there are those who believe and it has been suggested, you know, that this is the time for Warren Buffett to answer the call of his government in a country that’s been very good to him. I mean what are you prepared to do yourself beyond run Berkshire Hathaway well is this.

Warren Buffett: 
That's my job.  But any time I can be of help to the government in terms of giving advice -- I've given a little advice, actually.  [talking simultaneously] anyway, no.  I obviously am willing to do that.  I'm here tonight talking about this for that reason.  It isn't going to do anything for Berkshire Hathaway.  Well, that isn't really true.  I mean anything that enables this economy to run in the manner that it should -- I mean we've got the same clients out there we had two years ago.  We have the houses, we've got people -- more productive than they've ever been in the history of this country.  We've got a wonderful economic formula in this country, but right now, it is being -- it's been brought to a halt by some events --

Charlie Rose: 
By?

Warren Buffett: 
Well, it's the deleveraging that's going on right now that has caused the credit crisis.

Charlie Rose: 
I mentioned earlier in this introduction do you, if you read your letters to your stockholders which you write, and Carol Loomis edits every year, and you think of your sister as the person [talking simultaneously]

Warren Buffett: 
Two sisters, yeah.

Charlie Rose: 
You have talked about derivatives.  Derivatives are, in part, at the core of this problem, yes?

Warren Buffett: 
AIG would be doing fine today.  It was one of the ten largest companies in the United States in terms of market value, over 200 billion, the most respected insurer and everything in the world.  If they never heard of the word derivatives, they'd be doing fine.  They'd be going to work in the morning and they would have no troubles.  But they -- they -- it was very easy to do, because it's very tempting to write numbers on little pieces of paper and you can report the profit you want to, and there is no limit on it.  I mean there is no capital requirements to it or anything of the sort.  And basically, I said there were possibly financial weapons of mass destruction, and they had them.  They destroyed AIG.  They certainly contributed to the destruction of Bear Sterns and Lehman.  Although Lehman had other problems, too.

Charlie Rose: 
I'm interested in this because people are asking, did people get away with murder here?  Were there people who simply gained the system and took advantage and made huge amounts of profit, and we had accesses that inevitably led to where we are today?

Warren Buffett: 
Well, we had all of that.  But I would say the biggest single cause was we had an incredible residential real estate bubble.  I mean you can go back to tulip bulbs in Holland 400 years ago.  The human beings going through combinations of fear and greed and all of that sort of thing, their behavior can lead to bubbles.  And it may have had and Internet bubble at one time, you've had a farm bubble, farmland bubble in the Midwest which resulted in all kinds of tragedy in the early '80s.  But 300 million Americans, their lending institutions, their government, their media, all believed that house prices were going to go up consistently.  And that got billed into a $20 trillion residential home market.  Lending was done based on it, and everybody did a lot of foolish things.  And people really behaved in a fraudulent way or something, we'll go back and find the culprits later on.  But that really isn't the problem we have.  I mean that's where it came from, though.  We leveraged up and if you have a 20 percent fall in value of a $20 trillion asset, that's $4 trillion.  And when $4 trillion lands -- losses land in the wrong part of this economy, it can gum up the whole place.

Charlie Rose: 
And it continues with respect to the housing market.

Warren Buffett: 
It continues.

Charlie Rose: 
And some will argue that we have to do something about that in terms of a long-term recovery of the American economy.

Warren Buffett: 
Well, there is no question we have an access stock.  The good thing is, we have household formation in this country.  We have a country where I don't know whether it's a million households a year or more, but good form.  So we can eat off an [unintelligible], but too big, and house prices just soared beyond -- beyond reason in many places and they got financed in silly ways, and people lied about loans, all kinds of accesses entered into it.  But that is what -- that is the single biggest cause of why we're here.

Charlie Rose: 
And should wise people have known better?

Warren Buffett: 
People should always know better.

Charlie Rose: 
Yeah.

Warren Buffett: 
I mean people -- people don't get -- they don't get smarter about things that get as basic as greed and you can't stand to see your neighbor getting rich.  You know you're smarter than he is, and he's doing these things, you know, and he's getting rich, and your spouse is getting unhappy with you because you aren't doing -- pretty soon you start doing it.  And so you get what I call the natural progression, the three Is.  The innovators, the imitators, and the idiots.  And that's what happens.  Everybody just kind of goes along.  And you look kind of silly if you disagree.  I mean, you know, you could have these crazy Internet valuations in the late 1990s, but they prove themselves out in the market.  The next day they were selling for more than they were the day before, and people said, you know, you're crazy if you don't get in on this.  So it's very human.  Now, with housing it's something even more dramatic than that, because most people aspire to own their own home.  And if you really think that houses prices are going to go up next year and the year after, you feel if I don't buy it this year, I'm going to have to buy it next year.  That's not true of an Internet stock.  But it's true of a home.  And when somebody makes it very easy for you to do it by saying you don't really have to put up my money, you can lie about your income a little, or we'll give you 100 percent mortgage, you're going to do it, because everybody that's done it has been proven right.  You have what they call social tools, and, you know, you're going to feel like an idiot if you didn't do it, because the house cost more.

Charlie Rose: 
It's sound money.

Warren Buffett: 
It's sound money, sure.

Charlie Rose: 
And so when you look at where we are going, there seems to be two issues that are apparent to me at least, risk and leverage.  We just lost sight of risk and leverage of what was appropriate?

Warren Buffett: 
Yeah.  Again, because it pays off for a while.  You know, you can lose leverage, and it's the only way a smart guy can go broke.  If you owe money, you can't pay them out.  You just pay for everything, you do smart things, you eventually get very rich.  If you do smart things and use leverage and do one wrong thing along the way, it could wipe you out, because anything times zero is zero.  But it's reinforcing when the people around you are doing it successfully, you're doing it successfully, and it's a lot like Cinderella at the ball.  I mean you know at midnight everything is going to turn to pumpkins and mice; right?  But if the evening goes along, I mean, you know, the guys look better all the time, the music sounds better, it's more and more fun, you think why the hell should I leave at quarter of 12.  I'll leave at two minutes to 12.  But the trouble is, there are no clocks on the wall.  And everybody thinks they're going to leave at two minutes to 12.

Charlie Rose: 
And you're having a good time.

Warren Buffett: 
Yeah, sure.

Charlie Rose:
So if this plan -- you hope it will do what?  It will loosen credit.  It will stop the slide and the panic.  People will have more confidence --

Warren Buffett:
Confidence is key.  Confidence is key.  You're not going to leave your money with me unless you're confident I'm going to give it back to you.  And at this point, when treasury bills, seven day treasury bills at 1/20th of one percent, it's not because people want to earn 1/20th of one percent, it's because they trust the fact the treasury will give it back to them next week.  And I'm sitting with six and a half billion dollars we're going to use to close the Mars-Wrigley deal on October 6.  I've got to hand over that six and a half billion on October 6.  Now, I have to be very careful about who I leave it in between now and then, because they're expecting that he show up.  But I lose confidence in other people, all kinds of institutions.  And there are plenty of them that I've lost confidence in.  Then they get -- their funds aren't available.  They don't have it for the next -- I mean the whole economy just comes to a grinding halt.  Competence in markets and in institutions, it's a lot like oxygen.  When you have it, you don't even think about it.  Indispensable.  You can go years without thinking about it.  When it's gone for five minutes, it's the only thing you think about.  And the oxygen has been sucked out of the credit markets, and confidence, and there has to be -- it'
And that's what this --

Warren Buffett: 
That's what I hope gets done.

Charlie Rose: 
And if it doesn't work?

Warren Buffett: 
You turn the spigot.  But you -- I've argued with the senators and congressmen I've talked to.  You don't want to be too little too late.  They're being somewhat too late, in my view, and -- but that's okay.  We're going to argue for a few weeks after Pearl Harbor to decide whether the Japanese attacked or whether we should actually commit a few battle ships.  But the too little part, you know, it could be a mistake.  I mean this has to be done on a --

Charlie Rose: 
Too little meaning in terms of dramatic steps, or the amount of money you're spending --

Warren Buffett: 
It's whether people think it's too little, when you get all through with it.  I mean in the end, 700 billion is a lot of money.  And it will buy a lot of distressed property.  And if you buy them at the right price, you may be buying two trillion of face value.  The one thing you don't want to do -- [unintelligible] paid for it what you're paying it from or what his carrying value is, you got to buy it at market.  And one way to do that is if some institution wants to sell you a billion dollars worth of mortgages, they might have to sell 100 million in the market, and then you'll buy the other 900 million on the same terms.  Now, the very fact that this has been authorized or will be authorized, I hope, will firm up the market to some degree.  And that's fine.  But you don't want to have artificial prices being paid.

Charlie Rose: 
What do you believe might never be the same?

Warren Buffett: 
Oh, I think confidence will come back.  I will tell you this.  This country is going -- be living better ten years from now than it is now.  It will be living better in 20 years from now than ten years from now.  The ingredients that made this country, you know, the miracle of the world -- I mean we had a seven for one improvement in the average American standard of living in the 20th century.  Now, we had the great depression, we had two world wars, we had the flu epidemic.  You know, we had oil shock.  You know, we had all these terrible things happen.  But something about the American system unleashed more and of a potential to human beings over that hundred years so that we had a seven for one improvement in -- there's never been any -- I mean, you have centuries where if you've got a 1 percent improvement, then it's something.  So we've got a great system.  And we've got more productive capacity now than we ever have.  The American worker is more productive than he's ever been.  We've got more people to do it.  We've got all the ingredients for a sensational future.  It's just that right now the athlete's on the floor.  But we -- this is a super athlete.

Charlie Rose:
And what's the impact of the athlete being on the floor around the globe?

Warren Buffett:
Plenty.  Plenty, and we're finding that out.  And the same things happen to quite an extent around the globe.  I mean, the European banks were doing what the American banks were.

Charlie Rose:
And they're failing now, too.

Warren Buffett:
Yeah.  I mean, they were getting the mortgage of some guy in Omaha, you know, securitized a couple of times.  I mean he had all these -- they had all these types from Wall Street, you know, and they had advanced degrees, and they look very alert, and they came with these -- they came with these things that said gamma and alpha and sigma and all that.  And all I can say is beware of geeks, you know, bearing formulas.  They've heard that in Europe.

Charlie Rose:
Have we learned something about decoupling or the American economy in terms of its impact, for example, China, a place where you've had investments, and you know well.

Warren Buffett:
Yeah.  We just made a new one a couple days ago.

Charlie Rose:
Where was that?

Warren Buffett:
In a company called BYD, and they develop a really good electric car, I hope.

Charlie Rose:
Is there an operative narrative to the kinds of investments you are making other than you look at and you buy on value, look at advantagement [spelled phonetically] you look at a place that can absorbed the amount of money you want to invest, and you look at its prospects, and you look at price.

Warren Buffett:
Yeah.  They have to be pretty good size for us now to have -- to move the needle.  But we look for fairly large situations.  We look for things I can understand.  A lot of businesses I don't understand.  So some guy may know how to make money in cocoa beans, but I don't so I just let him have that.  But it's got to be something I understand.  It's got to be a business with fundamentally good economics.  It's got to be a management that I like and trust and admire.  And it's got to be a price that makes sense.  And lately the price --

Charlie Rose:
Prices make sense.

Warren Buffett:
Prices make a lot more sense now, yeah.

Charlie Rose:
Now, is it --

Warren Buffett:
And I'm not worried they're all about the investments we make.  I mean, listen, this country -- we've got $46,000 or $47,000 of GDP per capita.  Now, we've done pretty darn well.  We'll do better in the future.  I am not worried about the country.  I'm just worried about anything that gums up the potential of the country.  And right now, it's pretty gummed up.

Charlie Rose:
Okay.  But we do this emergency, urgent rescue.

Warren Buffett:
Right.

Charlie Rose:
Come January, we have a new president.  We have a new treasury secretary.

Warren Buffett:
Right.

Charlie Rose:
We have a new legislature.  What's there in parity?  What will be the challenge for them because they then can take a little bit of a longer term, look, maybe the patient's getting up off the ground.  And but you want to get him or her moving faster.

Warren Buffett:
Yeah.  Well, I think it will get moving faster.  I mean once you get it off the -- once credit flows -- now the recession is going to get worse.  I mean, I don't want to hold out false hopes that the -- by some magic moment, that things will turn around in a couple months because they wouldn't, Charlie.  I mean, and it's a big mistake to try and mislead people.  They will turn around.  I don't know whether it will be six months or whether it'll be two years.

Charlie Rose:
It's more likely two years than six months.

Warren Buffett:
I don't know.  It isn't going to be one month or to months, no matter what happens.  All I can --

Charlie Rose:
Can you imagine six months from now, it's beginning to turn around?  With the condition that you know their --

Warren Buffett:
That's sort of the best case, yeah.  That's sort of the best case.

Charlie Rose:
And the worst case?

Warren Buffett:
Worst case is a long time.  And I would say that if they --

Charlie Rose:
Worst case is five years or --

Warren Buffett:
If we don't do the things we should do, it could be five years, sure.

Charlie Rose:
Okay.  We should do, though, beyond where we are now.  What are those things?

Warren Buffett:
Well, I would say this, if it becomes evident that -- I understand the latest bill, they're talking about 350 billion early and then going back.

Charlie Rose:
Right, right.

Warren Buffett:
But we need to throw the resources at this that are necessary.  But like I say, we are not spending money.  I mean, if we buy these assets intelligently, the United States Treasury will make money.  I mean, it's borrowing money.  It's just a few percent a year.  And these assets are better than that.

Charlie Rose:
Okay.  But that's a very big if.

Warren Buffett:
And it makes a difference who the treasury secretary is.

Charlie Rose:
Okay.  So that's the important question in terms of whether we buy these assets wisely.

Warren Buffett:
I would say it's more important who the treasury secretary is than who the vice president is.  If you want to have a debate here, I'd like a debate between potential treasury secretaries than the vice presidential debate.

Charlie Rose:
Well, might it be a good thing for the presidential candidates to tell it who it is they're going to be listening to and who might be a potential treasury secretary?

Warren Buffett:
Well, presidential candidates which I know listen to you.

Charlie Rose:
That's because they tell you that, aren't they?

Warren Buffett:
Well, no, but I mean it's not their job to know the candidacy of people.

Charlie Rose:

When all these people call you up, what are they asking you?  I mean, you’re hearing from your friends and people at the Fed, you’ve been through this before too I mean you were that long term capital , a lot of other times you have had to face difficult crisis.

Warren Buffett:

I’ve seen a lot of things happen.

Charlie Rose:

So they come to you and they say “You’ve fought wars before, Warren, we’d like to talk to you.”  But what’s the question they’re asking?  What is it they want to know?  And I’m talking about smart people who are charged with fixing it.

Warren Buffett:

Yeah.  Well, lately they’ve been asking will this work.

Charlie Rose:

Right.  Yeah. 

Warren Buffett:

And you’re assuring them that if they do it --

Charlie Rose:

I will.

Warren Buffett:

-- if they do it, I -- I [talking simultaneously] Treasury Secretary  [unintelligible] I would say this, I would -- they hate this term in Washington, obviously, but I would hand something pretty close to a blank check to a fellow like Hank Paulson to fight --

Charlie Rose:

Would you, really?

Warren Buffett:

Yeah.  Well --

[talking simultaneously]

Charlie Rose:

A blank check, $700 billion, go spend it?

Warren Buffett:

Yeah, go invest it.  Go invest it.  And maybe put up a little of your own money up beside it, I mean, I might ask Hank to go invest with me.

[laughter]

Charlie Rose:

That’s right.

Warren Buffett:

But, no I think that trying to invest through 535 people is a tough job, you know, and so I would give more latitude.  That isn’t going to happen and I -- you know, I [inaudible] --

Charlie Rose:

-- go with oversight?  I mean, that’s what [inaudible], go with oversight.

Warren Buffett:

[inaudible], I think --

Charlie Rose:

But don’t try to make the decision --

[talking simultaneously]

Warren Buffett:

No, I think the oversight is great, and I think that oversight ought to be devoted almost entirely to the question is this being done at market you know.  In other words, you want to make sure that the government isn’t investing foolishly.  But you don’t want to care about which congressional districts it goes to or whether banks get favored over --

Charlie Rose:

But how do we determine whether it’s being done wisely?

Warren Buffett:

Well, I think --

Charlie Rose:

That’s a big question.

Warren Buffett:

Yeah, I think you’ll have plenty of scrutiny as how the money’s invested.  I mean, just like the RFC.  When the RFC operated, people knew which institutions they were buying preferred stock in.  And it worked very well.

Charlie Rose:

But is this different from the Resolution Trust Company because they are talking about securities, not real estate?

Warren Buffett:

Yeah, well Resolution Trust Company was set up to liquidate a bunch of assets that the government had inherited because the savings and loans went broke.  So the savings and loans went broke, the government stepped in, paid off depositors, and now they’re left with this mass of assets to sell.  We’re not talking about selling here, we’re talking about buying intelligently.  They were selling what they got handed to them by a bunch of savings and loan operators that had in many cases had done some very dumb thing.  But their job was to liquidate it.  And they liquidated.  This is an entirely different proposition. 

Charlie Rose:

You have said to me before that capitalism is not a perfect system.  It may be better than all the other systems, but it’s not a perfect system.  You talked about it in terms of some of its failings.  People are looking at this now and saying, you know, excesses of capitalism, number one, markets that don’t work.  And there’s some people in certain countries are pointing a finger at us and saying, “See, we told you, the markets will not always deliver for you.” 

Warren Buffett:

Markets aren’t -- people do, as long as you have markets, you’ll have excesses.  People went crazy with tulip bulbs.  They went crazy with the South Sea Bubble, they went crazy internet stocks, they went crazy with the uranium stocks back when I was first getting started.  I mean, you know, you’re not going to change the human animal.  And the human animal really doesn’t get a lot smarter.  Now, you can you know you can have institutions that put curbs on that in various ways, and actually what the banks, you know, they have various capital ratios and that sort of thing, but the banks got around them, I mean, they set up sieves and that sort of thing just to get more leverage.  People love leverage when it’s working.  I mean, it’s so easy to borrow money from a guy at X and put it out at X [inaudible].

[talking simultaneously]

Charlie Rose:

-- going up, you’re --

Warren Buffett:

Yeah, but you don’t get the X plus one back, if you still have the X on the other side you’re in trouble.

Charlie Rose:

There is this, too, accounting.  You have strong feelings about accounting and mark [spelled phonetically] to market.  Tell me where you are on that issue.

Warren Buffett:

A lot of people disagree with me on this, I believe in mark to market.  I think that accounting in 1974 Charlie, it was either 1974 or ’75, we owned a bunch of common stocks at Berkshire Hathaway.  I told our shareholders what the market was.  And we used that.  I said I think these things are worth a lot more than market.  And I think we’re going to make a lot of money out of it.  But this is what they’re worth today.  And I don't think anybody gets hurt by telling the truth on that sort of thing.  And I think that once you start saying we’re going to peg these things at some price that isn’t market, God knows what a financial [talking simultaneously].

Charlie Rose:

[inaudible] these people make that argue against you will say the assets are worth much more than mark to market says and therefore --

Warren Buffett:

They’re not worth it today.

Charlie Rose:

-- therefore we’re not seeing a reality.

Warren Buffett:

Well, but that is the reality.  And that’s the reality of what they’re going to sell them to the Treasury for.  You know, I --

Charlie Rose:

You get market.

Warren Buffett:

You get in a lot of trouble when you start putting fictitious numbers --

Charlie Rose:

On value.

Warren Buffett:

-- on value.  I mean, you can explain the fact that these are depressed prices, you know.  We think these assets are going to be worth a lot more.  And I think that case can be made in certain situations.  But I think to just say, you know, we're going to say a dollar of cash is worth $2 all of a sudden, it isn't worth $2.  It's worth a dollar today.  And I think once you start putting phony figures into financial statements, you get in a lot of trouble.  And we've seen so much of that in the last 20 years.

Charlie Rose: 
Is it getting worse?

Warren Buffett: 
I don't think it's getting worse.  I think people -- what people want to do is make it get worse.  [laughter]

Charlie Rose: 
But what would you reform about that in terms of the way the accounting process -- you'd keep mark to market?

Warren Buffett: 
The rule [unintelligible].  I mean it's -- it's a nightmare to administer some of this sort of thing, but I want to tell the shareholders of Berkshire, to the percent we own marketable securities or things for which there are market, even if those markets -- I want to tell them what it's all about.  As a matter of fact, I've already written a section in the annual report for next year explaining why I think in one case that the figures on our balance sheet as calculated are wrong.  But it's the standard way of doing it.  It's holy writ.  The SEC wants us to do it that way, and we'll do it that way, and I'll explain why I think it's wrong and shareholders can read it and see whether they agree with my logic or don't.

Charlie Rose: 
You -- when you look at the prospects for this country, there are other people who argue, you know, that America, as good as it is, lives in a world today and there are books being written in which our supremacy, our primacy will now have to be shared.  That we may still own as much of the pie as we had, but other people will own a lot more.

Warren Buffett: 
That's great.  You know, I want our -- I want our pie to grow all the people, but if some other guy's pie is growing a little faster, that's terrific.  It will be good for us in the long run, and I mean there are, you know, six and a half billion people in this world.  And it's great for 300 million to keep enjoying more and more property, but I think it's terrific if, you know, the remainder do.  And I think if they can learn something from us in terms of our system, and I think they have, they are learning more about how to unleash the potential of their citizenry to turn out more goods and services that their citizens want or that we want, I think that's terrific.  And that's -- you know, I think it's much better to live in the world where those around you, particularly when some of them have nuclear bombs, I think it's much better to live in a world where their lives are getting better also.

Charlie Rose: 
Yeah.  But you mean you look at that.  So when you look at China today, and you look at some Asian countries and the amount of American debt they have, how much does that concern you in today's economic circumstances?  And are they losing some of their confidence in America?  And does that pose a huge problem for us?

Warren Buffett: 
Well, somebody's buying these treasury bills at 1/20th of one percent.  I mean the -- we -- [talking simultaneously] consuming about $2 billion a day of goods and services beyond what we're producing.  In other words, the rest of the world sends about $2 billion a day net of something.  We got to send them something in return, don't we.  So we send them little pieces of paper.  That would be nice if they stuck them all under a mattress, but they got to buy something with them.  Sometimes they buy a treasury note, sometimes they set up sovereign wealth funds.  They can do all kinds of things.  They can buy our companies here.  As long as we consume more than we produce, and we trade away little pieces of the country daily, they're going to own something.  Now, they can't run from American assets.  I mean every day the rest of the world is going to have about two billion more of American assets than we have, as long as they sell us these goods.

Charlie Rose: 
Because we're borrowing two million dollars --

Warren Buffett: 
Yeah, and they want to sell us these goods.

Charlie Rose: 
But you don't believe that's good.  I mean you believe that an increasing current accounts deficit is bad.

Warren Buffett: 
I think it's bad.

Charlie Rose: 
And it reflects American's consumption ideas rather than its savings ideas.

Warren Buffett: 
Yeah.

Charlie Rose: 
But how does that change?

Warren Buffett: 
Well, I laid out -- it's kind of a Rube Goldberg plan a few years ago, which I don't like myself, except I like it better than the alternative, which is what we're doing.  But we've actually been pretty good on exports.  I mean we are exporting 12% of our GDP now roughly.  That was five percent many years ago, a much smaller GDP.  So the rest of the world really likes our stuff pretty well.  It's just we buy so damn much of what they produce.  And I think -- I think that should be something addressed by -- I don't think it's the most pressing problem now at all.  We are trading away a little bit of our country all the time for this access consumption that we have over what we've produced.  That is not good.  I think it's terrible over time.  But our country's productive grows enough so we actually can do that, and we'll still be better off.  We just don't be as well off as if we hadn't done it.

Charlie Rose: 
What's all this going to do to the price of the dollar?

Warren Buffett: 
It could be very tough on -- inflation could be a very -- is a likely consequence out of what's going on now.  Right now, we are in effect making a -- to some extent, making a choice between future inflation and getting our -- getting off the floor.  And we're likely -- we're likely to have more inflation in the future as a consequence of the things we do to fight the present situation.

Charlie Rose: 
Senator Obama, who you support, I think, I don't want -- to be clear on this, but made an economic speech today, talks about another stimulus program.  Is that essential at this time?

Warren Buffett: 
I think the biggest thing we need now is to unclog the credit markets, and we may need another stimulus -- if we do, it's -- it should go to the lower and middle-income people.  I mean the truth is, I've never had it so good in terms of taxes.  I am paying the lowest tax rate that I've ever paid in my life.  Now, that's crazy.  And if you look at the Forbes 400, they are paying a lower rate, accounting payroll taxes, than their secretary or -- whomever around their office.  On average.  And so I think that actually people in my situation should be paying more tax.  I think the rest of the country should be paying less, the 95 percent that Obama talks about or maybe even a little higher than that.  But I think that a stimulus plan should really be geared to the people.  You know, you've got -- you've got, what, 24 million households, 1/5th of the households of the United States, you have earning $21,000 a year or less, on average of close to four people, three people in those households.  Two and a half they will actually probably.  But just imagine living on 21,000 a year, Charlie, 22,000 a year.  I mean you have 20 percent of the population doing that.  So you don't have to worry about guys like me.  I would push purchasing power -- you push out $1,000 of purchasing to those people, it's going to get -- it's going to get spent.  And it needs to be spent.  They need it.  And it should come, to some extent, from guys like me.

Charlie Rose: 
… what about the capital gains tax?

Warren Buffett: 
Well, you know, the capital gains tax is 15 percent now.  So I sit there in my office and I make a lot of money by capital gains, and I pay 15 percent, and I pay no payroll tax on it.

Charlie Rose: 
Right.

Warren Buffett: 
The woman that comes in, takes the wastebasket away, she's paying 15.3 or whatever it is on payroll tax alone.  I mean it is -- I never had it so good.

Charlie Rose: 
So therefore the capital gains tax should be changed to 18, 25, 30?

Warren Buffett: 
I think it's terrible for people in effect to say that income from investment should be taxed at a much lower rate than income from labor.  I mean I just think that you're going to -- we're going to spend 3.1 trillion, something like that, this year.  We're going to only raise about 2.6 trillion or something like -- you're going to raise it from somebody.  You know.  Now, who you're going to get it from, you're going to get it from me and you, or you're going to get it from, you know, the people that drive the taxis, bring me here.  Whatever.  Maybe.  I mean you got to get it from somebody.  And, you know, everybody is against paying tax.  I feel the same, everybody feels that way.  But if you want a government that's going to do the things we ask our government to do, you've got to get it from somebody.  And over the years, the last -- particularly the last six or eight years, they've taken less and less from a guy like me.  Now, you know, everybody likes to talk about how the top one percent pays this percent in income, but the income tax, we'll say 1.3 trillion.  The payroll taxes are over 900 billion.  That 900 billion, that doesn't come from me.  I pay it on the first hundred thousand or something like that.  But that comes from the people in my office.  And they are paying 900 billion -- nobody ever talked about that when they talk about what the one percent is paying.  I love to tell how I'm suffering because one percent we're paying 25 percent of the total.  We're not paying 25 percent of the total taxes on individuals.  We're paying maybe 25 percent of the income tax, but the payroll tax is over a third of the receipts of the federal government.  And they don't take that from me on capital gains.  They don't take that from me on dividends.  They take from the woman who comes in and takes the wastebaskets out.

Charlie Rose: 
You mentioned inflation.  The possibilities of inflation.  Are you therefore -- do you have a position on what interest rates -- what the fed should do about interest rates?

Warren Buffett: 
Well, I think that's almost -- for the time being, just put that aside and we'll get to that after the patient is up and walking.  It's interesting, though.  I mean we are -- what's going to happen -- things we're doing are going to have some inflationary consequences.  But, you see, interest rates, you know, very low levels, including the long rates.

Charlie Rose: 
When we watch this, I mean you and I are having this conversation today.  The senate votes tonight.  House may vote. People I talked to today believe it's going to pass.  Whatever happened to change minds either in the combination of what they did with the plan and tweaking the plan, or B, some people got so scared by the failure of the vote last time that it brought home a danger of not doing anything.

Warren Buffett:
Yeah.

Charlie Rose:
All right.  How will we measure the progress, whether this is working or not?  What's the indicia?

Warren Buffett:
Yeah.  It's going to be tough because the economy is going to be getting worse for a while.  And it might fall off a cliff if this doesn't pass.  But nobody will ever know that if it does.  And so what they will not see immediate reaction.  I mean, we'll be pounding on the guy's chest, you know, on the floor, and you know, he's not going to just jump up all of a sudden.  So it makes it tough.  I mean, it's tough to be in the legislature, you know, and vote for something and then people say, well, you voted all this money and you know, it's all getting spent.  It isn't getting spent.  It's getting invested.  But it's all getting spent.  Nothing's happening.  You know, how could you have done that?  You haven't done anything for me.  I mean, you go through all of that.  And that's going to be tough.  And it takes -- what it really takes is leadership that knows what it's all about and can explain what it's all about.  And that people will believe --

Charlie Rose:
But hasn't that been missing, though --

Warren Buffett:
Sure.

Charlie Rose:
-- leadership that can explain what it's all about?

Warren Buffett:
Absolutely.

Charlie Rose:
And the reason you're here and the reason I want to have a kind of fireside chat with you, it is that somehow it hadn't gotten through, the idea --

Warren Buffett:
When the president of the United States goes out at, you know, 8:00 o'clock in the morning and then his own party votes gets him 2 to 1 in the house, you know that somehow a message isn't getting out.  It takes real leadership.  I mean Roosevelt didn't -- you know, when he came in, he didn't print any money.  Well, he actually may have done [unintelligible], but he -- it wasn't like, you know, you've got the greatest economics professor in the world or anything else.  But he did restore confidence.  And they did a lot of thing.  And you needed it.  You needed to jump-start the economy.  It took a long time.  I mean, the world did not change, you know, in 1933 or '4.  But we put in things like the FDIC.  I think the FDIC was one of the great inventions of the American [unintelligible].

Charlie Rose:
Well, they had to tweak that in terms of his bill, did they not?

Warren Buffett:
Yeah.  They were -- and --

Charlie Rose:
[unintelligible] extended five-year.

Warren Buffett:
They're going the right direction, yeah.

Charlie Rose:
Roosevelt also said the only thing we have to fear is fear itself, which is clearly the fear that exists in the country.  Tell me when you worried the most of all the things that you have seen over the last three weeks, say.  I mean how about in the last month, when did you say, my God, I never knew it could get to this point?

Warren Buffett:
Well, I don't get that afraid in a sense because I really do have faith in both -- I know the country works extremely well.  You know, but when it isn't clogged up.  And I know that Congress will do the right thing.  But I will tell you, when I watched the House vote the other day, I wasn't afraid because I -- I still felt something would pass.  But I -- we are going through a very, very tough period.  And, you know, I did not think I would see the day when, you know, an AIG would not be able to have its checks clear.

Charlie Rose:
If AIG had failed, would fold man sacks have been exposed and at risk, JP Morgan would have been --

Warren Buffett:
Everybody would have been exposed, Charlie.  Everybody.

Charlie Rose:
So why was there even a question of not rescuing AIG at that time?

Warren Buffett:
Well, I think what people understand there probably -- well, they were hoping the private sector would do it.

Charlie Rose:
Right.

Warren Buffett:
I mean, that's the same way I would behave.  If I were the treasury secretary or head of the Fed, you know, I would try to scare the hell the out of the private sector and say, you better save this because you're going down with the ship.  So you guys save it.  And I went as long as I could worrying if they didn't save it, I'd come in.

Charlie Rose:
Well, did that in fact happen during this crisis in which the secretary of the treasury said you better save this or we'll all going down?

Warren Buffett:
I think certainly --

Charlie Rose:
You better put up some cash right now.

Warren Buffett:
I think that they hoped the private sector would come in.  And the private sector tried to come in until they saw the size of the problem.  I mean, from were people on that weekend that thought they'd had a solution.  And then the hole kept getting bigger and bigger.  And all of a sudden became apparent that 20 billion wouldn't do it and 30 billion wouldn't do it and 40 billion wouldn't do it.  So it got beyond anybody's ability to certainly to do it in a short period of time.

Charlie Rose:
There was not enough capital available other than from the government.

Warren Buffett:
It's an unknown situation.  You have the derivative book, [unintelligible] AIG financial products, you know.  Nobody's every heard of it except it was a terrific profit center.  You know, you could manufacturer earnings out of it, do all these things.  And I will guarantee that you the top management -- and I'm not knocking them for this.  I don't think I could have done it.  They couldn't get their minds around it.  I bought a company called General Reinsurance in 1998 that had a similar but much smaller operation, had 23,000 contracts in it.

Charlie Rose:
And you had to get rid of it.

Warren Buffett:
I got to get out of this.  It cost me 400-and-some million dollars in benign -- in a benign situation.  But when this was not a benign situation.  If AIG had tried to unwind their derivatives books.  I don't know.  It would have hit every institution in the world.

Charlie Rose:
And there was no private capital to come in and do that.

Warren Buffett:
Not big enough.

Charlie Rose:
Not even Berkshire Hathaway.

Warren Buffett:
No.  Not even Berkshire Hathaway.  I mean, if I thought 5 or 10 billion would have bought me a good deal, and I could have done that, I'd have done it.

Charlie Rose:
They were --

Warren Buffett:
I'm not bashful.

Charlie Rose:
[unintelligible] was within reach.

Warren Buffett:
Yeah.

Charlie Rose:
But 85 billion might not have been.

Warren Buffett:

No, no. And the Fed structured that thing very, very well. I mean, they have put themselves in a position --

Charlie Rose:

Yeah.

Warren Buffett:

-- where they are very likely to get their money back; maybe more. They participate 80 percent -- I mean, they drove tough terms.  I mean I want to hire the guy that made that deal.  He’d fit in well at Berkshire.

Charlie Rose:

A lot of people look at you and Goldman Sachs and GE saying I want to hire the guy that made that deal for you.

Warren Buffett:

No, Tim Geithner did a better job on this one.

[laughter]

Charlie Rose:

So we come down to the close of this conversation and you have been warning us about certain kinds of things.  I hear from this conversation too this plan is essential now.  Otherwise we’re in a very, very difficult place and each week we go beyond not doing something we get deeper and it becomes more irreversible. 

Warren Buffett:

And, yeah, whoever said, you know, an ounce of prevention is worth a pound of cure understated it and I you know a pound of cure that’s delayed another six months is going to need a ton of cure later on I mean it would be crazy not to do this.  It will not produce dramatic results though in the economy.  That’s what people have to understand.  You’re going to see unemployment go up.  You know, you’re going to see lousy earnings in many businesses.  And they’re not --

Charlie Rose:

You’re going to see people unemployed.

Warren Buffett:

You’re going to see more people unemployed.  But the difference Charlie if we bottom this thing out at seven percent unemployed versus nine percent, that’s three million people, that’s three million people that if we do it wrong you know lose their jobs unnecessarily in my view I mean you know I’ve never been unemployed.  I’ve never been very fully employed either but just think of what it’s like, you know, to go home with a mortgage payment you know and kids and everything else.  My dad had that happen to him in the early ‘30s.  It you know you don’t want to create three million people more unnecessarily.  But I don’t think you --

Charlie Rose:

That’s the depression --

[talking simultaneously]

Warren Buffett:

It really is.  And you can’t help some increase from this point.  I don’t want any viewer to go away think a magic wand exists in Congress.  So they’re going to see some more bad news.  But if we do this, we’re doing the right thing.  And if -- the system will work over time.  There’s no -- we got a wonderful system.

Charlie Rose:

Okay, but I mean let me come to that in the end.  Do we need to do anything about the system?  And beyond the emergency of the moment, the urgency of the moment, come January, about the system, lots of talk about regulation as you know and finding the right balance, lots of talk about whether government involvement is an idea we need more of rather than less of, rethinking sort of what President Reagan brought to fore.

Warren Buffett:

Once we get the [unintelligible] back, we can [unintelligible] changes [unintelligible], exercising [unintelligible], we can do all of that sort of thing.  And you know if I got any good ideas out of that or I think they’re good ideas, I’ll be glad to contribute them but the system will probably overdo some other things.  I mean, the nature of democracy is such that when there’s this -- there’ll be this revulsion, obviously, toward -- that’s never going to happen again, so we’ll probably attack it in various ways that don’t make sense.  But I -- that’s what Congress is for.  And that’s what advisors are for.  And I’m all for getting the best minds you can get to work on that kind of thing.  Like I say, I don’t think it’ll be done perfectly.  Maybe we’ll end up with a little bit better system.  But the end, we had a pretty good system over time.  But when we went crazy, and we did go crazy on residential real estate, it set things in motion that just -- the dominoes started toppling.

Charlie Rose:

Thank you for coming.

Warren Buffett:

Thank you, Charlie.

Charlie Rose:

Pleasure to see you.

Warren Buffett:

Enjoyed it.

Charlie Rose:

Warren Buffett.  We’re in San Diego.  My thanks to the people at KPBS here.  A conversation here about the crisis that we all face, and hearing from a man that a lot of people want to hear from.  And I’m pleased that we were able to join with him here.  Thank you for joining us.  See you next time.

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