Charlie RoseFrom our studios in New York City, this is Charlie Rose.We celebrate this evening the 20th anniversary of this program.Yes, 20 years ago, this program began.Over the 20 years, there have been no guests that have been more interesting or more eagerlyanticipated than Warren Buffett.His is a fascinating story.His is a name that is known throughout the world for his extraordinary success as aninvestor and the parallel success of his company, Berkshire Hathaway.He has been in the news recently because he made a major investment in Bank of America.He also announced a stock buyback of Berkshire Hathaway shares.Perhaps the sharpest focus recently has been on his announcement that wealthy people shouldpay more taxes.President Obama was certainly listening because he included it in his list of tax law recommendations.He called it the Buffett rule.Warren Buffett is in New York, and we're pleased to have him at this table, not only becausehe's been such a wonderful guest for us, but also because he is a friend of mine.Welcome.
WarrenThank you, Charlie.
Charlie RoseYou've announced recently you're going to buy back or have started the process of buyingback Berkshire Hathaway shares.Some people were surprised because you had written in your stockholder's letter, whichis now famous, I don't do that.
WarrenWell, I haven't said that.I have said that you should buy back your shares only when you think they're sellingat a discount to their intrinsic value.And since intrinsic value is not a precise figure, it's a guess.Part of the reason you said that was because you don't necessarily think that people whobuy back shares simply to improve the stock performance.Sometimes they're trying to prop their stock.Sometimes who knows what their motivations are.There's only one motivation for me.If I think I'm buying our businesses at a discount, I think then it helps all the shareholders.Now, I also think you should tell the people before you do that, just like if you're mypartner and I want to buy, you want to sell out.If I think I'm buying it from you too cheap, I ought to tell you that now with the stockexchange, it sets the price.And every now and then it happened about 10 or 11 years ago, I thought Berkshire Hathawaystock was selling demonstrably below the value of its businesses.And we announced we were going possibly to do it 10 or 11 years ago.And then the stock went up right away.At this time, if the market is weak, we could buy a lot of stock.
WarrenBut what I say is we'll buy the stock if we think we're doing a favor for the people thatare staying in the boat.Because you think the intrinsic value of your business is those that make up Berkshire Hathawayis undervalued.It's higher than the price.It's clearly higher than the price.I mean, it's not a precise figure, but it's clearly higher than the price.
QuestionerYou offered book value plus 10 percent.I said that's the limit of what we will pay.The market will determine what we pay.So I mean, if the market tanked next week, we'll say Berkshire could be a lot cheaperthan that.
WarrenAnd I'm not propping the price in any way, but I'm just setting the outer limits of whatwe will pay.Because above that, I probably still think it's cheap, but I want to be demonstrablycheap.I want to be doing the shareholders a favor by buying the shareholders who remain a favorby buying in the stock that they're getting.So you have, what, $47 to $50 billion of cash?It's down some.We've spent some, Charlie.But we've got plenty of cash.We'll put it that way.But is there a limit of how much you always want to have in reserve in case an incredibleopportunity comes up and you can go do it?Yeah, we won't go below $20 billion in consolidated cash.So you can be prepared to spend more than $20 billion to buy back your stock?Well, you can spend a lot of money, depending on over how long a period, because we're earningmoney all the time.And as we earn money, the money comes in.There's no time limit on it.There's no dollar amount limit on it.There is this limit in terms of valuation, and there is this limit in terms of maintaininga given level of cash.It is said that some people think that the asset value of Berkshire Hathaway is closeto $130 to $150 a share for the Class A stock.Yeah, I hope it's $130,000.No, of course, $130,000.I don't know what the number is.I know it's more than 110% a book.I mean, we've got some wonderful businesses.We've got some that aren't so wonderful.But some of the big ones, particularly, are really very, very good businesses, and they'reworth a lot more than they were when we bought them.So why don't you sell those that are not so wonderful?I just don't do it.I don't do it.If I have 10 kids, you know, one of them's a little slow, I'm not going to put them upfor adoption.So that's the way you feel about these businesses?Yeah, I do, unless they promise to have permanent losses over time or unless they have major
Warrenlabor problems.I've put that in my annual report for, I don't know, 30 years.People come to me to sell their business to me.They work hard for me after they sell their businesses.Everything doesn't work out perfectly in life, and I'm not about to dump somebody becauseit's subpar.If it's a disaster, we have to get out of it.
QuestionerThis is a signal from the sage of Omaha that there are not a lot of investment opportunitiesout there.
WarrenWell, both statements are wrong.We got the paperwork cleared, I guess just yesterday morning, so we actually bought someshares.Now, whether we buy a lot of shares or not will depend on the price, but we intend tobuy shares if the parameters we laid out are correct.It has nothing to do with what, you know, if I live to be 100 and keep my barbels, I'llwatch them around.
QuestionerWell, in fact, in the last quarter, didn't you spend about $4 billion on stock, commonstock?
WarrenActually, yeah, September 30th being the current quarter.The third quarter, we spent a net of $4 billion, roughly.And have spent about $8 billion so far this year in terms of buying common stock.
QuestionerThat's almost exactly right.Which suggests you're buying stock because you believe in America and you believe inthese companies and you believe...
WarrenThey are American companies.They do business, some a fair amount abroad, but they are American companies.And incidentally, we're investing $7 billion.
QuestionerI was going to make that point.In terms of infrastructure and...
WarrenEven when we buy stock, our own stock back, we're intensifying our interest in a wholebunch of mostly American companies.Our shareholders will own a greater percentage of BNSF, Burlington Northern, they'll owna greater percentage of GEICO if we buy back shares.The pie will be as big, but there won't be as many slices.
QuestionerHere is what George Soros told CNBC last week, that he said, rather than the U.S. slippinginto recession sometime in the future, I think we are already in it.Michael Spence and Paul Krugman said there were 50% chance of another recession.You don't buy that.
WarrenI don't buy it.But I mean, I'm looking at 70-some companies and I will tell you that our railroad carried193,000 cars last week.And I can tell you in terms of candy sales and jewelry sales, we've got three differentjewelry operations, four different furniture operations.They're all up.Yeah.They're not galloping.But there has been no downturn.There has been no downturn, you know, and except, you know, I've told you before, home
Questionerconstruction is flat on its rear.When is it going to turn around?
WarrenIt's going to turn around when we've created enough more households than houses that theinventory of houses gets down to the top of the line.
QuestionerBut is there a magical way to do that, to create more inventory than?
WarrenWell, the way to do it is to hold on creation of new houses.
I mean, we've got about 500,000 plus housing starts going on.
That counts apartments.
So the way to do it is stop the supply and limit supply.
If we create more households than houses, we will bring the inventory into balance.
I don't know when, but we did just the opposite six or seven years ago.
We created more houses than households.
Surprise.
We had too many houses.
And it's it is really it is really a question of supply and demand.
And we created too many houses relative to households.
A few years back now, we're creating more households every day than we are houses.
And we will come back into balance.
And I don't know when that will be, but when it happens, you know, and when we get backto a million units a year or something like that, I think you will see unemployment ratesdrop significantly, perhaps seven to six percent.
And you will see the full economic recovery at that time.
You'll see you certainly see something very much closer to it.
QuestionerDo you believe it will get back to where it was prior to 2008?
WarrenWell, to some extent, economic growth and yeah, we had a we had an unsustainable bingebecause we were creating, among other things, creating too many houses and selling themto people who couldn't pay for them and all of that.
So we were we were in the bar drinking, you know.
I'm not sure we want to go all the way back in, but we want to get over the hangover.
QuestionerBut at the same time, you recently made a significant investment in Bank of America.
And some say that part of the reason that they are having a difficult time is becauseof the amount of the mortgage lending that they are responsible for.
WarrenThey made a lot of mistakes during during the binge, as did a number of other financialinstitutions, including the two run by the federal government, the Fannie Mae and FreddieMac.
But they they made it.
They made mistakes.
You know, I've made mistakes and the present management is is paying the price and unwindingsome of the sins of of of a previous management.
And that takes a lot of time.
And it's not done yet.
And it'll take them a lot of time.
But but that doesn't bother me.
WarrenI mean, I think, you know, that's that's just part of business.You do some dumb things and then you work your way out of a time has been your bestfriend and what time is now.Right.I try to, you know, Geico got in trouble in the mid 70s.American Express got in trouble in the mid 60s.Those are two of the greatest investments I've ever had.And and you had to look out five or 10 years and say, why?And that's what you got to do with the economy, incidentally.I mean, we have a wonderful economy in the United States over time and it will come backjust like Geico came back.American Express came back.Bank of America worked its way through its troubles.It'll be painful.There'll be lots of headlines for a long time.You can't do it in three months or six months.But you've got a fellow working at it.He didn't create the problems he saw.He's working on solving them.
QuestionerYeah.And you've got a very, very fine business underneath.One of the arguments between Republicans and Democrats in this upcoming political battleis going to be between the balance between spending cuts, which treat deficit in partand a growth strategy that builds towards the future.How do you figure out where you ought to be on that?
WarrenWell, we will get growth in the future.I mean, you've got you've got American genius, genius of capitalism working with it, creategrowth over time.I mean, that is not primarily a function of a lot of times they talk about growth whenthey mean to create inflation.So I don't I don't worry about the United States growing per capita GDP over time.We'll have we'll have periodic recessions.This was a particularly strong one because it was a particularly wild binge.I mean, it was something and and and we're we're paying for it.Do we need something to stimulate the economy to create growth either on the part of thefederal government or part of the Federal Reserve?Well, we've been stimulating like like crazy.We've been running a deficit of close to 10 percent, depends on exact period of GDP annually.That's a lot of stimulus.I mean, it doesn't mean you're going to call it a stimulus bill.It's stimulus.And we have given monetary policy.You know, we put our foot to the floor and driven interest rates to zero and piled upreserves at the Fed.But there's some debate within the Fed as to what might be done and where the focuswill be.I don't I don't think that will be too important.I mean, the important thing was what the Fed did three years ago.
WarrenAnd I mean, if they played it wrong, then we'd be paying a huge price for that.But they've used up their most of their bullets.The chairman would probably disagree with me.But I in my opinion, monetary policy has been played out about as far as it can and andit's been useful.But I don't think there's a lot to be done there.I don't think it's going to change change the course of the business recovery.And he thinks there's a few things that he can do that he still has in his.He's doing this operation twist and trying to bring down longer rates.But we've got no rates.I mean, interest rates are not the problem in the economy now and short rates are nothingand long rates are pretty darn cheap.So so I don't think I don't think anything further in that direction is going to havea big impact on the economy.Just talk to some Chinese business people who were in Washington to meet the secretaryof state and secretary of treasury.They came to the table in Washington and they're a bit worried about inflation in China.Yeah.Yeah.Well, but they'll have some and they may have a lot sometime.I mean, any economy that.Well, look at what we've had over the years.I mean, a dollar when I was born is worth about six cents now.So we've we've had a lot of inflation.You know, it's it's something something in the area of 15 for one since I was born.And, you know, if you told my dad that in 1930, I'm not sure he would have had me.I mean, he would have thought that the world will come to an end.And, you know, things have turned out pretty well during that same period.Real GDP per capita has gone up six, six for one.So I'm not I'm against inflation.I'm tempering inflation.But when you have a booming economy, you know, you may well get some and sometimes it mayget out of control and sometimes you have to do something about it, you know.But most of these things aren't the end of the world, Charlie.I mean, we always think they're the end of the world at the time.But, you know, as I mentioned before, I mean, you know, when I was when I was born on August30th, 1930, that was the high day for the Dow for the whole year to forty two went straightdown to forty one.I mean, I mean, my mother must have felt guilty as well, witnessing what had happened.Little did she know.But you know, 25 percent unemployment, all kinds of things.This this country comes back.It came back from, you know, what happened at Pearl Harbor.
WarrenIt comes back from all kinds of things and it's coming back now.So what role would the Buffett rule play in that coming back?Well, I think that it's very important in terms of.In terms of getting people to make the kind of sacrifices they're going to face, I mean,we're going to be telling people that some of the promises have to be modified.And these are people that don't have lots of margins of safety in their own affairs.I mean, they they're not like me.They don't have to sell a few stocks or something like that.If the payment doesn't come through for this or that.So we're going to be asking the American public as a whole to participate in in a belt tighteningwhen we bring down expenditures from 25 percent of GDP or thereabouts.And I think that when you have a very, very small group of ultra rich people who haveincomes of a million dollars or more, who are paying very low rates like I am, 17 percentof my case.I mean, that's a number of I'm talking to a lot of people in the last few months anda number of them are below my 17 percent, even though they're in this.Well, some of them are in this famous 400 category that averages 220 some million dollarsof income per person.I mean, that is some kind of income, isn't it?It is partly because they're there.They pay capital gains rates.Is that a lot of it?That's 15 percent.That's a big one.But dividends are 15 percent.And they the ultra rich who are paying really subnormal taxes.And there's a lot of them, but there's a lot of them that aren't.But there are a lot of them that are, I think, invest.I think it's a terrible mistake to ask 300 million Americans to tighten their belt andignore that.But here's my point.Is it because of the economic value of doing that, per se, in terms of of the more revenuegoing into the to the IRS?Or is it because the essential fairness of the American system is an important point?If you're asking the population at large, you have to make damn sure they think thatthe country is operating out of a sense of fairness.It's both.But it's the second point, I think, is more important than the first point, because Iwould estimate there might be 20.If you put a minimum tax in, it would affect a portion of the ultra rich.That might raise 20 billion a year by some rough estimates.I mean, I don't think those are crazy estimates.Now, 20 billion a year seems like a drop in the bucket when you've got a deficit of a
Warrentrillion or so.But 20 billion a year is still a thousand dollars each for 20 million families.I mean, and you kind of get the revenue someplace.So one way or another, I mean, who knows how they're going to ask everybody to sacrifice.But if you have a choice between asking 20 million families to come up with another thousanddollars each or hitting 50,000 or so people who are paying very subnormal taxes on verylarge incomes, I say that, you know, I've got to get that 20 billion from the peoplethat are like me.And when John Boehner says that the president, when he buys this idea, is practicing classwarfare.Yeah, well, the class war has been going on.I mean, if you look at this, these 400 top incomes that have gone from 40 million onaverage per person per family up to 200 million, their tax rates gone from 29 and a fractiondown to 21 percent.So there's been class warfare going on.It's just that my class is winning.In fact, my class isn't just winning.I mean, we're killing them.It's been a rout.You've got everything on the board.Well, just just look at America today.I mean, in terms of the ultra rich, I mean, they have not suffered through this.And incidentally, if somebody is making five or ten million dollars a year, 20 milliondollars, 30 million dollars a year as a CEO, athlete or whatever it may be, and they'repaying the normal tax rate, you know, they're they're in the mid 30s or something like that.I have become convinced after talking to a lot of the super rich who've talked to meabout this, that the best way to do it is this minimum tax and making sure that everybodyat those levels, a million and over, is paying in the mid 30s.How many people will be affected by this if you use the million dollar as the point ofreference?Because is it everybody that makes more than a million dollars or is it a select group?No.There's two ways of going at it.One is to do it by rate, in which case the whole group would be affected by 250,000 peoplejust raise the thing five points or something like that.I have.And that's that's an acceptable way to go at it.I have talked to a lot of very rich people, and I think the fair way of doing it is totake the people that have found ways to bring their rates down to the 15 percent level or17.Some of them, I know, are below 10 and and just have a minimum tax for the for them.Now, that would hit about 50,000 in my guess, and I don't have any great figures on it might
Warrenbe 70,000.It might be 40,000, but it won't be it won't be 10,000.It won't be the whole group might have 50,000 out of the 250,000 and they would be broughtup into the 30s in terms of their tax rate overall.So what percent of your income is taxed at 15 percent or 17 percent?A lot.You have some ordinary income.You have a hundred thousand dollars a year or something like that.Yeah.And I have some interest in that sort of thing.But that's a small percentage of your income.It depends on the year.There's some there's been some years there was years a few years back, for example, whenI made a lot of money out of out of owning Freddie Mac and Fannie Mae mortgage pass throughs.And I got a lot of interest income on that.But I also ended up making a very large capital gain on it.And incidentally, that money had not been taxed before at some corporate level.I read these arguments about that and didn't apply at all.I made a lot of money off a few years back off a bunch of little Korean stocks.I may have even mentioned that to you.And, you know, those companies did not pay any U.S. income tax.What do you think of this idea that need to change and have tax reform?Because if you do, companies will start bringing money back in that they're withholding overseasand doing something with it overseas and not bringing it back here because they think they'redouble taxed.Well, there's they would like to be able to repatriate money.Right. That was taxed at very low rates in some various places around the globe, somesort of legitimate in terms of where they manufacture, sometimes sort of artificial.And they would like to bring that back as they were allowed to do, I don't know, fiveor six or seven years ago when there was a one time repatriation.But we own stock in some of those companies, incidentally, that have got a lot of moneythat they would call trapped over there.Now, if they're allowed to bring it back and pay very little tax on it, where do you thinkthey're going to? They're going to want to keep earning money over there, aren't they?So you don't think they'll bring it back?Well, I think they'll bring it.Well, if they were allowed to do it without paying any tax to speak of or a 5 percenttax, they'd bring it back.But they say that would be wonderful because we'd be bringing this money back to theUnited States and investing.But what it would mean is it would mean, my God, we can we can earn a lot of money over
Warrenthere at five or 10 percent tax rates. And let's keep bringing it back. We ought to keep trying to make more money over there and build more plants over there. So it cuts both ways. It is an incentive if you come up with a low repatriation rate. It's an incentive for people to try and put more of their production and make more money abroad because that brings down their overall tax rate.
QuestionerCorporate America is sitting on a lot of cash. And they say there are a couple of reasons for that. Number one, they say it's because of regulations and they don't have confidence in what the stock, what the tax structure is going to look like. You believe that?
WarrenNo, I believe that they can't find good projects that they like and that they don't see the demand for certain things. I'm not going to build more carpet mills or something like that or more brick plants if I don't say we're going to sell the carpet. We're not just talking about people tied to the housing industry. We're talking about a whole lot of corporations in America are sitting on a lot of cash and they say that they don't have confidence in the future and that's why they're doing it.
QuestionerAnd you say what?
WarrenWell, I've got a lot of they ought to have confidence in the future. They're earning very good returns, in most cases, on tangible net assets. American business is doing fine with the exception of a lot better off if they were investing money, being able to hire new people.
QuestionerYeah, but they've got to find the right projects.
WarrenAnd to their credit, I would say that I don't know of any companies that see intelligent things to do with the money, whether it's here or abroad, and that have the money that are sitting there not doing it.
QuestionerOK, so you are basically saying that the problem with the American economy right now is corporate America, which creates private jobs, is not seeing a lot of intelligent things to do with the money.
WarrenYeah, there's a lack of demand. What does that say? Well, Keynes would say it with me. But I'm not advocating it necessarily. He would say you've got to stimulate a lot more because only government can. Paul Krugman says that.
QuestionerYeah, right. And they may be right. But we've done a lot of that. We've already seen a lot of that.
WarrenSo it would have some effect in my view. But I think the efficacy of it, once you're up the stimulus of 10 percent of GDP to start with, I think.
QuestionerDo you think the absence of that kind of demand and intelligent opportunity
Questionerto spend the money is in part because of the administration that's been in charge thatowns this economy now?
WarrenNo, I think it's I think it's a function of coming back from a brutal blow.And we talked about the patient in the hospital.I mean, we had we had an incredible bubble, I mean, manifested in all kinds of ways,but focused around housing.I mean, you know, you had 22 trillion of residential housing.That's what at the peak houses were worth.That was a huge part of the American public's net worth.And so we had a body blow and we are coming back from that and we will see more thingsto do.
QuestionerSo you are saying you think and you're supporting the president and you had afundraising event here in New York because you believe he and his administration havemade the right decisions for the economic growth of the country in general.You see no specific example that was so egregious that you could not support thepresident.
WarrenThat's correct.And I will tell you, Charlie, we've got it.We've got it. We're making rail cars.This is a this is not the NSF.This is a company called Marmon.We make we make tank cars.We lease them them frequently.We're down in Alexandria, Louisiana.I think we've increased production three or four times in the last 12 months.I mean, we are employing a lot more people in Alexandria, Louisiana, building tank carsthan we were a year ago.And and it's been step by step.It's increasing. You know, we're seeing it, you know, utilization of cranes.And in terms of oil fields.But we see it all over the.
QuestionerSo what makes you different?Because the conventional wisdom is that most of Wall Street, which supported thepresident last time, is not supporting the president this time.Jamie Dimon included.
WarrenYeah, well, these are people who look at the economy, the same economy.Jamie, I don't think Jamie would tell you that the economy is not getting better.In fact, I think I've seen something where he specifically said.
QuestionerNo, he has said. And the bank's getting better and he's happy with the bank.Right. But he but he is not supporting the president.
WarrenWell, as far as we know, we don't know a lot of Wall Street.At least you'll accept the idea that a lot of people look at the same evidence and say.
QuestionerWe don't think stewardship's been so good and we don't believe that the economy is asgood as you do, and they think regulations and everything else is part of the mix.
WarrenYeah, I would say this. Most of them are in businesses that are doing pretty well.
WarrenIt may not be as doing as well as at the binge.I mean, Wall Street isn't doing as well, but you take the number of people making amillion dollars and over in Wall Street and you can fill a very large auditorium.So they're doing well. There are a lot of support in the present.No, they are. I would say that's my impression.I don't know. That's my impression.And so what happened? Why are they did they deserted the president?I think some there was some rhetoric that contributed to that.But again, demonizing of business.Yeah, they felt that.And I think the president felt I got to look at all the things we did for business andthey're unappreciative. And, you know, I'm all of Sands between them and the pitchforks.And, you know, I said that at one point, yeah.And, you know, they so Wall Street doesn't certainly doesn't feel loved and they may like to feel.But you don't find that in mainstream America.You don't find that in Omaha or you don't.Well, there are people and there's no question, you know, it was Mary Cuomo Cuomo that said,you know, you you campaign in poetry and you govern in prose.And if you think about it, the whole act of campaigning is raising people's expectations.And then once you get it, you have to bring it down.I want to you essentially are saying that that you're not disappointed by this president for the most part.No, I am. I agree with that statement.Yeah, I'm not disappointed.No, we have some you would like.Oh, everybody. You're like form supported more, more loudly.Bo Simpson, that kind of.Yeah, oh, definitely.Listen, any time you like a president, you're you're not going to feel 100 percent about every single thing they do.And I'm sure that the shareholders of Berkshire feel 100 percent about everything I do.And, you know, it just doesn't work that way.And in a country with 300 million people and strong feelings about this issue and that.And what about this idea that somehow if we had someone who understood business who had had managerial experience in business or managerial experience at all, we would have been in a better place.The decisions would have been different.Yeah, I don't think I think if you take the overall group of decisions, I don't I don't agree with that.I think that, sure, given a given decision might be better here or there.But I mean, the decision to make Tim Geithner the secretary treasurer was a terrific decision.I mean, that is that's that's like what I want is and to talk him into staying.
WarrenYeah, well, yeah, yeah, yeah, but, you know, when I pick a good CEO, that's a terrific decision.I mean, then I don't have to think about is it possible that you're just different, that somehow some way because of your mother, because of your wife, influences on you have made you different, your own native intelligence, whatever it is.Well, everybody's influenced by what I am.Whatever it is that you, Warren Buffett, look at the world differently than most of the prominent businessmen in America.Well, it may be true, I think differently than a very good number of them, but I have a lot of them that agree with me one way or they don't agree 100 percent with me again, I mean, go ahead.Yeah, but nobody's in total sync with anybody else, even if they're twins, probably.But but there are I've heard from plenty of people who are very, very wealthy.And I've heard from others who are business people who are not that wealthy, but that that in general agree with what I've got.They've got they've got a similar hope for America and there's plenty to disagree.Two things are on the horizon.Number one is Europe.Yeah. You have, I think, said you're not going to be rescuing any banks over there with any kind of significant investment.You've also said if this thing goes bad, you're in great fear of what the consequences are.What did you mean? Well, it's big.And and, you know, they have tried an experiment which were the imperfections in it are becoming manifest in there.And and the you know, the numbers are big.The banks are in the solvency of the bank.Banks are intertwined with the with the solvency of sovereigns and vice versa.And they have found that, well, they melded into a single currency for 17 countries.They didn't they didn't meld the culture.They didn't meld fiscal policies, all kinds of things.So they either have to come closer together in a major way or they have to separate and and and give up on the euro and give up on the eurozone.Yeah. And they don't want to do that.And that's understandable. And there's all kinds of.But there's also this argument.All they're doing is kicking the can down the road.Well, they really need to a lot more on on the line and they really need to sort of do more at one time to make sure that they have stopped.It's a short road.
CharlieCharlie, you can see the end of that road.They better not give it a good kick or we'll be on the road anymore.It's over the cliff, isn't it?
QuestionerYeah. No.So what happens to us if that happens?If the worst happens, what happens to the world?What happens to the global economy?
WarrenI don't think I think I don't know what they're going to do.I mean, when you get 17 of them, nobody knows what they're going to do.And politics are all kinds of things.But if you ask me, the most likely thing that in the end they will they will decide to print money, which they've got a lot of problems doing because they do have this common currency.But when when politicians face almost insuperable problems and it looks like they can solve it by printing money, I think they will do it.I think they will. They will to the extent they need to.They will they will help the banks.But I don't know what I don't want.That's not a predict. That's my best guess.But but the but the the hour is late.It's late. It's very late.And it's very late.They their banks were encouraged to load up with sovereign debt because there were no capital requirements against them.And it gave them the chance to leverage further and increase the earnings per share a little bit.So they just loaded up with them.And they thought that they were all good credits because they all belong to this union.And they're finding out that isn't true.
QuestionerWhat did you see a year or so ago when you got out of European sovereign debt?I saw where the can was going.But did you see it and other people didn't see it?
WarrenWell, no, I think people saw it.But it it was it's a little like our own situation back in 2006.Everybody sort of saw it.But you kind of thought, well, well, I don't know that they all saw it.But I don't think they understood it.I mean, part of the problem was that these people didn't understand it.I mean, the subprime crisis.Well, you think I'm wrong about that?They saw it. I think people had kind of a lot of people.But they thought, you know, they were like Cinderella at the ball.I mean, you know, that was the analogy they use.Remember, Citibank executives said, you know, as long as the music playing, you have to keep dancing.Right. That was the classic.That's right. And he, you know, he probably thought it was all going to turn to pumpkins.And mice at midnight. But he didn't think it was midnight.And he thought he'd get out ahead of time.That's he's not the only one.There was a lot of that. And I made a lot of mistakes in that respect.I mean, and I saw certain things taking place, but I didn't take strong enough action in many cases.
WarrenI'm as guilty as anybody.But in terms of in terms of Europe, it was I think it was clear well over a year ago that we were heading for a cliff.I mean, you just can't have people tied to a given currency who have lost the ability to print money, behaving recklessly.And, you know, it's going to it's going to come home to roost very quickly.And when those bond when bonds of those countries are held in huge extent, it's a bad situation.So it won't end the world, Charlie.Europe isn't going to go away.You know, Europe will be stronger 10 years from now, for sure, than it is now.I don't know how much agony it's going to go through in between.There'll be a great market for goods.They'll be great. But is the answer austerity?I don't know. That's the question.I mean, it's it's always great to say the other guy should get austere.I mean, that's the problem. It isn't a common austerity.It's your austerity will take care of my bonds.But you have a point, don't they?Yeah, sure. They have a point.Sure. They have a point.Sure. They have a point.People are beginning to say maybe a flat tax is not such a bad idea.Flat taxes is that it's not progressive.No, no, no. I mean, you're going to have to raise some more revenue than we're raising now.I mean, we're going to have to bring it up to 18 percent of GDP or 18 and a half.And we're going to bring spending down.
CharlieThen why don't you convince the president to lay out what he would do in terms of entitlement?
WarrenCharlie, I've never called the president in my life.
CharlieYou've never called him? No.
CharlieBut he calls you up and asks you to come and solicit your advice.
WarrenI mean, you come to that White House because he wants to hear what you have to say, I assume.
CharlieHe doesn't bring you there to tell you what he thinks.
WarrenHe wants to know what you think.
WarrenHe wants to give me a new tie, actually.
CharlieBut wouldn't it have been better if he'd laid out for the political discourse in Washington,if he'd laid out where he thought cuts would be appropriate?
WarrenWell, looking back, but this is easy to do.You can do it at the stock market all the time.But looking back, he probably should have prepared the American public somewhat better for whatlay ahead. I mean, we were not going to there was not going to be some magic wand when he came inin 19 in 2009.And he he did a lot of very correct things.I mean, I I admire him enormously in the actions taken.But to the extent that people thought that was going to cure everything in six months or eight
Questionermonths or 10 months, I mean, that was that was a mistake.As you know, Standard & Poor's downgraded their evaluation of America, mainly because ofpolitical dysfunction.Right. That is at least what they said.Do you know how we stop this political dysfunction?
WarrenThat's the 64 dollar question.I mean, we've got people we got too many people in Washington and the American publicunderstands this, who are thinking primarily about, you know, how do we block the other guy fromlooking good? You know, and I want them both to look good.I want a government that looks good.And. It's a it's always there's always been a lot of that, but but I think it's it's justextraordinary. And the and the and the debt ceiling situation, you know, just played it outin technicolor and stereophonic sound for the American public and the American public feelsthat that Washington just is.In some ways, dysfunctional because they want it to be dysfunctional and that they thinkthey win by dysfunctionality.
QuestionerWell, if if if you can be in either party and convince the American public who are notfeeling good about how their country is going, you can convince them it's the other guy'sfault. I mean, that's the way the American public would rebel against that if they couldfind out who they thought shows the least disregard, least regard for their own sense ofwell-being. I would really hope so.
WarrenAnd I think there's a possibility of that.But how this all plays out, I mean, you know, I think that there I think there are plenty ofpeople in both parties.This is not limited to one party who who are thinking that things are going to look.Bad over the next 12 months, at least perceived as bad in the unemployment rate, won't fallthat much and so on, and I think they think, how do we lay this on the other guy's doorstep?So and that's so therefore I will not vote for something that might improve the economy ofthe country because I don't want to see the other guy do well.Well, it may not be quite that dramatic, but it's it's it's that impression.And I think that's why people have the feeling about Washington.But the problem is that they may be very well be saying a plague on both your houses.They're certainly saying that about Congress.
QuestionerYeah, I think they feel that way about Congress.And I think I've got pretty good reason to feel that way about Congress.You think we need a third party?
WarrenWell, I just don't know how that works.
OtherIt's great to see you. It's great to have you here.
OtherThanks, Charlie. In another 20 years.
OtherWe continue this evening with the lead story of today, American-born terrorist Anwar al-Walaky was killed in a US drone strike in Yemen.He was the leading figure in al-Qaeda's affiliate in Yemen.Al-Walaky had been linked to many terrorist plots in the United States and Europe.The strike also killed Samir Khan, an editor of an al-Qaeda magazine.He was also an American citizen.This strike marks another blow to al-Qaeda five months after Osama bin Laden was killed in Pakistan.President Obama spoke about the killing today at Fort Myer in Arlington, Virginia.The death of al-Walaky is a major blow to al-Qaeda's most active operational affiliate.Al-Walaky was the leader of external operations for al-Qaeda in the Arabian Peninsula.In that role, he took the lead in planning and directing efforts to murder innocent Americans.He directed the failed attempt to blow up an airplane on Christmas Day in 2009.He directed the failed attempt to blow up US cargo planes in 2010.And he repeatedly called on individuals in the United States and around the globe to kill innocent men, women and children to advance a murderous agenda.The death of al-Walaky marks another significant milestone in the broader effort to defeat al-Qaeda and its affiliates.Joining me now from Washington, David Ignatius of the Washington Post, Eric Schmidt of the New York Times,and former Assistant Deputy Director of National Intelligence John Miller.I am pleased to have the three of them here.Eric Schmidt has a book that we all should know about called Counter-Strike, the Untold Story of America's Secret Campaign Against al-Qaeda.I began with David Ignatius, though, to give me the sense of what happened here and how did it happen.David?
QuestionerOver the last few months, the US has been focusing surveillance in Yemen trying to locate al-Walaky so that he could be attacked by a drone attack or in some other way.He was put on a list last year of individuals who the US regards as targets under our counter-terrorism policies.We can discuss the legal ramifications of that later, perhaps.But he's been on that list for quite a while.They've been looking for actionable intelligence that would allow them to go after him, and they got it.He was moving north in Yemen, away from the southern areas where he'd been based.His movement and the ability to collect the signals, US officials tell me, is a sign that if you're going to be active in al-Qaeda, you have to surface enough that we can then target you.
OtherIn other words, it's a self-frustrating process going on.
OtherHow big a loss, Eric, to al-Qaeda?
OtherIt's a big loss, Charlie, for two reasons.
OtherAs David just said, al-Walaky was one of their chief propagandists to the English language world.
He had developed quite a following, particularly in the United States, where American officials, law enforcement officials, were growing increasingly concerned about his ability to radicalize Americans over the Internet with his very appealing online videos.
But more than that, and the reason he was really targeted here, was because of his increasing role as an operational planner.
He was the guy who helped prep and train the young Nigerian man who tried to blow himself up aboard a commercial jetliner over Detroit in Christmas of 2009.
He was the one who really helped inspire, to create a bomb maker that this al-Qaeda branch in Yemen has, to pack explosives and printer cartridges, ten months later, and smuggle them aboard cargo planes that were destined for the United States.
Both those plots were thwarted, but it raised the alarms that, again, this individual was becoming a more and more important figure in this branch of al-Qaeda that American counterterrorism officials say probably poses the most direct and immediate threat to the United States.
OtherAnd who was Samir Khan?
OtherSamir Khan is an American-born. He grew up in North Carolina in New York City, and he was the editor of an online English-language magazine called Inspire.
They've come out with about half a dozen issues so far, and it's basically a very slick publication that's, again, appealing to an English-language audience, particularly a young audience.
And it offers not only articles that are inspirational, trying to get people to go and go to jihad, but it's very practical tips of how you can create a bomb in your kitchen, for instance, if you needed to, and go out and carry out attacks against Americans and the West in general.
So it both has an ideological component, and they're trying to inspire a new generation of jihadis, particularly online, but it's also got a very practical value to it as well that concerns counterterrorism officials a great deal.
OtherJohn Miller, you've been involved in anti-terrorism activities with the LAPD as well as with the FBI. Tell me who he was, al-Awlaki, and in a sense, give me the journey he took from the time he was in California until he moved south, and what he did, and then going to Yemen, and what opportunities were there for him to go a different direction?
OtherWell, al-Awlaki, in the beginning, is a bit of a puzzle. In the end, not so much. Here he is, as Eric and David said, relatively young. He was born in 1971. Tomorrow would have been his birthday. Born in New Mexico, his parents were teachers. He attended college in the United States, an engineering student.But he became an imam at mosques in California and in Virginia, and of course the lightning rod piece there is when three of the 9-11 hijackers were among his followers in California and then turned up again in Virginia, and an awful lot of investigation.First, his alleged connections to Hamas fundraising even before 9-11, and then later his connection to the 9-11 hijackers really delved into was he part of their inspiration, a support network, did he have foreknowledge, and no real clear answer ever emerged there.The intensity of the investigation and the pressure pushed him out of the country to Yemen, while he was still the subject of an FBI probe. And in Yemen, he was locked up. He was put in the prisons of the Public Security Organization, subject to the conditions there, which can be quite harsh, as well as the interrogations.And then thrown into the mix with people who were quite certainly Al-Qaeda people, the people who brought us the U.S.S. Cole bombing, and the people who were forming Al-Qaeda of the Arabian Peninsula as it relocated from Saudi Arabia to Yemen.And al-Awlaki, if he wasn't a terrorist leader before he got in there, that was certainly his college and then his graduate school, because he certainly was when he got out.How did he use YouTube, for example?Well, I think if you look at al-Awlaki, what you see is the moment where terrorism and the democratization of television crossed paths there.You know, Osama bin Laden had to do interviews on CNN with Peter Bergen or on ABC News with me to get out on national television in America until they figured out the magic of YouTube and the idea that they could post their messages.Al-Awlaki really embraced that, and he shows Al-Qaeda. Al-Qaeda learns an important lesson from him, which is the messenger often transcends the message.He had charisma. As David said, he spoke in clear, unaccented English. He understood the Western culture.And he didn't do the fiery, fist-shaking sermons of Ayman al-Zawahiri, which lacked soul or meaning. They were just kill, kill, kill.Al-Awlaki would do an hour-long tape on taking better care of your health, another one on being a better husband and family man, another one on being a better Muslim.
OtherAnd he would get around very slowly to the kill, kill, kill part, meaning once you've improved yourself to this degree, now it is time to prove what a really good person will do for their religion and their people.And that message resonated tremendously. Charlie, if you look at the stats, we had an average of four cases, plots on U.S. soil from 9-11 forward.Once you see Al-Awlaki emerge as a YouTube star of proselytization and radicalization, you see those plots jump from four or five to eight in 2008, nine in 2009, more than ten.And this year we're on track to surpass all of those. And that shows by reaching out to the individual, which he could do with the underwear bomber.You can turn somebody, strap them with a bomb and send them on a plane. But reaching out to the masses, you can turn a lot of people who you never met.Is this simply, David, because drones have been effective? Is it because the military is simply better or wherever the counterterrorism strategy was both designed and executed?Or is it because, in some way, President Obama, these two things have happened on his watch, Osama bin Laden and Al-Awlaki, have given it an urgency which he should be given credit for?
OtherPresident Obama, perhaps paradoxically, because he ran as an anti-war opponent of the Iraq war, has ended up being a devastatingly effective, I call him, covert commander-in-chief.He uses the tools of the intelligence war aggressively and effectively. He's made some very tough decisions.The May 2nd raid that killed bin Laden was a very gutsy decision.Another part of it, obviously, is the development of these armed drones.They are an extremely efficient killing machine.It's the only way to put it. It's like having a sharpshooter loitering 10,000 feet above a target, permanently able to watch, wait, discriminate, wait for the ideal moment to shoot.The drones are such good weapons that they can become almost addictive, I think.Not just for us, but others will see. There's a demonstration effect here of how powerful they are.The final thing to say is that our intelligence agencies, working with the special forces, have learned to fuse intelligence coming from multiple sources,and to be extremely efficient in exploiting it, pulling it together, signals, visual overhead reconnaissance, other signatures,and then acting very quickly with that fused intelligence, sometimes on the ground, more often using the drones.
WarrenIn terms of protecting the country from al-Qaeda, you'd have to say, yes, Obama has used all these tools pretty darned aggressively and effectively.
OtherI would assume that the more important point here is that it's the intelligence that tells you where he is and when he's going to move.
QuestionerEric?
OtherYes.
You're right, Charlie. What happened here is you have the refinement of the intelligence that David's talking about.
In fact, almost a year went by until last May, for instance, where they did not fire any drones into Yemen because there had been a strike earlier,this one by a military drone that killed a deputy governor in an important province in Yemen.
It set off all sorts of political protests and repercussions there, anti-American protests,and it upset the very tenuous relationship that President Saleh of Yemen had with the United States.
So what we're seeing here is, again, a refinement of that intelligence.
As David said, the increasing number of surveillance drones flown both by the military, and this one was, of course, by the CIA,flown from a secret new base on the Arabian Peninsula to give more overwatch into this very troublesome place of Yemen,where, just in the last few months, this al-Qaeda branch has taken advantage and exploited the unrest and turmoil that's going on in Yemen and expanded its territory.
OtherI think it's really worth discussing the legal framework for these drone attacks.
The Counterterrorism Center at the CIA has a target list, which it compiles.
They're typically, I'm told, less than a couple dozen names on it,and those names are generated by intelligence, that these people are specifically linked to plots that target the U.S. homeland.
So al-Awlaki got on that list after intelligence surfaced, linking him as an operational leader.
It's not enough to be a fiery cleric. You need to be tied to actual operations.
In the case of al-Awlaki, because he's a U.S. citizen, there is this difficult question of what due process was he given.
We don't go out and shoot people, even if we have overwhelming evidence that they're criminals, when they're U.S. citizens.
In the case of al-Awlaki, it's said that in addition to this list, which was vetted by CIA lawyers and then by the White House Counsel's Office in a careful process,there was an additional review that was done by the entire National Security Council, including the Attorney General.
The Attorney General was brought in, and appropriate lawyers from the Justice Department reviewed this.
OtherIt's said there was a kind of secret due process.And I think what people will want to ask in the aftermath of this is, is that a sufficient process?Do we feel comfortable that someone's gotten, that you're not going to have an adversary process, but that that's enough for drones to go out and target that person?It's a very difficult question.Final thing, our government has been in a really interesting debate about how, as the war against al-Qaeda's affiliates broadens and moves into Yemen and Somalia,how broad the targeting should be.Should you be able to go after what's called signature targets, not named individuals on a list, but people who fit the signature?And that makes sense on one level, but on another level, it risks widening the war so much more and creating new enemies.And that's part of what our government has been discussing in the last couple of months.Thank you, David. Thank you, John. Thank you, Eric.
OtherAs I said earlier, this is the 20th anniversary of this program.We have been on the air for 20 years.It is, for me, as fresh today as it was 20 years ago when we started with the mission.Over the next week, we will talk more about what's happened in the last 20 years of this program.We will introduce you to some of the memorable people who have been on the program.You should know that I could not have done this without you.And I could not have done this without the people who have supported the program over these 20 years.I am deeply grateful.Then, especially, could I not have done it with the people who have worked here with me,my colleagues who do not get the full credit that I do for making this program what we believe it has become,a part of the global conversation.My special thanks to Yvette Vega, who has been with me from the beginning,who is the executive producer of this program.We believe in it, and we believe in its mission, and we thank you for sharing it with us.Good night.Good night.