OtherYes, we are here with two very special guests this morning. Warren Buffett and Greg Abel, both of Berkshire Hathaway, and they're in Japan. Maybe the last place you would have expected to find Warren Buffett. He's been here since Monday, and they've been busy. They've been up to a lot, but gentlemen, welcome. Welcome. It's great to see both of you.
WarrenGreat to be here, thank you.
OtherLeave out a good time. All right, so let's talk, first of all. I mean, I'll just lay this out for everybody. We have a lot to get to. We're going to talk to them about everything business-related, the economy, the Fed, what's happening with the banking system. But we really want to start with why you're here in Japan, why this trip is happening. Warren, you've spoken to a couple of outlets over the last couple of days, just about the trading houses that you've purchased. Those are the people you've been talking to. But why did this trip happen? And why did those investments happen to begin with?
WarrenWell, the investors began maybe close to four years ago. And I was looking at company after company as I'll do every day. and I just thought these were big companies. They were companies that I generally understood what they did. Some were similar to Berkshire and that they owned lots of different interests. And they were selling it what I thought was a ridiculous price, particularly the price compared to the interest rates prevailing at that time. And so I started buying all five of the five large. registrating companies. And by my 90th birthday, August 30th of 2000, whatever it was.
Other20, yeah.
WarrenYeah. And we had bought just somewhat over 5% of each company. And we were buying identical amounts. So we announced at that time that we bought this 5% interest in each of the five. I wrote a letter to the CEOs of each of the companies saying the same thing that that we would never buy, Berkshire would never buy more than 9.9% without their consent. That, and that was my word, it was Berkshire Hathaway's word, and they all welcomed us in. And their results have exceeded our expectations. since we purchased the group, I think their dividends on average of going up 70% or something like that. And we now own 7.4% of each of the companies. And I just, Bragg and I together, we wanted to come over and talk to them. And so we got on a netjet's plane and plug and flew over. And we have had a terrific time meeting each of the five sequentially over the last two days.
[3:07]
WarrenAnd it's been fascinating. And we feel even better about what, but we couldn't feel better about the investment. And over that time, we've sold periodically the Nyen-denominated bonds. So more or less, we don't do it precisely, but we've, we've insulated ourselves from exchange rate changes. So it's worked out very well so far, but we'll be in these stocks 10, 20 years. I mean, we weren't buying with the idea they go next week, next month, next year. But we have had revelations about each of the companies that, well, Greg and I are just fascinated by it. Was it worth the trip? Oh, absolutely. It's been a great trip. I mean, they've been exceptional in how they've communicated both with their performance, but just their approach to business.
Greg AbelWhat did you learn since you've been here? I think the thing that stands out very quickly to us is they came to the meetings wanting to build a relationship and strengthen it. So they understand we've invested in their companies, but from the very get-go when we start the conversations with them, they come each with their own story and it's around building trust in that relationship. with them.
QuestionerMeaning what? That there are other potential deals that you all could do together?
Greg AbelWe've clearly made it each time we've met with them. We said we very much like the core investment, but to the extent they can identify an incremental opportunity that we could do with any of the five companies. We would very much evaluate it quickly and more than highlighted, the bigger, the better. And that he'll answer the phone on the first ring. And we'll never run out of money. I mean, they can call us any time. And maybe what they have interests, it may not, but they'll have an answer, you know, bingo. And if we make a deal, the money will be on the way and we look forward to it. And I'm just astounded at how they really, they're all different and they're all the same at the same time. I mean, we learned about five different individual companies. but it was not exactly what we expected was better than we expected in every respect.
QuestionerPeople look at this and say, okay, Warren Buffett is putting his stamp of approval on investing in Japan, basically. Is that an accurate read?
WarrenWell, yeah, it was an accurate read, but it was an accurate read a couple of years ago, too. I mean, I was confounded by the fact that we could buy into these companies in an effect.
[5:57]
Warrenin effect having an earnings yield maybe 14% or something like that with dividends that would grow. They actually grew 70% during that time and the people were investing their money at a quarter of a percent or nothing. And the quarter percent, if they put it out for many years, wasn't going to grow, and the 14% was more likely to grow than not. And if that doesn't look like something sensible to me, that's as easy as it gets, but it's turned out to be better than I thought it would be. Are the opportunities in Japan better than the opportunities in the United States right now? Well, it isn't one versus the other. We can do both, but we do have more money through equities. Now, we own a lot of Coca-Cola, Coca-Cola. Coca-Cola has a lot of business here. Apple is a huge amount of business here. But, so we do it indirectly through American investments. But, but, uh, we, we have, we have more money in terms of, of equity, securities in the, in Japan, uh, than in any other country in the, in the world. And all of Europe combined, but, uh, we just thought we were, we were, we were, we were, excluding the U.S. Excluding the U.S., and that, that message really resonated with them. They were surprised that Japan, outside of the U.S. would be Berkshire's second largest place for deploying our capital into equities. Right. Yeah. What's maybe the most surprising thing you've learned since you were here, each of you? Good. Well, it's interesting to us, well, hey, you know, we like each other. And, and we learned something about each company that, though, I read the reports every quarter. I look at every number. I, you know, I could have, I eat that up, but meeting them at first, and in the United States, nine times out of ten, I, I never meet anybody we buy stock in, you know, but this, it's true. I mean, I don't go around the companies anymore, and I prefer they don't come to us, actually, you know. So, don't call us, we'll call you. Well, I know, they send investor relations people, and basically, every company comes in and it says, we're the best buy in the world, and it's just isn't true. ridiculous on his face. These people just, I mean, we read the report, or I read the reports at that time, and then Greg got interested right away, and they told us a lot of things that helped us further our understanding of how they thought where they were going. So we came away smarter than when we came in, and that, that's unusual.
[8:59]
QuestionerYeah, I would agree one. I mean, they had each their own story, and yet there were similarities, but they each had their approach to business. But the other thing that stood out to me, the more we talk to each of them, there's a lot of similarities to Berkshire. They're very much thinking long-term, and they've got their portfolios, but they're thinking about how they manage their risks, and then how can they incrementally improve their businesses. And that clearly came across from each of the five businesses. That's not the only thing you all have done since you've been here, too. You were meeting with a subsidiary today as well. This is the last time you were in Japan, Warren, was 12 years ago, and it was to come to the factory from the representatives who came to visit you today.
WarrenYeah, we, I met just a few hours ago with 10 of the very important executives of a subsidiary of Berkshire. that we own 100% of, is car. And the accomplishments of that company have been extraordinary, and maybe 15 years ago or thereabouts, it bought an operation here in Tangeloi and in Japan, and I visited that plant right after the earthquake, and it was amazing to me, and it was a chance. I was hoping to get to their home grounds.
QuestionerFukushima.
WarrenYeah, but because of the problem of flying helicopters and everything during this season, they all joined me a few hours ago, and it's an incredible, this car is one of our pride and joys in terms of acquisitions. It came from getting a one-page letter, one-and-a-quarter-page letter through the mail. And in that one-and-a-quarter-page letter, the person talking to me, who I never heard of before, I hadn't heard of his company, he told me more than these 60-page brochures that the packages wouldn't bring out of company. He told me how much he wanted for the business. He told me what it was like. He told me why it fit into Berkshire. And he said he, and a couple of other people would come over or if I felt like what he was suggesting. And they came when we made a deal and got there on a Friday, and we ran into one kind of tax problem. And a fellow named Danny Goldman worked all night. And on Saturday morning, he said, we worked it out. And I said, well, and you've got whatever it was, $5 billion in overall evaluation. And we made a deal. And then not too many months later, Charlie and I and a couple of the Blumpkins and Sandy Goddessman. And we got it on a plane and we went over to see whether there was really anything there we'd written a check for.
[11:54]
WarrenAnd it's just been an amazing company. It started with nothing, except the fellow named Steff Wertheimer, with zero, going into competition located in Israel at that time, and now it's spread around the world. But it had nothing, and it was making little tools that other people made, and they already had the customers in the United States. They could buy the tungsten in China, and these guys, Steph starting it, but later with Aton, Wertheimer, and then with Jacob Harbys, who runs it now and is an incredible manager. They've created a business that we are extraordinarily proud of. We love what they've accomplished. And they don't stop. They just keep going in Japan. You know, they just want a 51% interest in another company that fits in. Iscar will never stop. Berkshire will be proud of it 20, 50, 100 years from now. And it was interesting more, didn't you think that the one of the managers asked specifically, how did the opportunity to invest in Iscar, IMC? How did that come to you? And you shared that story, but it's great to see their interest in how they are become part of Berkshire. And they highlighted in Japan, for example, IMC started with a small operation here 20 plus years ago, and now we We have three businesses that we own 100% of, and we're going to go visit Tungaloy, which has a very significant plant in Japan, in Japan. And then they've added two cents, and now we own just recently, starting April 1, we have 51% of another joint venture company. So it's once, they've been amazing in establishing a base and then continuing to grow it. Greg, let me talk to you because I've known you for years, but we've never had you on the program to talk about your role, your vice chairman at Berkshire Hathaway. You've also been named the era parent, which we all found out just about two years ago at the annual meeting that was held out in Los Angeles. With our usual depth handling. Everybody doesn't know, Charles Bunger mentioned it kind of in passing, and so that's how the world found out. How has your life changed since that announcement?
Greg AbelYeah, I would say it hasn't changed in a lot of ways because it goes back to what I know. what I enjoy and making sure that those priorities stay in place. The responsibilities around the work, again, the relationships I have with a Jacob or the other managers really hasn't changed. There's some external forces or interest and that's naturally going to come.
[14:47]
Greg AbelBut I would say, you know, the beauty of it and it's being part of Berkshire allows me to just continue to do what I really enjoy. So I get the opportunity to work with Warren and Charlie and others, but at the same time work with all our great managers every day. And that hasn't changed. The external interest that comes with that. What does that mean? A lot more people call you. A lot more people want to get on your call sheet. They want to be able to spend some time with you? Yeah, that naturally comes. There's a lot of those calls. There's the people in the community who maybe didn't even know, that I work for Berkshire. So you get some interesting comments. I'll get questions from my 11-year-old's best friends as to what that means, just like the question you asked. And I remind them we're still doing all the same things we did five years ago together. And that will be the approach to the way forward.
QuestionerSo how do you two work together?
WarrenWhat? He does all the work and I take the bow. And it's exactly what I'm honored. And he knows more about the individuals, the business. he's he's he's he's seen them all and and you know they haven't seen me at the bnsf railroad for 10 12 years or something like that and and uh you know katie farmer i mean she yeah yeah yeah Greg is there and he understands each of our businesses i mean it to have the grasp of what you know whether it's granemals or the railroad operation or you name it just goes all over and And Greg gets it the same way I get it. But the difference is that that he likes to work and I like to sit around. I like to allocate capital and he likes to, and he likes to, he thinks the same way on it as I do. But he also, he likes to meet everybody that's running the business and he understands him and and he's probably tougher than I would be in terms of getting things done and everything and so it's improved it's already improved dramatically the management of Berkshire and uh we think alike on acquisitions we think of like on acquisitions we think of like on capital allocation i mean he's uh he's a big improvement on me but don't tell anybody
Questionerso what's an example if he's tougher on you than things what's one example where he's been tougher than you would have been either of you can answer that
Greg AbelWell, I think, one, Warren grew up with all the businesses, he acquired them or they're already there. So when I came in, I had the opportunity start from scratch.
[17:33]
WarrenI had to learn the businesses and their industries, which means there's going to be an active dialogue with the managers and that helps immediately that I was able to at least have that dialogue. And then associated with that because I'm learning the business, I have the opportunity to discuss their businesses and expectations around it. and I would say just even communicating around how they allocate their capital, how they're using it, and I wouldn't say giving them absolute requirements, but providing direction in those areas has been beneficial. I think both for Berkshire, but for them, they like that type of input. Our managers like autonomy, but they also get lonesome. I give them the autonomy, but Greg gives them both and, and, but Greg gives them both, and, and, he gets somewhat more discipline of the managers with our hands-off type operation. He gets more discipline than I would get. Is it good cop, bad cop? No, no, no, not at all. Is it nice parent, mean parent? No, no, we really get, it's just a, like I said, a bit of a different approach, but what they value is a little more of that one-on-one. They don't want to just be out there by themselves, but they, so they appreciate it. that, but they want the autonomy that they've always had. You know, one of the questions that people have always had is when Warren is no longer running things, what would that mean? Would all of this collection of managers, who you have some great managers, a lot of different companies, how do you keep them all interested? Because for so long, it's been amazing to say, I work with Berkshire Hathaway and for Warren Buffett. How do you build that same sort of rapport with them?
Greg AbelYeah, I think there's a few things. So first, this has helped a lot when you have this type of transition and I've had the opportunity to work with them. So I think we do have very good relationships, but there's no question. It's not the same as working for Warren. I've understood that and I've effectively apologized to them many times for that outcome. But they also realize that they still have an opportunity to go run their businesses, what they love and what they wake up to do every day. And that's what we're still providing both today, under the current situation and we'll provide the same opportunity long term. So even though it was kind of an accident that the world found out that Greg's... More than it actually, you got it out of them, I think, actually.
[20:03]
QuestionerWe got it out of Charlie. Oh, you got it over Charlie.
WarrenCharlie and I are not the most careful in our wording at times. But would you say it's almost a good thing that Greg has this opportunity?
QuestionerOf course.
WarrenAnd we're so damn lucky. I'm lucky. I mean, it isn't like I had 10 people I could choose them. There may be 10 people out there, but I don't, I know Greg. But there aren't 10 Gregs out there. That I can guarantee you. And, you know, the problem for our board of directors is the day I'm not around, and Greg's running it. I am not giving them some envelope that tells them what to do next. I mean, but on the other hand, Greg is not looking to retire at 65 or 70 or 75, and we don't want anybody at Berkshire. thinking about you know what their package will be when they get to be 65 we've got a unique organization which now has tremendous resources and we've got and and nobody really can copy our style i mean in the end i mean where else can they get an answer in five minutes you know whether we're interested in the business and and uh where they get the kind of freedom now they got they got to follow the law in every case and and and and and and and and They can be more lax with me than they couldn't with Greg. Greg just, you know, says if, if there's no need for them any of our subsidiaries to keep any cash around with the best bank of the world. We got a hundred billion dollars plus and Greg's better enforcing that sort of thing that I am. Is there? And they smile when he gets through enforcing it. That's the other thing. I mean, he can deliver. tough instructions, at least compared to me, and when they go away, they feel good about themselves.
QuestionerGreg, lately recently there was news made that you had put even more money into Berkshire. For a while, you didn't have a lot of money in Berkshire. You had a lot of it in mid-American energy and then Berkshire, Hathaway Energy from the ownership structure. But recently, you increased your stake to even above $100 million of stock that you have purchased with your own money. Correct. Why'd you do that and will there be more put into it?
Greg AbelYeah, obviously when I monetized the position in Berkshire Hathaway Energy, that provided an opportunity to purchase shares in Berkshire. And had I done that sooner, I would own the shares in Berkshire earlier. So that was always the intention. And yes, I always will continue to invest in Berkshire.
[22:47]
QuestionerI strongly believe in Berkshire. I believe in what's been created. And I strongly believe equally that we have a great path forward. Peggy, how many managers in the United States have put $100 million of their own money, not getting a share at a discount, not getting any special deal on it, or any disorder, or having an incentive comp expert come around and do as instructed, which is to arrange it so that the CEO gets the upside but doesn't share the downside. You know, I could hardly think of a case where anybody's put anything like $100 million of their own money in and getting the exact same deal as the shareholder gets. If they make money, they make money, if they lose money, they lose money, and that's just the way we play it at Berkshire. You don't find it any place else.
WarrenYeah.
QuestionerDid you feel any pressure to do that, or this was always the plan?
Greg AbelNo, I felt jail pressure. I mean, I very much believe in what Warren said, that our culture is, our culture is. one that's very aligned with our shareholders. And I've observed both Warren and Charlie and our other board members, but specifically those two, that they've had their capital deployed there. But it's the belief that they're going to align with the shareholders and that's who are their partners and that's who they're going to take care of forever. And so it was a pretty simple decision to when the capital freed up to acquire Berkshire shares. So you've had the relationship for for years now. With the non-insurance operation of overseeing all of that, Ajit Jane is responsible for overseeing the insurance operations. How do you and Ajit work together?
Greg AbelYeah, it's been a great relationship. And that's been a big benefit of, again, once we became vice chairs. Yes, we would talk and we'd see each other, but it's created that opportunity to have an active dialogue. So we regularly check in with each other. If there's ever an issue that'll cross the boundaries of let's say either it's a broader berkshire matter we'll both pick up the phone whoever it's it initiates with and checking with the other to see as we move down this path are we each comfortable with it and seek input so it's been a it's been a great relationship and a true pleasure and honor to have the opportunity to work that much with the jean energy never wanted to run berkshire uh great didn't want to but he's probably willing to know but he's but it wasn't what a jeep loves running you know a one-of-a-kind insurance company in the world
[25:29]
Warrenwhich he built himself and uh and he has a lot of fun uh running insurance and he doesn't really give a damn about grannibles you don't get right to outdoor so uh you don't you don't you didn't have two guys competing for the same job or anything like that so uh it's it's job it's it's it's a jeet's job to develop a lot of money for us it'll at no cost or less and and and then he adds it to me and he says you do something with it more and and Greg in fact all any not insurance operation you know we'll fall on up when we bought allegheny alagany was an insurance company but had eight eight other subsidiary operations the eight subsidiary operations which are not necessarily small i mean there's hundreds of millions of the dollars of p-tax earnings there Greg gets him uh Joe continues to run the uh insurance uh operation and the CEO of alvaney he's right but he works through he works with the g now Joe and I have a direct relationship too but uh you know it it just all works all works
Questionersee I didn't want to waste any time because we got got Greg and you know and I was going to just ask Warren how far he took Creighton because it was really pretty amazing and I was going to ask Greg is he a basketball fan and is he will we continue to do that you know you win money if you get all of them right which which Warren that's the greatest thing you've ever come up with did you is there anyone in the world who could have gotten even past the second round this time there's no your money is safe you will never pay off that money that you offer for someone to get everything right
Warrenno we offered a we had a winner for a hundred thousand dollars and if Creighton and won that last game which they should have actually but uh and I'm not blaming Creighton I'm blaming the referee the woman that won would have gotten $200,000 instead of 100,000 and she would have come to Omaha and thank the great players first place. Yeah, but next year we're going to make it even more interesting. I'm redesigning the contest for next year because I want somebody to win the million. And of course, one time somebody came within a half a game. And by the way, don't you insure, don't you have that insured or are you paying that out yourselves? It's for sure how it's self-insured. And I am a basketball fan, and it'll continue forever. The parody is unbelievable. And that's what gets me is that literally one weird bounce on the rim changes the end.
[28:26]
QuestionerIt could be anybody that could have been in the final floor and it's just so great. It could be anybody. Yeah, it's so great. And the parody is amazing. I mean, Creighton, I thought X beat Creighton, didn't they warn? I mean, I don't know. But as I said, I don't want to waste any time on this and I just did. So take it away.
WarrenAs somebody said a long time ago, I think it's a leave. Leone Roche or something, we was robbed. I don't think I've ever heard you blame the referees before. Well, all I know is nobody had been calling fouls like that throughout the game. And the guy missed the shot. But he made one of the two free throws. And I don't have anything against San Diego State. But if the bird, if that referee wants to have a seat at the Berkshire Hathaway annual meeting, the hell of them.
QuestionerOkay, so let me take it back away before you get yourself in more trouble with that.
WarrenYeah, well, we go a long way and it'll be a lot of having that happen. Right.
QuestionerAll right. So we're in Japan, but there's still a lot of things that are happening while you guys have been here. One of the pieces of news that came out was about a new C.E. at pilot, which is the pilot flying J franchise business that you all recently upped your position in you used to be a minority holder. You just increased your position to just over 80%. And as a result, you've made some changes there, including that new CEO. You guys want to talk a little bit about that?
Greg AbelSure. So really pleased with the acquisition or taking our interest up to 80% of pilot flying J. They have a great set of assets and a great management team in place. One area we did want to make a change was with the CEO. And really the focus was to bring in someone who's been tenured with Berkshire and would have a long-term focus. Some who's going to be there for 10 to 20 years or however long. Long longer. Yeah. And that was really the focus. So we were able to, Adam Wright, who is a 20-year energy veteran with Berkshire Hathaway Energy. and really started his career with us back in 1996. And has gone through many different roles in our organization in the energy side, including being CEO of Mid-American Energy, one of our largest utility subsidiary. So when this opportunity presented itself, we approached Adam to move to Knoxville and take on the role. And we're just thrilled to have him back at it. He had moved on to a company for the past
[31:15]
WarrenThe past two years, we're thrilled them back in the family, and I know he's thrilled, and he'll be a great leader for Pilot Flying J. And the Haslam family is on board with this. They still on about 20%. Absolutely. They've been extremely supportive of the transition.
OtherYeah.
WarrenAnd Adam is now having, he will be the CEO of a company that last year did about $70 billion of revenue. That is a big number. a big number. And now, Diesel was higher last year and everything. I was going to say it wasn't in 45 billion. So it might be normally 45 billion, but it is a big, big operation. Adam wasn't because he was born in Omaha, Nebraska, but he was born in Omaha, Nebraska. He went to the same public high school as my wife went to, and three of my grandchildren went to North High that's been around 100 plus years. He had a mother that, that supported them and going to the UNO where he set the rushing record for three years. I think he gained 3,600 yards and it would be broken because they gave up football. He's a remarkable, remarkable manager. And when he ran Mid-American, it was earning $700 million a year. a year and nobody never heard of me. You know, there's all these people running businesses in this world that don't make $700 million a year after tax. And now he'll be moving into an even bigger position. And by the way, he's black. And how many black men or women are running operations that will do $40 or $50 billion a year. And we've got got Katie Farmer running the largest railroad. The United States and no woman was ever thought, I come from the town of railroad town, and it was unthinkable. And both of those people, Katie and now Adam, they've got the jobs because they deserve, they've earned it. Katie was at the railroad for 30 plus years, and she's got railroading in her blood. And Adam is just a terrific executive and, you know, he worked, he had three jobs when he was at UNO and University of Nebraska, Omaha. University of Nebraska, Omaha. It's in a racial algebra story. And to happen to be in your own backyard, and I feel terrific about it, but I did not engineer it. I mean, he got there and then I learned who Adam was after he was there.
OtherYeah, when he was CEO of him in American.
WarrenYeah, absolutely, absolutely.
OtherYeah, and he developed through our company. There are some great folks that have helped mentor him, but he's an exceptional leader. Katie's an exceptional leader.
[34:19]
WarrenWe're, when I think of the talent there, it's just amazing, and their leadership skills are remarkable. Think of the publicity that people get on a business that makes $700 million a year. In the case of Katie, $6 billion a year. And they work through Berkshire with Berkshire's resources with our support, but they are, talent and and they get it because they're the person for the job and and uh not because some DEI uh shareholder proposal came down nothing i mean it we just and i you know i you know i feel good about berkshire when i when i when i look at the guy like adam and went to north high and uh you know 110 year of 1920 i think a lot started and and and and here he is public schools, you know, and he's running on a place. He didn't go to Harvard Business School and, you know, he, he just earned the job, as did Katie, went to TCU, and, and, and, uh... Texas Christian? Yeah, Texas Christian, and, uh, they had a, but BNSF happened to be particularly interested, right there, you know, same, same area. And, and she's, I think she started working for us when she was still in college. So I love the stories of these people and they don't get a lot of publicity like other people may get, but what do I ever do the job? Yeah, both Katie and Adam started, had internships with us. I mean, they came in as interns and now our CEOs of two important businesses for Berkshire, so couldn't be more proud of them.
QuestionerWhile we're talking about the railroad, let's take this a little more broadly. Greg, you've been working with the railroad for a long time and seeing what's been happening there. There have been a lot of questions raised nationally since the derailment of Norfolk Southern in Ohio. A couple other derailments that have happened since, but that one, particularly because of the chemicals involved. There's been a debate that's been taking place around the country. Is this a Norfolk Southern problem, or is it a broader railroad issue? What would you say to that?
Greg AbelYeah, I would say it's a railroad problem now, specifically now. I mean, we have to take on the challenges that we've had some significant. events and our team at BNSF is they take I know within the moments of knowing of that accident they were one they're trying to understand it but also lessons learned and we recognize there'll be certain actions that come from the federal government out of different agencies and we'll be very respectful of that in sharing our experiences and figuring
[37:08]
Greg Abelout you know the goal is to have a safe railway both for the consumers and the communities we operate in and and ultimately also so also for our employees. So there's no question. There's lessons to be learned for the industry as a whole and there's room for improvement. Just a business basis, we would rather not handle hazardous materials. We are a common carrier. We're required to carry, you know, whether it's chlorine or you name it. And we've got to do our damages to do that as safely as possible. But they're literally with something like close to a thousand. There are a thousand. I mean, you are running huge trains, 120 cars or maybe and and it's big, and it's big, heavy and it's big, heavy stuff. And they go around curves and they go in 100 degree weather and they go in zero degree weather. And the record of the industry as getting, becoming more safe, as brumatic. over time, but every day you have to think about making it safer. I mean, Katie would tell you that it's unacceptable to have anybody die in, for example. But people walk along railroad tracks, some people commit suicide on railroad tracks. And just imagine how traumatic that would be for an engineer, he can't stop the train. And he's blowing his whistle like crazy, right? Somebody decides that that's the way they want to go. Railroading is a tough business, and it's a lot better than it used to be. It'll be better 10 years from now and 20 years from now. And they'll never let up at BNSF, I can promise you that. Some of the blame, though, has been put on precision railroading. And on the idea that Norfolk Southern, in particular, if you listen to some of the railmen there who have issued complaints about it saying that I was reading one guy's testimony who said that in the 20 years he's been there, this is Norfolk Southern, not Burlington, Northern, but precision railroading is something almost all the railroads have taken a look at, saying that in the 20 years he'd been there, the safety times had gotten shorter and shorter in terms of allowing inspection for every car that went through, going from two and a half minutes to two minutes to a minute and a half and even less. Is that a concern? Is that something that happens at BNSF as well? I would say that, listen, everybody's trying to become more efficient and all the time. as we operate the railroads. But what, if you look at the safety records, for example, equipment failures, definitely be an SF.
[39:54]
Greg AbelWe see improvement year after year in that area. And there may be blips due to a very specific event. But the team as a whole, they start with prevention. How do we avoid the problem right at the front end? And then you move to detection and you're saying, okay, if we do have a problem, how do we, you know, identified early in address it? And then you hope you're not responding. but you create a culture that you're going to constantly focus on the three of those. And that will create a safer work environment, both for our employees and for the equipment they're moving, and for the communities we operate in. But it is rotating equipment. You know, things do go wrong. And that's why that prevention and detection becomes so important. And I think we have a very strong culture around that in BNSF. The quarterly report I get every, ever since we bought it, but continuing under, It begins with safety. Right. And it gets around to the operating ratio, net income, all that. But it starts with safety. And, you know, it is, it's an outdoor exercise. I mean, we've had all, you know, you deal with hundreds and hundreds of millions of 10 miles moving. I mean, it's, you have problems if you have trucks, you have problems if you have airplanes, you have problems if you have barges, you have problems if you have you have problems if you have railroad. It's gotten safer dramatically over the years. Right. Yeah. And all those risks covered. Yeah. And it's amazing. We are carrying, now, there was much more passenger traffic in the past, but we are carrying war tonloads of freight in the railroad industry than right after World War two, and we've got one-tenth of many one-tenth of many people that are needed to do it, and they're doing it more safely by dramatic measures than existed at that time. But, you know, every day, they're worried about it. And to say that there will never be any more derailments is just plain crazy. And I would rather not be caring with the call hazmatism hazardous materials but we they are going to be transported in this country and and the shippers decide what is the best method of getting their product to market and it's they're on BNSF or for a handoff from southern or the railroad I mean we we carry them and I can tell you that Katie Farmer and her predecessor CEOs they care about safety But will we be perfect? The answer is no. It just isn't going to happen.
[42:53]
OtherYou won't be perfect. Would your response be the same as what we've seen from Norfolk Southern? I think they'd handle it a little terribly. Yeah. And, you know, we connect with them in all kinds of ways. I mean, you know, the amount of the we handoff or get received and it comes to us and it's the way the American system is developed in railroading. But, but, yeah, I don't know the person personally, the CEO or anything, but they were tone-deaf. And I don't think they're necessarily bad people or anything of the short. But it's just, their response should have not been the same way. I mean, it, we had a derailment not long thereafter. Right. You know, I mean, it was either going to be Katie or it was going to be Greg. being, Greg, but that got immediately got on a plane and flew there. I mean, and looking back now, I'm second guessing somebody, you know, I've made so many mistakes in my life, but, but they, looking with the hindsight, CEO of Norfolk Southern, I mean, if he'd gotten there and drank the first water, then, you know, said we're going to do whatever it takes to restore your life as it was before this, happened and everything, you know, that's, that's the way to behave, but I've done a lot of things that I'd rather have do-overs on too, so I don't know, I don't want to get, I don't want to claim my responses have been perfect in every instance either, but I sure hope we don't do that ever at BNS, I'll put it that way. Right. All right, so Greg, let's talk about where you spend the most of your time. Obviously BNS, BNSF and Berkshire Energy are two huge areas. How much of your time do you spend with Berkshire Hathway Energy.
Greg AbelYeah, it would be similar to what I spend with BNSF, except I still know, have a lot of strong relationships in that industry. So a few years ago, we acquired some assets from Dominion Energy, a great set of gas transmission assets in the Northeast part of the United States. That's a strong relationship I had with the prior CEO, Tom Farrell. And so I've maintained those relationships. So inevitably, I'll spend more time on energy, say, than a BNSF. On the general matters, it's equal. But there are other opportunities that I'm just know within the energy space, and that's where I came from. So I, inevitably, I spend more time there. But, and then I try to cross our businesses. I mean, our top 12 businesses account for 85, 86% of our underlying cash flows.
[45:49]
Greg Abelin the group. So it's pretty easy to know where you should be spending your time. At the same time, as Warren touched on earlier, I do know all the businesses and as best I can, and the CEOs, and in a large part, their management team. So it's not that the rest are ignored, but the time is prioritized across those top 12 businesses.
WarrenGreg has lived in Omaha in the past, but he lives in Des Moines now, and he's in England part of it. I mean, I mean, he's gone wherever it was needed in terms of the predecessor company, but he has found apparently some little area in Des Moines where there's 48 hours in the day. And that's the only explanation for him. He gets everything done that he does. Maybe it only be a couple of blocks, but I want to find that place. We have a lot of great members at our team, as we all know, that allow a lot to happen. But yeah, and that's a good point.
Greg AbelI mean, you sort of, in the end, I go where. someone's either requesting some input or a discussion. And of course, I know, like I said, the large ones. But if someone else calls and says, hey, we need to discuss something, I'm going to talk to them that day or very, very quickly. A big part of Warren's job is also capital allocation. Right. And right now, Warren and Charlie and Todd Combs and Ted Westler are all responsible for allocating capital. Obviously, you've done a lot of deals in your day too. Right. What kind of relationship? do you have with Todd and Ted? Do you talk to them about capital allocation at all? Is there any back or forth?
QuestionerWhat kind of relationship? do you have with Todd and Ted? Do you talk to them about capital allocation at all? Is there any back or forth?
Greg AbelWell, I pay attention to what they're doing. But in the end, I think it's much like Warren does. They run their own portfolio. So I watch it with interest. And I don't really know who's doing what amongst it, but we all have a pretty good idea of what Warren is doing versus the two of them. So I'll do it to mainly observe and pay attention to learn from what they're doing. And I may ask them, that was really interesting, what triggered your interest. But that's the extent of it. And outside of having relationships with both of them, which are important, that's their portfolio and that's the way it'll always be and they'll manage it accordingly. Do you like capital allocation? He's terrific out of it. But my job, the job of any CEO in Berkshire is the job of capital allocation is their job and the chief risk officer is their job. And the chief risk officer is their job.
[48:19]
Warrenyou can't get rid of it. I mean, if you aren't willing to assume that responsibility, forget it. You shouldn't have the job. Now, Craig's got all kinds of ideas and everything, but it's my responsibility in the end. It isn't, I just, it'll be his responsibility when he runs it. I mean, it just, the idea that you have this committee and a risk committee and all that kind of thing, I think that's kind of crazy myself, but there are rules. for example, in banking that you have a risk committee and the CEO was the one that is going to get you in trouble. Or keep you out of it. Right, keep you out of it. It's up to them to identify the risk and own it. And we've got that culture. And I talked about that responsibility to the shareholder. But with that comes being the chief risk officer, allocating the capital properly and prudently. and prudently, and then incrementally we have our business operations, but our managers know what to do, but keeping them within our level of comfort. And with that, what we really want to create is a company that's an asset to America, and never a liability.
QuestionerDo you, too, have discussions about risk management? Just because, Warren, you've been somebody who's been great at this over years and years and decades, of kind of seeing risks far off on the horrid. far off on the horizon before anybody else did. Do you guys talk about stuff like that?
WarrenIt's my job to think about risks that nobody else thinks about. I mean, it's very easy to read a little thing in the front of the 10K of every country about the risk. It's the ones that aren't in there. One way or another are going to bite you. And I've got 99 and a fraction percent of my net worth in Berkshire, but I've got all my relatives and I've got everybody. And if I thought that I wasn't going to be able to do a decent job, of managing the risk, a better than decent job. I'd be crazy to take on that responsibility. Why in the world, I've got all the money I need, so why should I do something that could destroy me internally and my sisters and my cousins and all these people? Unless I felt that I could do the job of managing risk really as well as anybody can do. And it is a complex or organization and I worry about things nobody else worries about. But I can't solve them all. I can't solve it if the pandemic starts, but anything that can be solved, I should be thinking about that. And Charlie thinks about it too.
[51:05]
QuestionerI mean, we've talked about it forever. Well, we're going to talk a lot more about this in the next couple of hours. What you see out there is the risks. But Greg, we want to thank you very much for this time and for sitting down with us. We really appreciate it. It's been great, so thank you very much.
OtherThank you.
QuestionerAgain, Greg Abel, who is vice chairman of Berkshire Hathaway. But Warren, in the meantime, this is the first time that we've gotten the chance to speak with you in a very long time. As they say in England, I've gone quiet.
WarrenYes. You've gone quiet, but there's been a lot that's happened and a lot that's happened recently in particular. Problems in the banking sector. Your name kept coming up as someone who was in talks with the administration, potentially, to step in and do something with some of the regional banks, with some of the bigger banks. There was a lot of confusion around it. But can you tell us what happened? Were you talking to the Biden administration about problems with the banks?
WarrenI never talked to the president. I've never called the president in my life, but I have talked with people that, from time to time that work around the president. That's been true for administration after administration. And I don't talk about. what I talk with them about.
QuestionerWould it be fair to assume that you've spoken with them recently? When these, I would say...
WarrenThe president? Not the president. People around the president, let's say, people in the administration. I've told anybody that recently, but I've spoken with people. And I've spoken with people around administration, but generally they call me, but not 100% of the time. I mean, I would feel free to call a member of the administration. administration, I would never feel free to call the President of the United States.
QuestionerOkay, so let's talk about what's happening in the banking sector right now. Is this a banking crisis? Is this financials in turmoil? Is this banking crisis 2.0? What would you call what we've been seeing happen?
WarrenWell, I would say that some of the dumb things that banks do periodically well, has become uncovered during this period and as one of the banker told me one time he says, I don't know why we keep looking for new ways to lose money when the old ones are working so well. And they made the same mistake, some banks in this period by, by, they haven't made as many mistakes. They expect to make some mistakes in making loans, but they haven't, and particularly if you're getting into credit card loans.
[53:44]
WarrenI mean, that's just part of the game. But they haven't made. the same sort of mistakes that they made back in 2008 or not. But they have mismatched assets and liabilities. And bankers have been tempted to do that forever. And every now and then, and then it bites them in a big way. And it's just amazing to me that banks can make presentations to financial analysts and everything. And if one bank bought a bond at 100 and another bought it they both they both held a maturity one bank carries at a hundred and some other bank carries it in 96 I mean it is accounting procedures have driven some bankers to do some things that may have helped their current earnings a little bit and and cause the recurring a recurring temptation to to to to to get a little bit bigger spread and report a little more in earnings and it entered in a result you couldn't predict you couldn't predict when it would happen and then once they start looking at one that does it then they start looking at others and and pretty soon you know that everybody is in a position of looking at a number that nobody looked at what it was presented to them a year ago if you ever read the 10k or anything was sort but the banks did not call attention to what they were doing when it was going on and I would read I would read investor contact when they would have meetings with financial analysts for the people follow banking and nobody even brought up the point virtually and believe me if you know if we've got a $50 billion loss or something something in Perch or we would expect the people will know about it and it's happened before it's happened this time it'll happen again someday did you see this you were reading through the reports you followed all these banking earnings that were coming in so you noticed it you sure sure I noticed it is that why you saw it sold so many of the banking stocks you owned we sold we sold a number of banks I mean we we had we had held someone for 25 years but I don't like it when when people get too focused on on on the earnings number and and and and forget what I my view is basic banking principles I'm not going to get in the naming any any names or anything like that but it it happened to bearing degrees throughout the industry wasn't the and the politicians say well the big banks did this and that isn't true I mean I I I I know who has been holding long-term instruments and if they let's take more
[56:47]
Warrencommercial mortgages or something of the sort that They carry them at cost basically and they can't sell them at that cost at that cost and it's important it's important the banks retain the confidence of the public and they can lose it you know in seconds and we saw a country that was was not worried about banks you know until about Wednesday or Thursday of the week on Silicon Valley all of a sudden everybody's worried about it all over the country and the interesting thing of course is that that that that it will not cost the government a penny I mean people think that you know that some of the government's going to get hung up with us the FDIC is a in effect a very peculiar mutual insurance operation that is run by the government but is financed by the banks and FDIC had 120 billion or so at the start of the year and that's all money that banks have paid in less what the FDIC has had to pay out on losses the FDIC has to pay out the FDIC has to pay out 250 billion this time or 300 billion they just assess the banks more and they don't do it in a very business-like manner because the the public has the impression that the FDIC is the United States government and that the so on and of course they do appoint the people but but the costs of the FDIC including the cost of their employees everything else is borne by the banks so banks have never cost the federal government a dime but that the public doesn't really understand the whole FDIC thing and the comments of public officials confuse it and the issue enormously at somebody ought to lie I mean the FDIC was set up to operate I think January 1st 1934 you'd think somebody would have gotten through to writing what's the essence of this FDIC which is was a fantastically good development of the New Deal I mean 2,000 banks failed and I don't know whether 1920 or 21 well there's only I don't know something less than 5,000 banks in the United States and I mean it was a paralyzing thing to have a a failure in this country and my dad lost his job in 1931 he lost his savings and it was because a bank failed that he worked in at the downtown in Omaha and people shouldn't be worried about losing their money and the deposits they have in in an American bank and today they have no reason to worry and but the message has gotten very confused and people don't really understand how it all works and you know and politicians can make hay out of it and
[59:59]
Warrenall kinds of all kinds of things bad bad things happen when people don't understand some major institution and who actually dares the costs and and what the responsibilities are and nobody is going to lose money on an on a deposit in the US Bank I don't know about the rest of the world I don't know I'm not that familiar with it it's not going to happen and that message has gotten mixed up well look the message has gotten mixed up because and Andrew's got a question we'll get to him one second the message has gotten mixed up because the government no longer has the authority to do to back up all deposits without getting the explicit okay from Congress but they'll get the okay I mean they you know you can say that you know that we're going to hit the deficit ceiling and all that I mean the debt ceiling and that and then And, you know, and everybody makes hay out of it, political, everything, we're going to change the debt ceiling again. And the unnecessary apprehension, commentary, everything, that's caused by the fact that people say, well, the law doesn't allow the federal to get above X, well, they're going to change it. And what happened with the failure of Silicon Valley and then signature there after there. They, the understandably, the Federal Reserve says we have this much power on a Sunday. Understandably, the FDIC says we have this much power on a Sunday, which is an accurate statement. And the President of the United States, the next day, says that your deposits are safe. And he's absolutely correct, but you have to change the law. And I, the President of the United States can also say, the United States is not going to let a debt ceiling mess up the whole world. And that's true too, but it wasn't technically true in the sense that they would have to go to Congress. And then Janet Yellen, quite understandably, said, well, we won't change the rules without coming to the House and Senate and so on. And the public gets confused when they hear that. They're both essentially right. You know, Secretary Yellen is right. The president is right. But it could have been added that the American public is not going to lose. No American depositors can lose any money in their bank when they got $250,000 or more. But if that change is needed, we'll make it. And besides, the other banks are going to pay the cost of it. And the message is getting a little bit. Well, Andrew's got a question, too. Andrew?
[1:02:56]
QuestionerWell, hey, thanks, Becky. Hey, Warren. To that end, I think there's the issue of individuals who have money at banks, and then there's companies who have payroll at banks and whether you would advocate for effectively not just this implicit guarantee, but an explicit guarantee that covers everything. And what the implications of that are, just for the risk that banks may take as a result of knowing that it's guaranteed and also what the cost of, effectively, you've been, you are in the insurance business. If we were to insure every deposit across the entire banking system, what that would do to how much capital would even be in the system, if you will, and available for loan. You basically have a mutual insurance company and they, of a very peculiar sort. And the, the ability to, the ability to, you know, the ability to, you have a mutual insurance company. And they, of a very peculiar sort. to pay the assessment. I think the assessments are like $10 billion, or maybe that was a total revenue of the FDIC. But if they need $30 billion or $50 billion, it won't be the federal government that will put in the money. It will be banks. And I don't think that's understood even though.
WarrenWell, originally when it started in 1934, they had some different rules and you didn't even have to belong to the FDIC. So it's evolved in a way. It's evolved like Social Security where people sort of got a notion in their minds of the politicians to sometimes use the demagogue version of things. And in the end, you know, it's like saying the Social Security Trust is going to run out of money and therefore won't pay people. Well, I will, well, here's the offer I will make, actually. I like to make bets. Charlie doesn't like to make bets, so I won't frame it exactly as a bet. But I will be glad to put a million dollars of my own money. in the bank that or any place else actually that anybody takes a differing view takes and have them put a million dollars in and at the end of the year from when we do it, if any American depositor has lost money from a bank failure, the other fellow gets to name where the $2 million goes to what charity. And if they haven't, I get to name it. And that's a firm offer. We'll see who steps up. Right. If that's the case, are the regional banks right now, the First Republics and the like, a steal from a value proposition? No, they're not going to save the stockholder.
[1:05:41]
WarrenI didn't say that the buying the stockholder. I didn't save saving the debt of the holding company. You know, people really don't understand it when they look generally in the bank. When it says debt, it's usually the fact that the shareholders own the bank on margin. They borrow money at the holding company. And that's a different game. But they should lose money. I mean, I don't have any problem with people losing money if they do dumb things. I've got a suggestion how to handle moral hazard on that subject, which we can get to in a second. But the depositors are going to get their money. And they got their money in the case of Silicon Valley on Monday morning. But they were sweating. bullets all weekend unnecessarily if it just if they just understood how the system worked and you know it's it you know it's a failure of all of ours that that message is really not communicated I don't think I don't think I don't think one person and honored can describe how the FDIC actually operates and where they get their money and who appoints them you know the people that are working there who pays the salary of the people and It's it's a misunderstood institution. Are we through the banking crisis at this point? We're not through with bank failures, but but we are through the depositors haven't had a crisis haven't had a crisis. The owners of banks may have lost a hell of a lot of money. The people who bought the debt of the holding company, they may lose a lot of money. They may lose a lot of money. People can, they can lose a lot of money, but the depositors aren't. So you don't need to turn a dumb decision by managers into a panicking the whole citizenry of the United States about something they don't need to be panicked about. I mean, it is really, you know, it's like we're thinking that, I just don't know, I just don't know why you do it with people. We set up the FDIC to relieve the worry of people. And initially, it wasn't the same institution. But you're saying on one hand, okay, no depositor is going to lose money. On the other hand, you're saying we're not through the bank failures. Banks are no bust, but depositors aren't going to be hurt. I mean, banks are no bust. I mean, the Continental Illinois Bank was thought to be impregnable, you know, back many years ago. And, you know, the Franklin National Bank, the Bank of the Common and well, they go. And sometimes they go broke because they make too many dumb loans and sometimes it's because they mismatch
[1:08:27]
Questionermaturities. Joe's got a question too, Joe. I just wanted to warn. to get to, he, he foreshadowed, he's going to talk about how to deal with a moral hazard. If there is moral hazard, if the banks can fail, maybe, you know, if the shareholders lose and debt holders lose, that maybe there is no moral hazard. But it's been posited that you give bank managers or CEOs the notion that all their depositors are going to be protected, then they're going to keep promising higher rates that they can't deliver. And they're going to do all kinds of things because they're not worried about their depositors anymore. But you've got an answer for how to deal with that more hazard?
WarrenAbsolutely. I mean, they've got to have something to lose themselves. I mean, in 2008, all kinds of trouble was caused by the banks. But no bank executive, the CEOs that made those decisions, they all continue to live fine. You know, they may have lost their job, but they get their pensions. So they bore no risk. And then the bank later would pay billions of dollars a bunch of shareholders money that had nothing to make, to do with making those decisions. So I would absolutely suggest, and I had some friends in banking. I may not have any by the time this program is over, but I would suggest that anybody that's CEO, anybody that's CEO of a bank that screws up and costs shareholders, a lot of money. That in effect, you know, they get no pension from the bank. They go back to living, you know, like a person that works on the production line or Ford or something like that. They don't deserve anything special. And I would suggest that the directors of the bank that sat there for five years and listen to people come in and give reports and all that sort of thing, that they get back all their director's fees. And I mean, there's got to be consequences to the people who make the decisions and penalize the shareholders later on by having billions of dollars worth of fines paid to the government. You know, that doesn't deter the bad action the way if you're the president of the XYZ bank and you screw up enormously, you know, you still live on like you did before. If you've taken away any sense of, you've taken away any sense of real responsibility with the directors and answer with the directors isn't have more risk committee meetings or anything like that. The answer to a, I've been on the board of banks and the answer is to have the board of directors feel my God, if this guy screws things up, I've
[1:11:16]
Warrengot to give back all this money that I've gotten, you know, 300,000 a year or whatever it may be and pre-stock and this kind of so. I've got to give it all back for five years. Believe me, that changes behavior of the people that cause the problem. And this system doesn't get rid of moral hazard because it penalizes different people and make the decision. I want to penalize people to make the decision and have it very clear to them. And that will not be met by great enthusiasm from a lot of friends of mine, but that's exactly what I believe is should be done. And banking systems are enormously important. The world doesn't work well. without without a banking system. And I don't know anybody that went back to flipping burgers at McDonald's or something, you know, after they screwed up the system, you know, in a big way in 2008, 9. Now, they really were, they made them, they did things in 2008 or 7 and 8 that really are qualitatively different and really much more reasonable. reprehensible than things that people live in this period currently. But they did a lot of dumb things. And some of them sold their stock. And I mean, there's no penalty attached to bad behavior. And it does really, really affect the system when people lose confidence in banks. Well, let me ask. You, again, have sold a lot of your bank shares that Berkshire has. Hathaway holds. Should we read that as an indication that you think banking is less investable than it used to be? Well, no, I'd love to own a good bank. But we owned a bank in 1969 at Berkshire and was one of the best one, well, I think it was probably the best one bank in the country. And Gene A Becker ran it like I'm talking about. I mean, he was a real banker. I thought only Morris Shapiro and Harry Keith used to run the two big banking analyst firms on Wall Street. And they were really smart guys. And Morris Shapiro once said, there are more banks than bankers. And you want people to understand that they're handling other people's money, just like you do. When you want people running hedge funds or anything else, like they'd handle their own money. I mean, that, and it's regarded as very clever in this country. It's set up things so that, you know, it's nice if your investors make money, but you get very rich by assets under management. And in the banking industry, you have not connected responsibility for problems to the real punishment for that act.
[1:14:21]
WarrenAnd that's when you get responsible. Okay, but better, you get a better banking system. Some of the banks that you've sold include USB, Wells Fargo, Goldman Sachs, JPMorgan, PNC. Should we think that there are banks that aren't well run because you've sold them? No, no, no, but I do think, I do, I do, I, I did think that banking could get in a lot of trouble just because of the kind of things that they did. And that, that, I didn't like the banking business as well as I did before.
QuestionerWhy did you keep Bank of America?
WarrenBut I would love to want a bank. If Berkshire could have owned 100% of a bank, we'd love the owner. Well, we can't do it under the bank holding company.
QuestionerWould you like to be a bank holding company?
WarrenWell, that means we can't do all the other things we do. So we got taken out of that in 1970. We had just bought a bank in 1969, and we had to get rid of it in 10 years. And there's, I don't argue against regulation of banks, believe me. But that particular option has been taken away from Berkshire. I think it's probably a good idea they're taking it away from corporate management generally.
QuestionerWhy did you keep Bank of America?
WarrenPardon?
QuestionerWhy did you keep Bank of America?
WarrenWell, a, they invited, I mean, I invited myself in many years earlier, and they made a very decent deal for us. And I like Brian Moynihan enormously. And I just don't want to, I don't want to sell it. I did sell banks that we'd owned for 25 or 30 years. And if they asked me why I did it, I told them. And I liked the people. I just think the system isn't set up quite right in terms of connecting punishment to culprits on something that's an important, it's incredibly important, that your banking system run well in the country. It just isn't going to work. work unless you have a banking system that works and you don't want them to create periodic crises unnecessarily.
OtherWe're not taking a lot of breaks today, but we will take one right now. We are in Japan in Tokyo with Warren Buffett, the chairman and CEO of Berkshire Hathaway. He's been talking about the financial crisis, or I don't know if we'd even call it a financial crisis, but the situation in banking right now where things stand. Warren, you had said that you wouldn't necessarily, no depositors are going to lose money. are going to lose money.
WarrenExactly. But the shareholders might, and you could also see bondholders losing money. There will want many cases, I think.
[1:16:58]
QuestionerAll right. So let's talk about the assets that are out there, though. You've got assets now from Silicon Valley Bank, from signature bank, that are now the responsibility of the government who's trying to auction off some of these things. You've got people asking questions about what comes next. If this sort of pig in the python continues to work its way down, if that's the case, commercial real estate has been brought up. Sure. as an issue of a looming problem, particularly since 80% of commercial real estate loans are made from these regional banks where most of the problems have been. Yeah. What do you think about that?
WarrenI think that there will be problems. And, you know, people had, anybody that's got a fixed rate locked in for a while when the fixed rate goes away and they've got to reprice it now, it's got a problem. And the holder of a 30-year Freddie Mac or Friday, they've got the best deal in the world. And they should. I love the program. But... You mean somebody who has their 30-year mortgage? Yeah, it has the mortgage. But the reason that for the very fact that it's very advantageous, the person who has the mortgage means some very dumb holding for banks. But I also believe in the system that produces, I think, net the country is better off because it... But I don't want to hold any 30-year mortgages myself. And the idea that if you've got a 30-year mortgage, you personally, you can call off the deal 10 minutes later, and if the bank's got a bad deal, they're stuck with it for 30 years. Berkser cannot make the deal with our credit than you can make if you qualify for making a Freddie or Fannie Mae. I think that's a good thing for society. I don't think it's a very good thing. investment for banks, but banks have a good enough business in front and right that they can do some things like that. And they, they, they, but I wouldn't, I still wouldn't do it myself. And we will see people, well, it gets back to that old story, you know, when the tide goes out, you learn who's been swimming naked and, you know, we actually ran into a nudist colony here. I mean, in terms of banks all over do that sort of And they can handle losses. But to say that because you can hold a maturity, that therefore it's safe, well, what if, you know, the prime rate went to 21 and a half percent, you know, in the 1980s, who knows what can happen to what you're paying on your deposits,
[1:19:40]
Warrenand people really know now what they can get. You know, the idea that you've got this kind of lazy money and people are sitting around with money and zero. You're telling them a very much. every day on CNBC, you know, go shop around and get the best rate you can for your money. And so, unlike the physical world. I mean, in the physical world, you know how fast selling will travel. We'll travel the same speed as, you know, 20 years ago or 50 years ago, and you know if an apple falls from the tree, how long it will take, you know, basically. But in economics, you know, the equation changes every time because of the experience of the previous time. So things that seemed to make the mistakes of 2008 and 9, they affect how people behave subsequently, and 2003 is a different world. It isn't like light travels at the same speed or anything like that like that and people haven't adjusted so that lazy money in 2008 doesn't exist in the same way at all. And we'll see how it plays out. But, you know, it's our job at Berkshire, for example, in all our businesses, and not think about, you take cognizance of what's happened in the past, but you have to worry about things that people haven't seen yet. And, you know, the people that have... you know, the people that have run banks the wrong way, that our shareholders are going to lose money, but the depositors aren't going to lose money. And I made that offer, you know, in the previous segment, and if anybody's called in with a million dollars, I'm still good for it.
QuestionerOkay, let's go back to that for anybody who's just tuning in. You're saying that you will put up a million dollars against anybody who wants to take the other side of the bet, that no depositor in the U.S. bank will lose money.
WarrenIn the next year.
QuestionerIn the next year from now, whichever one of us has won gets to decide what charity of the $2 million goes.
WarrenSo charity is going to win, just like on that hedge fund bet I made a few years back. But I'm betting on what's certain to happen politically. It isn't the law now, but it'll get changed. I will bet on the fact that the United States will not suffer a ruling. ruined the world by messing around and not finally changing the death ceiling and why, you know, the Congress we elect to do all kinds of things and they're overworked in all kinds of ways. Why it's been a lot of time fiddling around on that and make hay out of it on one side or the other.
[1:22:36]
WarrenIt depends who's in charge. I mean, it's just silly. And I'd rather have the government, you know, actually focus on things like they did back in a new deal. a new deal which my dad hated, but which Social Security came out of them, the FDIC came out. These things really improved the situation of the world, and they proved America. And I've got the advantage of hindsight, and I've believed in it. And really, you know, since I was 11 years old, I just said bet on America and figure out a way to be in the better business. But even if you're in the average business, you know, it's just the way we still work despite all our shortcomings. But we can work better. All right. Back to commercial real estate. We have had lots of investors in commercial real estate who have come in and said that this is going to be a crisis point, that the government is going to have to step in, that something should be done because there are so many commercial real estate loans that are coming due. now in 2025 and that they won't be able to get credit from the banks in the same way to renew or to once those maturities come due to refinance well let's say they lose a hundred billion dollars in the banking system most of the banks can take that loss that their share of that loss and a few of them because they did other things you know their shareholders will end up losing the money but the depositors won't lose money but if you lend money to somebody and it comes to do and they can't pay you know the the old story about the banker. I never made a bad loan. Of course, some of them turned bad after I made them. I mean, and that's exactly what happens in, you know, whether it's in commercial real estate. And if people, if money rates are 2%, or we were lending money out of four basis points at Berkshire to the federal government, not much more than a year ago, a year and a half ago or something like that. And if those rates change, let the person who bet that they wouldn't change lose money. I mean, that's, if you make mistakes in business, there's people, plenty of people make mistakes, you pay for them. If you've got a big profitable business on top of it, you know, which a good many banks do, you take your losses and you keep going on. I mean, banks can take a lot of loan losses, but it can't take something that wipes out their capital and expect the world to ignore that fact. Meaning that you don't think anything needs to be done on the commercial real estate front.
[1:25:20]
QuestionerI think that the people that the people who lend too much money should take loss of them. And they're getting properties handed back to them now. I mean, you know, within the last month or six weeks. I mean, yeah, I mean, they've got some office buildings in Los Angeles and, you know, Blackstone walked away from something. I mean, and if you get a non-recourse, you know, everybody goes in the real estate business is told the first rule, the second rule, the third rule, has never signed your name to anything. And so you have non-recourse mortgages and they're going to walk away and the bank's going to get stuck with losses and maybe they'll hold the property a long time and it'll come back. And I mean, there's all kinds of ways that if you've got capital strength, you may, you may decide, well, I'll just hold it. But that money is sterile for quite a while and that's part of banking. I mean, you expect to lose some money in banking. It's not a sure thing on every loan and you build that into your calculations. And then you have capital that protects. your depositors from from it eating into their money. And if it does eat it into their money, then the FDIC, which is, in effect, really a mutual insurance company of a very peculiar sort, essentially spreads the losses among the continuing banks by higher FDIC assessments in the future. We've had some people in commercial real estate who say, who make the point that it's not just commercial real estate, but other places where the economy is turning over, where inflation is coming down, that the Fed is doing too much, what do you think of the job the Fed is doing right now?
WarrenI do not think I could run the Fed as well as Jay Powell's run. I think Jay Powell has been a terrific. And part of the job, well, look at Paul Volker back in the 1980s. I mean, people were sending him, you know, I mean, he was, he needed secret service protection and everything else. But in the end, he felt his responsibility was to do the right thing at the Fed, and he didn't give a damn about what anybody wrote about them or anything else. And I think that he's one of my heroes, and I think he's one of Jay Powell's heroes. And I think Jay Powell did the same thing, actually, in March of 2020 when we went into the pandemic, I think at the annual meeting that year, I said, you know, he was a hero and he is a hero. And you have to act, and you have to act on insufficient information.
[1:27:46]
Warrenand you've got an ultimate responsibility to the American public. And it doesn't mean you can stop recessions. It doesn't mean that you can turn bad loans into good loans or anything else. But it does mean that you've got to keep the system working. And the system came close to stopping. And if you read a book called Trillion Dollar Triage, you can get it on a day-by-day account, and people don't know how close it was. And Jay Powell did not call for studies or position. and papers and, you know, lengthy debate and everything. You just don't do it. You act. And that's what Paul Booker did. And I thank Evans. You know, Jay Powell was there. I mean, you could have gotten a very different result in March of 2020 after the pandemic broke out. Did the Fed keep rates low for too long after that? Who knows? Who knows? We won't know. I don't, I don't know what they precisely should do. Nobody. does and they follow conventional wisdom and all of that and sometimes it works out and sometimes it doesn't but but since 1942 you know we've made all kinds of mistakes in this country and we'll continue to make them but somehow the system works pretty damn well I'd rather own stocks to bonds over over many years I'd rather own part of America than how to squirrel my money away some other place I thought you know maybe in Switzerland credit swissers something like that. It's just people are, they don't really get any wiser about this sort of thing. People, somebody else fire, they're going to run for the door. I mean, and it's built into fear is so easy to arouse in people. You talk about fear about their money. And they don't really understand the system necessarily or anything of the sort. And they can can actually, by their own actions, then create what they can. were afraid of it's it's a it's a very interesting phenomenon and it actually yeah my dad hated but but but so I grew up first 10 years in my life I couldn't get dessert dinner unless I said something nasty about Roosevelt or something but over the years you know when Roosevelt said the only thing we have to fear is for herself he was 100% right when he closed the banks and said I'll open all over the good ones a week from then he didn't really know anything about which bank was good or better or anything like that but people just needed that get an appropriate confidence and now they really got an appropriate confidence because we didn't have an FDIC and we didn't have an FDIC it was
[1:30:34]
Warrenrequired for every bank a lot of banks fought the idea and now we've got a system that that works but people are still scared when they get scared and it's being scared is so contagious you can't imagine what it was like that weekend after Southern Valley I mean you know the guy that drives me around because I can't see that well and you know all he was talking was banking you know and and and he would you know what should he do and it it's unnecessary fear is it's a terrible thing to give people I mean and and and and Roosevelt and the New Deal really wanted to get rid of that and it here we are X years later and we've got a mechanism that's so much better than we had going in but people really don't quite understand it and and maybe you know maybe it takes the President of the United States to just go on and deliver Roosevelt's message and make it more clear to people what we really do have and what they need to be worried about and what they don't need to be worried about but of course if you're and you're trying to win an election next time you tell people you know that if you're out of office or you're out of control you know you tell them how terrible the other guy is for getting them into this problem and that's gonna always live with us so you look around and you're not worried at this point well at 92 I've got other things to worry about now I am I'm not I don't worry about our ability there's things I worry about sure I worry about about the nuclear threat I worry about a pandemic in the future and all kinds of but I don't worry about them because I can't do anything about them but I actually that's what I originally thought my money could be best used for but I don't know any answers now after 40 or 50 years of thinking that way but I'm not I don't worry about no I don't I never go about a bit of worried about Berkshire and how well I don't think if I'm worried about Berkshire I should get I should figure out something different to do about what Berkshire is doing but Berkshire is my responsibility and and I think I was very very very lucky that Berkshire happened to be in America and I happen to be an American I was born in 1930 and I've been in a golden age ever since I was born the the GDP per capita is up like six-fold or seven-fold in one person's lifetime there's never been anything like the history of mankind and so you know we love to complain about wherever we are but but you know most people don't
[1:33:27]
Warrenwork on Saturdays and don't work on Sundays and and when I was a kid everybody working on Saturdays and I mean the world has changed so much for the better in terms of you know how well off people are compared to any other time in history of if I've been born a hundred and fifty years ago and I went to the dentist I mean you know they pour whiskey on me and all kinds of there's just all kinds of improvements and but it's nature to be dissatisfied and and politics does stir that up and you've got to say if you're out of power that the other guy is screwing up and you could do better and that's just built into the system but but that was the case when I was a kid and it's the case today
OtherJoe's got a question Joe
Questioneryeah I love this it's sort of the his oblique references to to his dad I like that one I think sounds like a real solid Nebraska though I think I would have I don't know I would like like to have had a couple of domestic beers with your dad I think what what I was trying to figure out Warren is is in your long life where you've seen a lot of different business cycles and you've seen hyperinflation and you've seen you know secular disinflation lasts forever what do you think happen this time to get to 40-year highs it's obviously pandemic related and supply chain related but do you ascribe anything to to the Fed enabling too much fiscal spending profligate spending by the federal or by the government in general do you think that added to it the increase in the money supply or what what did it come from why did we what engendered it this time around and how bad is it how long lasting it's fun sending money out to people if you have you If you want to stay in office and you want their vote.
WarrenAnd that's always been a problem, a problem of our political system and around the world. And some companies just, some countries have just printed it where they have billions and billions of this currency or that. And inflation is a constant threat to a country. But so far, the United States. has done pretty well of that. Now, you know, it's still the case that the price level was probably 15 times what it was when I was a kid. And so, but the interesting thing is, you know, the price of the Coca-Cola is maybe twice or something like that. Main cost is the container. And the price of the New York Times has gone up 40 for one or 50 for one. I mean, it's a very very uneven thing and commodities, base commodities tend to move less, but oil was $3 a barrel
[1:36:29]
Warrenwhen I was, back when I was managing money at first, and there'd been 10 cents a barrel in the East Texas situation in 1931. You know, now it's, it's $80 a barrel. I mean, I said in the annual report that Berkshire can offer some protection against inflation, but the effect of inflation can be can be wild. Some people, if you owe a lot of money, all of a sudden you don't owe anything, you can earn it back in five minutes. And on the other hand, there's just all kinds of things, but it's not a good thing for society. And I think that the United States has generally done a pretty good job of keeping inflation from getting out of control. And I think when Paul Paul Walker came in, that that was a seminal moment. in U.S. history, because it was close, I mean, cash is trash, and prime rates of 21.5% and paying interest of $200 an acre on farmland in Nebraska when the crops you could produce would only produce $80 an acre, and it caused banks to go broke, and I bought a, I bought some farmland from the, from, I think probably the FDIC, I don't know, somebody or other, that's taken it over. It was just crazy. The country went crazy because they were afraid of cash. And they just piled in the things. And Boker, who knows what would have happened if he hadn't come along. And it's popular to send money out if you're in politics. If you tell every one of your constituents that they just won the lottery, you know, here's $5,000 or $15,000. Something's going to happen. You're not going to have more goods and services produced immediately that can stop up that money. And, you know, it's fiscal policy in that case. And we are spending a lot more than our government is spending a lot more than it's taking in. And that's a lot of fun if you want to stay in office, but it isn't necessarily the best thing to do for your kids.
QuestionerSo let's talk a little bit more about where we left things with that inflation number. Again, we are with Warren Buffett in Tokyo, Japan right now. Warren, you can talk about inflation and what's coming and what's going, but we've got the CPI number coming up. And I think you probably have better information than Janet Yellen or J. Powell, just in terms of what's happening on a day-by-day basis. You have so many businesses that Berkshire owns outright. You have so many big companies that you own a major stake in. What do you think about inflation? Have we seen the worst of inflation? Is it rolling over? Is it coming down steadily?
[1:39:23]
WarrenWell, inflation is always a possibility. And by inflation, I mean extreme inflation. It's a possibility. I mean, just look at the countries and what they've done. I mean, I don't know how many times. And eventually, they almost lead, well, they can lead to terrible things, led to terrible things in Germany. And you want people to trust their money. I mean, if they really have a flight for money, the economy doesn't work. But in 1942, when I bought my first stock, I mean, we were going to pour money into people's pockets. And they couldn't buy anything. They couldn't buy cars. They couldn't buy, I mean, they couldn't buy washing machines or anything else. But they had money flowing into them. And, of course, we had price control, and we did very much. things and no more ended in August of 1945 and for a little while the fact that there was all this money sloshing around and and people wanted to buy things because they hadn't been able to buy for three or four years and women had gone to work and all of that sort of thing and I think the inflation rate went from something like 1% in January 46 to by the end of the year was running at 15% or something I mean if you give people a lot more money put in their pocket than that you've got in corresponding goods and services being turned out that money is going to become worth less, not worthless, worth less. We had, and that's happened periodic. I mean, we've had incredible inflations in certain countries. If you look it up on search, you know, the greatest inflation. We've had a post-world war. too in various countries. I mean, and there comes a point when it gets out of control, it is out of control. And it screws everything up and it's not good for society. There are certain people profit on it, obviously, that anybody that's borrowed a lot of money. But the citizenry, it is not good for society. And government has the responsibility for making sure that they issue the currency and it's the only thing that's legal tender. And, you know, that you need to have, I think Charlie mentioned it even on the, currency is one of the great inventions of mankind. You don't want to go around all the time trying to trade your services, you know, in terms of giving somebody eggs and trying to get back a watch and then trying to trade your watches. I mean, you want something that is, that is, you need something in a society that's legal tender. And, and, but it's important.
[1:42:25]
Warrenhow you treat it. And the United States has been pretty good at it, really quite good. But, you know, if you look over the years since I've been investing, I mean, you know, there's been a 90% plus loss in purchasing power. But it sounds to me like you are more worried about inflation than recession. Is that fair?
QuestionerNo, I think either one can cause a lot of trouble. And recessions can turn into depressions. I mean, you know, I mean, It is, we've got a great, great country and it can, it gets messed up by depressions. I mean, I lived through, I was born in 1930 and the Dow didn't get back to the level. It was higher than when I was born for about five days ago. I got out of college before it got back to that point. And it wasn't that the American people had turned bad or anything else, but we got something that fed on itself and banks fails. And, I mean, you can disrupt an economy a lot easier than you can put it back. together again. And we've had some close calls on that. And I think we've had some, well, I think in 2007 and eight, I mean, I think Hank Paulson said, you know, that we'll use the economic stabilization act, which was enacted back in 31. And all of a sudden, we'll get guarantee money market funds. And it was a good idea to do, whether he really had the authority to do it, I don't know, but he was sure as a right guy in the job. So we don't want to, we don't want to, we don't want to mess up our economic machine. And it can be done by inflation. So how do we mess it up? Is should the Fed keep raising rates? Is inflation at bay? What do you think?
WarrenWell, I, basically, fiscal policy scares me more than monetary policy. Meaning that we, I think I think it is easier to obtain votes if you give people money. And I think that just like I want to keep my job at, at Burdard. sure, I'm going to get elected next year. And fortunately, I have enough stock. You know, I can do it. And if I was in a super, super, super, super safe district, maybe I would vote my conscience in Congress, but who knows how I'd behave unless I was there. But my dad was in Congress, and I got to do how it behaved then, and I don't think its behavior has improved, you know, since 1942 when I first went there and had lunch with Sam Rayburn one time. So you think that Congress is going to screw it up by continuing to spend more money, and Jay Powell is going to be in the position of having to continue to raise rates.
[1:45:07]
WarrenI don't know what they're going to do, but if you ask me the things that are, I think about in terms of taking care of millions of people's savings who entrusted me, that's one of the calculations I have in my mind, and I have said in the annual report, that we will ride along with America and we can't necessarily predict how we would come out in a wild inflationary period, but it would certainly be better than you would do it in the unit of currency. And that's the best I can do. And believe me, I think about it obviously, and we own a lot of good businesses, and the rail worlds will continue to run, no matter what the currency does. You know, the insurance company will continue to insure people. Garron will continue to turn out gradable for kids. I mean, we are a cross-section of America's economy, and we're going to behave in a way that we'll be the last person standing.
QuestionerAll right, I'm going to ask you one more time, because I don't think you want to answer it. I know you don't want J. Pell's job, but if he asked you if he should keep raising rates, what would you say?
WarrenI would say he should do whatever he thinks is in the best interest of the United States. States. And if he said, what do you think is in the best interest of the United States? Well, I'd say that that's why I didn't ever want to be chairman of the Fed. I mean, it's a very, very tough job because you have to deal with Congress. You have to deal with banks. I mean, and the biggest problem is, in the end, Congress can torpedo your job. And I hate to, I hate to have a job where something. something that somebody else can do can essentially nullify any actions I take. And, you know, Paul Volker faced that. And I looked at him one time in the 1980s. I look up like that because he was even bigger looking in person. And I said, you know, what can you do under that exigency clause or whatever there was. And Walker basically said, basically said, I'll do what I need to do? And, you know, he says, what are they going to do? Come down to arrest me, you know, basically. And the Supreme Court going to put me in jail or something. You know, I mean, he felt that it was his job to do what was right. And I think Jake Powell feels exactly the same. And I, and actually, I feel most people in that job, overwhelmingly, they want to do it, but I think some of them haven't been smart about it as others.
QuestionerJoe, you want to take a crack?
[1:48:00]
QuestionerI was going to shift gears a little bit, Beck. Although, obviously, energy prices have a huge effect on inflation warm, but I was struck by the article on Oxy that was in the journal and about how much money is being spent by the company. I think with your blessing on carbon capture, and I guess I'm just trying to figure out how you feel we should transition, how long it should take, how much hydrocarbon production we need, to continue with. There are, you know, depending on a continuum, you can find people that think we should spend $20 trillion over the next, I don't know, 15, 20 years on the transition, which would obviously impact growth around the world. There's got to be a way to do this where we can continue to grow. And I'm wondering, you know, if you think we're doing it effectively, is Oxy a model for how we should, Occidental a model for how we should be doing it? we should be doing it, in your view, Warren?
WarrenWell, I certainly think Vicki Hallib, Alex O'Don, is an extremely competent, good citizen of America, and I really like, she understands oil, and she understands political realities, and she understands what is happening between the, below the surface of the, of the, of, of, uh, of, of, uh, of, uh, of, uh, of, uh, of, uh, of, uh, of, uh, of, of, uh, of, the country and she's she is extremely concerned with ways to have carbon capture capture i mean it but i don't i think your figure of 20 trillion is way way low i mean it we're producing the world needs a hundred million barrels a day or something like that uh at present and you've got this an enormous problem that the united the states put a good bit of the carbon in the air and then they say to the rest of the world you know you can't do that and besides that you ought to chip in and i mean it's a very tough problem for for it seems to me somebody that has been uh responsible a country that's been responsible for putting the carbon uh starts saying to everybody else you can't have any you know so it's got it's an enormous problem it's an ever-present problem and and you really need somebody that understands the dimensions of it and and what can be done with carbon capture but you will not you will be producing more oil in five years from now or about the same amount and if you spent trillions of dollars now you'd still be needing it it you can't change the world that fast right i guess i i've heard charlie talk about it
[1:51:00]
QuestionerI think he thinks that maybe some of the hysteria is overdone on the entire subject. I mean, we could spend an awful lot of capital and GDP globally on dealing with this problem. I've asked you this before in terms of your insurance companies, at this point, how much worse are your payouts for adverse weather events compared to historically for what you've seen?
Ajit JainWell, it's essentially nothing. And we are writing more cat cover this year, actually, than we were writing last year because the prices are somewhat better. And actually, you know, I don't know a damn thing about hurricanes, but in terms of, you know, El Niño or whatever it may be, it's it's slightly, it's somewhat more probable that we have a good hurricane season, I mean, a good one of being a low one, than last year. but there's all kinds of chance events and that's what we insure people against. But, but, can you say without hesitation, Warren, can you tell without hesitation that you're, you need to charge much higher premiums because these things are happening much more frequently? Because that's, we're considering, we're considering spending in terms of, no, no.
WarrenWe're charging higher, we're charging higher prices, Joe, because prices got too low. I mean, we're, we're, we're, the price level. Hurricane insurance is not, I mean, if you take Florida as an example, for example, and we say, we'll insure against any event that causes more than $50 billion of damage in Florida, you know, and there's all kinds of reinsurance contracts. But those are, those have been priced well below what they were, uh, some years ago. And, and, and we, we didn't think we were getting paid enough, uh, but now prices have moved back up somewhat. And we, You know, Ajid calls me and says, how much are you willing to lose in a single event? You know, in Florida or Texas or earthquake? And I said, you know, we can lose $10 billion and nobody else can play in that game. And so now it hasn't been, it's not as attractive as it's been at different times. But the auto insurance, which we've done big through Geico, the average price of our policy when I went in the 1950, was, I don't know, 50 or 60 bucks, and now it's over $2,000 a year. And we even went, the whole auto insurance industry, went from pricing the stuff for a yearly policy to changing it every six months. I mean, we are not issuing any 20-year policies or 30-year policy.
[1:53:51]
WarrenAnd it's not a special risk for insurers. You just keep adjusting your prices to the risk as the risk changes. And you can argue, I sure is how low, it on anybody, but even arguing inflation is basically good for insurance because you're right, you know, you get much bigger premiums on much bigger coverages. And that's actually happened than auto insurance. Well, while the autos have gotten safer, you know, and it isn't everybody is driving terribly compared to the way they drive 20 years. The accidents per 100 million mile driven, you know, has gone down a lot. But the price of insurance, auto insurance has gone up like 30 or 4. for one. And it went up, it was going up at a fast enough rate to the insurance company said, we're not going to give you a one-year policy, we're going to give you a six-month policy. It was going fast enough, we'd give a one-month policy or a 30-day policy, you know, 15-day policy. You know, we are not committing ourselves as to what insurance is going to cost in respect to climate 30 years from now. And it is not a special risk to the insurance industry. Now, people don't get that, but it really isn't. I mean, we're backing it up with money every day.
QuestionerWell, let me just ask you about the economy. We have heard recently from Jamie Diamond in his annual letter at JPMorgan. He says a recession is much more likely now. Janet Yellen was just speaking, I think, in the last 24 hours, although it's hard to track from here when things are happening, has just said in the last 24 hours, I think, that the U.S. is in better shape now than it was six months ago. Which of those camps would you put yourself?
WarrenWell, I know what a lot of different businesses are doing, and I just got a report from one of them as that happens to be in the retail-related business. In any event, you know, it was minus 22% in February from a year ago. And they didn't think that was going to happen.
QuestionerSales?
WarrenYou mean a profit. In sales, problems are down a lot more than that. On the other hand, some of our businesses are still doing fine, but they all are reporting that the new, you know, some of them are living off of orders were placed months earlier and that sort of thing. sort of thing, but, but it's a tougher world out there in a great many businesses, not in the insurance business. Insurance business should be better this year than last year. That doesn't mean, it will be because we can't predict everything that happens, but on a
[1:56:20]
Warrenprobability basis, it should be better than last year. And the railroad business is down, and carloads carried, but it isn't dramatic. And of course, we've got a utility business, and that doesn't really very much with But overall, I think people that run our businesses that do have any sensitivity to the economy are surprised at where they are now compared to where they thought they were going to be six months ago. That doesn't mean the world is coming to an end or anything because 58 years I've been running Berkshire. I mean, we've run into all kinds of problems, but that's what business is about. And we run our business so that we don't depend on everything being being hunky d'oreal. We run us so that we will be the last band standing. And that's the way, if millions of people are going to give me their money and tell me to take care of it, we're going to try and take care of it. And if we don't make as much money as we might have, if we leveraged more or done other policies, so be it.
QuestionerBut you think a recession is more likely now than maybe you would have said six months ago?
WarrenWell, I think most of our manager would say that they are surprised at where they are now compared to how they thought they were going to feel six months ago at this point. And not a lot of businesses, but not in the insurance business, you know. And I think the people at the railroad are somewhat surprised that car loatings aren't a little higher rather than a little lower, you know, somewhat lower. But most of the stuff we carry is essential. but it reflects what's happening. And of course, supply lines were so disrupted and everything a year or two ago that, you know, no economic figures are pure, but I will, I'm just telling you my impression. And I look at the numbers every day. I mean, I can, I look at our Easter sales day by day at the candy store. And I, you know, I can look at California versus Washington versus Oregon, and I can get them the next day. So I love figures. I can say that it doesn't really do me that good to be such a figure or not, but I just like it when I see them.
QuestionerIn terms of the potential for a credit crunch coming through what the banks are going through right now, there's been a lot of speculation about what that could mean to the economy. Is it going to mean a 0.5% hit to GDP? Is it going to mean a 1% hit to GDP? What would you guess?
WarrenI would say that I've been in business running Berkshire for 58 years.
[1:59:00]
WarrenI've never found the economic forecasts of any use to the company. And all we have to do is keep running every business as well as we can. And we've got to keep plenty of cash on hand so that people can keep making intelligence decisions rather than those forced upon them. And that's all we know how to do. And if I depend on my life on economic forecasts, you know, I don't think we could make any money. I don't know how to do it. And, you know, people want to get them so they get them. it doesn't it has no utility as well i when i find one of our companies has hired somebody to tell them what's going to happen in the economy i mean they're throwing the money away as far as i'm concerned all right so you had a hundred other than that i'm very tolerant berkshire had a hundred and twenty eight billion almost in cash at the end of the year equation and treasury and and and and a bit in money market government government bond only money market funds. But we've never, we don't own commercial paper, and we didn't in 2008. And we did, we, you know, it's, we want to be ready for anything that happens.
QuestionerDo you have more or less now, where are we, three and a half months later?
WarrenYeah, well, we laid out, you know, seven or billion plus in terms of the pilot, and we spent four billion buying in stocks. That's 11 billion that's going out the door. But we'll know the figures and, you know, exact. But I think we're probably up on cash and treasure bills, yeah.
QuestionerJust because more keeps coming in?
WarrenThe money comes in every day. And, you know, we earn in the neighborhood of something over $100 million, a working day and a little less than that for all calendar days. And that money comes in. And that money comes in. And we spend the money that we had for depreciation. We don't talk about EB Dara or anything like that a crazy thing. But we have a lot of money coming in and the float grows in insurance and we'll continue to have a lot of money coming in. And we'd love to deploy some of it. We also want to have enough money around so that the worst can happen and we're not, we're looked at as an asset to the United States recovery rather than something that caused the problem. of the economy.
QuestionerAnd would you say you're doing anything differently at this point, just in terms of, all right, you're not going to worry about economic?
WarrenWe haven't changed, we don't change our, what we're doing in terms of trying to improve
[2:01:48]
Greg Abelthe railroad or what we, they don't want to, I don't want to give economic forecast to our managers to how they run their business. I just wanted to make sure that they have happy customers and that they have their cost effective and they behave good citizens, but that they, you know, they ask me before they spend a lot of money in terms of capital allocation.
QuestionerWarren, if you don't mind, we're going to pause here because we do have that big CPI number coming up. We're going to have more with Warren in just a little bit. We were listening intently to all of that. Warren Buffett is standing by too. Warren, what do you think?
WarrenWell, Becky, on Good Friday, I was working. Mark Millard, who handles all the bonds and stuff. all the bonds and stock trades for the whole, for all of Berkshire, was there, and I knew I was leaving town on Sunday night, and Mark says, what do we do next week? And I said, here's what we do. And on Monday, we always buy Treasury bills. We bought about 2 billion of them. We got a 499 percent bond equivalent yield. But the only question is whether we buy three months or six months, and I tell him use his own judgment. his own judgment on that. So Monday, I was here, and he sends me a sheet as to what we did. And I don't change anything. Tuesday, it was the same thing. And we happen to be a net seller of $300 and some million, but we could have been a net buyer of $500 million in stocks. And I am not going to, I'm going to be traveling tomorrow over, and he's going to be operating on Wednesday and I'm not changing any instructions to him. He's going to keep doing what he's been doing. I mean, we don't make our decisions as to whether to own part of a company for the next 20 years. We don't have any idea what anybody's going to do next week or next month. And when I was buying Berkshire between 1962 and 1965 of control, didn't really have anything to do with, you know, all kinds of things wrapping in the economic markets, all the things. time. But we haven't changed our course, you know, in 58 years. We just want to buy good businesses and run by people we like and trust at a decent price. And we'll keep doing that. And we'll keep buying treasury bills every Monday. And we haven't missed a Monday yet. And we keep all our money short. We keep it in the treasuries. And we were getting four basis points, which was $40 million and $100 billion worth. And now we get almost five percent, which is five percent, which is
[2:04:32]
Warrenfive billion. So we've got a hundred times the earnings. But it doesn't make any difference. I mean, that is there to be, to be the strongest company you can imagine. And also to take opportunities when they come along. But Mark, if you're listening, just keep doing the same thing you were doing yesterday and the day before. And I could go away for a, I could go away for a couple of weeks. And I would tell them, there's what we want to do on the buy side. Here's what we want to do on the south side. And just keep doing it. And that's what we do. And some periods, there was a period, about a year ago. I mean, what incredible volumes were we bought 20% of a company that already the index funds owned, you know, 25 or 30%, Dodging Cox owned 10%. We put 20% of a company in a month or something like that. Accidental? Yeah, it was accidental. And we were doing other things too. But now now it's a different of market and we can't acquire it the same if we're buying an Occidental or if we're selling something else. But we'll just keep doing that. That's what we've been doing for 58 years. And and I can't tell you what the Fed was doing when I was buying Berkshire day by day or week by week or month by month or year by year, we were buying Berkshire. And, you know, and we've kept buying things and we don't, we don't make stock market guesses. And we don't know how to know how to profit by looking at broad statistics and guessing what stock markets or bond markets will do.
QuestionerBut you have said that you do pay attention to interest rates and that interest rates are like gravity on equity prices.
WarrenThere's no question about that. So where's the level of gravity? Are we on the moon? Are we on Earth? Well, we're in a way different position that we were when essentially the option was to get four basis points on bonds. And that changes the value. It changed the value of real estate, changes the value of equities. It changes everything. But that's all happened in my lifetime various ways, all the way up to a 21 and a half percent prime and down to zero, which nobody thought we would ever get to. You can read the economic textbooks of like Paul Samlinson, you know, a wonderful man. And it's a 900-page textbook that every kid went to school with and you look for negative interest rates in the index and there's not a word on it. So anything can happen. And we're prepared for anything, but we like to do things.
[2:07:05]
WarrenOver time, we want to buy good businesses. It's that simple. And we always want to have money.
QuestionerAndrew's got a question too. Andrew.
QuestionerHey, Warren, this is actually a question that sort of moves where the economy may go. And it's a question around technology, which is I know a space that you don't always want to go too, but I also know one of your best friends is Bill Gates. So I'm curious if you guys talk about it. We keep talking about chat GPT and potentially how that could transform AI. how that could transform our economy in the future. And obviously, there's also lots of questions about whether AI is dangerous, and we have the right policy set around it. And I was curious if you've given much thought to any of it.
WarrenWell, I think it's something I don't understand at all. But Bill didn't come by about, I don't know, four or five months ago. And he said, you know, I'm going to show you the latest thing, what can be done. And then he, you know, I actually said, take the song my way, the song my way and write it in Spanish and have it encompass my views on what's funny and what's likely to have an economy. And two seconds later, you know, it comes out, it comes out that rhymes and does all these wonderful things. But he told me, he said, he said, it can't tell jokes, which I thought was very interesting. It just doesn't know how to tell jokes, but it can tell you it's read every book, every legal opinion. opinion, I mean, the amount of time it could save you if you were doing all kinds of things is unbelievable. But what I said, the bill is I said, just let me know what I can ask, you know, how are you going to ruin the human race? And then let me know if someone unplug it or whatever, I have to do at that point. And of course, I'll be programmed so that nobody thinks they should unplug it or something. something or something. So I don't really understand it. I think it's an incredible technological advance in terms of showing what we can do, but I don't know whether we know what happens. And I was listening, who was it the other day that was, who knows a lot about technology? He just says, you know, it scares him. Well, if it scares him, it scares me in terms of the possibilities of. I mean, we've done amazing things like, we've figured out how to create an atom bomb back in 1945. I didn't know what an atom was or anything, but Einstein told me it was going to change the world and it changed the world.
[2:09:42]
QuestionerSo I don't want to change the world too many times without having some idea of the consequences of it. And this happened, I think this is extraordinary, but I don't know whether it's beneficial. Was it Steve Wozniak? Pardon? Was it Steve Wozniak? No, it was it was Eric Schmidt. And it was, it was, it was. It was, he was just, Eric was saying, you know, we don't know where this takes us and maybe we ought to pause for a while.
WarrenWell, I don't know 100 to 1% about physics or anything else that Eric knows, but I come to the same conclusion.
QuestionerLook at you, Warren, watching Squawk Box from Tokyo last night, it sounds like, because Eric was on talking about that on the broadcast. One other question for you, Warren, because we always ask you. I don't know if that's where you were watching it, but he was talking about it just yesterday with us. But separately, we always have a Bitcoin question for you, but I've been thinking about, okay. I was thinking about this with you, Warren, and I know your views about Bitcoin, and I've been very surprised at how Bitcoin's come back up to close to $30,000 again. You know, when you go back to the Tulip Mania, Tulip Mania, Tulip Mania went from 1634 to 1637, only lasted three years. And here we have, if you're right about Bitcoin, something that's now lasted, something along the lines of 15 years. And so I've been trying to understand if, in fact, you're right, and this is not just rat poison squared, but it's not a thing, when it would be unveiled as not a thing?
WarrenThat's predicting when speculation will end or, you know, when the gambling instinct will go away and when more people want to get out than are getting in. And I have no way of, if I thought I was good at that, I'd figure out a way to make a lot of money in different things. All I'm trying to do is buy good businesses, but I, the one thing I know is I, you know, I didn't like chain letters when I was a kid. I thought, why in the world should I send along a chain letter the next night when I could start my own? I mean, I've seen people do stupid things all my life, and I, and I really, I empathize with that. I mean, people like to play the lottery. They're going to get 60 cents back on the dollar or whatever the number may be. And states, essentially, the numbers racket was something that you avoided. And then the government decided it was a source of revenue, and it's very hard to tell people that if they're going to put a tax on essentially a sure loser for society,
[2:12:25]
Warrenfor the gamblers on the lottery on the whole, but they're appealing to the gambling instinct. and, you know, it spreads, I mean, people love the idea they're going to make more money tomorrow. And it really drives them crazy if their next door neighbor is making a lot of money not knowing what they're doing, and they're just sitting there and their spouse is saying, you know, why is that guy getting a second car and why are we missing this whole thing? And the gambling instinct is so strong. And you had millions of people that were getting checks in the money and sitting home and finding out that they could have. have a roulette wheel in their house and they had all the peals of gambling that are used that people to go to Las Vegas and you can do it in your home and they have money and we've had an explosion of of gambling essentially and and you know I like to bet on a football game if I'm sitting in watching it makes it more interesting but I don't think I want to make a living trying to bet against the house ever. I want to if I were to get into gambling I would want to own the roulette wheel and not be a roulette player, but we haven't done that. But people all the time, well, actually on my honeymoon in my first marriage, you know, we're talking when I was 21, and we went through Las Vegas population in about 20,000, a bunch of fellows from Omaha and other places. I bought the flamingo after Bugsley Signal met his maker sooner than he expected. And they welcomed the in because they all knew my uncle Fred. And I looked at all these people who had flown thousands of miles to do something that unintelligent as fast as they could. I mean, they just, they couldn't, you know, they thought the dice were hot or something like that. And I thought, you know, I'm going to get rich in this country. I mean, if that's what people do, I can be smarter than that. I mean, so I've watched it ever since and it's fascinating to me, but the gambling urge is so strong throughout the world. And now you've created the perfect condition for it where states are legalizing gambling and, you know, what it does the football games. I mean, presumably, but just, you're just point shaving, you know, which, you know, the guy gets offered a million bucks, and it's like, you know, the white socks wore back in 1920s. You know, they did it for a few hundred dollars. But, you know, but And you aren't even throwing the game. I mean, you're just, you're just making sure that the spread is met.
[2:15:06]
WarrenIt's, I don't, you're not going to change the gambling instinct, but when the state has started sponsoring it, it's given a, it's given a different, there's a different climate than before. You think that the idea of this legalized gambling and it's spreading in the states and everything that's happening right now, you think that's changing, the games you think there is there are situations where spread's not going to be made and it's because somebody is is doing it they've been paid off well i think everybody in the country spent all their time gambling you know flipping coins against each other uh you know somebody would win 20 times in a row you know every what million times or something like that we have 330 million people doing it you've got 330 people who have called a coin flip correct or something i mean the urge to participate and something where it looks like easy money is it's it's a human instinct which has been unleashed. There's always there. I mean, and when my dad was in Congress in the house office building, I could go to the elevator and yell Sammy and the guy would come up to take numbers bets which were illegal, you know, on the fourth floor of the house office building. And it's people love the idea of getting rich cricket. I don't blame them. But I've always wanted to get rich slow and I have a lot of fun along the way. But but I don't, I'm not immune for it. I've been on football games. I made one wager at the sports book in Nevada. And I was out there with a couple friends and I went up and met on Nebraska against it. And about 10 people got up behind me and said, I'll have what he's having. You know, it's going to make Ryan in the movie. And so they had a very unbalanced. book when they got through that day and I got 500 my 550 and I made a profit of 500 and I had somebody else cashed the tickets so that's that's that's I just uh it's it's so human and once unleashed you can't put it back in the bottle and something like bitcoin uh you know it is something it's a gambling token and doesn't have any intrinsic value and and and you know Larry suburbs was on a week goes it doesn't have any value i mean it doesn't have any value but that doesn't stop people from wanting to play a roulette wheel and think that if there's 37 you know at one zero and or double zero it doesn't make any difference yeah it makes a difference and it's just how
[2:17:50]
Questionerfast it eats up your money if you spend your bust of your left spending around wheel but they feature the winners and people get excited about it and that's why the slot and sheets make a lot of noise when they're paying out I don't know how to turn back the clock on that let's talk about some investments that you have placed wagers on and maybe switched your wagers um Taiwan Semiconductor is a stock that showed up in Berkshire's holdings in a big way a couple of quarters ago and then a quarter later most of it was gone
Warrenyeah that was me that wasn't one of the two other guys there's two other people that make decisions they each run about $15 billion and sometimes they get confused with me they they said if if is buying this or not and it's one or two other guys but that was my decision and and i think Taiwan Semiconductor is one of the best well it's the best in that field and is one the best companies in the world it's a fabulous enterprise and apple buys a lot of the products from them i mean they're good and they're coming to the United States and we're actually i think maybe even building for one of our subsidiaries helping build facilities for him but i do think think that there is a danger there to some i don't have any idea there's actually a danger of seismic action i mean and and and and where they're located but that's a low probability and they you know they're smart people but would i rather have it that was the u.s domicile company than than be a subject of who knows what depending on conditions outside their control i'd rather you know i i re-evaluated that part of it i didn't reevaluate the business the management or anything of the sort it is a fabulous company
Questioneruh and you re-evaluated the geopolitical risk from china stepping in to taiwan
Warrenyeah i think there's any question that conditions change i just don't know what the results of conditions changing i mean China and the United States are going to be superpowers you know as long as your children live and you know and and they will always compete with each other and uh and they should and she can't let it get out of control and you can't have accidents and all sorts of things i mean that it it it's a dangerous world
Questionerif you're concerned about China and what that might mean for Taiwan Semiconductor are you worried about what it would mean for your largest holding Apple because Apple does so much of its business there both in terms of
[2:20:39]
Warrenmanufacturing and sales. I weigh that in but but Apple is you know if somebody if you're an Apple user and somebody offers you $10,000 that's the only provisal is you'll never be able to take away your iPhone and you'll never be able to buy another you're not going to take it. If they tell you if you buy another Ford motor car they'll give you $10,000 not to do that you'll take the $10,000 you'll buy a Chevy instead I mean it is it's an incredibly valuable utility it doesn't mean that it can be misused by kids and Tim Cook cares about that I mean everything can be used fire can be misused I mean they're there but I think that Tim Cook is the classiest CEOs admit he understands the business and he has a product which Steve Jobs basically and better but Tim Cook has managed that company in an extraordinary way and you know I I love that you know we've got a hundred and whatever we got we've got nine million plus 915 million shares actually and you know it's it but people say well isn't that a lot of money to happen well we've got a railroad worth a similar amount we've got a utility business worth a similar amount i mean it's a wonderful business how the hell could we can't develop a business like that and so we own a lot of it and and uh and our ownership goes up a little bit every year because they buy on their stock and and and Tim does not issue it he buys it in and we love it meaning you're not selling any oh i no i there was one period actually from a tax and what it was a good idea to sell some we sold some around 115 and it was a dumb sale i mean in the end now we could sell the tax situation some other way and uh uh uh we actually bought a few shares last year we got a few more shares when we bought we bought allegheny corp because they had some of the port well only kept two stocks they owned berkshire hathaway and apple they happened all and they had 20 i don't know 27 stocks or something they're all gone except those too so i we will never own a business that makes so many people happier and useful for them and you know you probably got 20 000 photos up there and that and that and at apple what steve jobs did with that and other people can do other technical things and i don't know whether i'm when i look at my iPhone i don't know whether there's some little guy inside that's doing thing i don't know the technical aspects at all but i know that the nebraska furniture mark if we don't have the apple product
[2:23:48]
Warrenpeople leave the store and go someplace else and uh you know i've just stood there and watch people and and talk to the people that sell work and our products at the furniture market and you know whether they're old whether the young whether they want to have it and and lots of people have multiple products are they have they have they've been come up with just one little addition after another and who knows what they come over additionally but Tim Cook has managed that business uh greatest managers obviously in history let's talk about another company you own that has a major china presence in fact that's its only presence b yd of the electric car company that you've owned for a very long time um you've been selling some of that why well we've been selling it because the company are interested in it's being valued at um well the interest we had is being valued at you know six to a half billion whatever it may be and and and i think it's an extraordinary company and i think the fellow that runs it who's run it right along ever since we purchased it 14 years ago or something there's an extraordinary person been over there but but i think that the we'll find things to do with the money that i'll feel better about but we haven't sold our b-y-d by long time we're not in a hurry on something like it but but uh uh my job is to allocate the capital and within berkshire hathaway the way i would do it from my sister because she is a big shareholder and and that's the way i feel about all the millions of shareholders we have
Questionervery quickly can i just ask you about paramount that's another uh berkshire investment that's been a relatively new one. Is it because of streaming? What happened?
WarrenStreaming that, you know, is not really a very good business. And, you know, it's the people in entertainment have made lots of money. The shareholders really haven't done that great over time. And it's applied to many, it's a glamorous business. And I had some brothers in Hollywood, you know, and they look for pigeons, you know. you know, and they find them. I mean, it's like, it attracts people. You mean, suckers? It's a great way to meet girls, you know, for all. I know. But the, it isn't fundamentally that good of business, whether it was distributing, producing movies, or, and you've got some people that I've got deep pockets that aren't going to quit. And the product they're offering people's chance to watch all those movies, you know, for peanuts and all that.
[2:26:45]
QuestionerBut can they ready? prices, we'll find out, but so far they haven't been able to. They've been able to attract subscribers, but they have tracked them at a terrible price. All right, you gave a whole lot of reasons why not to buy Paramount. Why did you buy it?
WarrenWell, we'll see what happens.
QuestionerWarren, you are known for somebody who has the appetite and the taste of a five-year-old. Do you like hot dogs? You like Coke? You like Seas Candy. Someone wrote in on Twitter and wants to know what you've been eating in Japan.
WarrenOh, that's an interesting question. I have a Coke here and I mean, I had some Hershey Kisses before I came over here and a few things like that. And, you know, I've gotten a 92 with the habits of a six-year-old. So far it's working. Charlie's 99 and he doesn't eat any better than I do pretty much, but I just get more attention. But my diet, you know, I think, I mean, you know, your role will die. I've been lucky in life. I haven't really gotten that sick. And the only terrible things happen when people die or get sick that you care about. And if you can make a decent living in this country, you know, it's just been lucky. And, you know, I make all kinds of money because I'm good at some game where the crumbs of capitalism just fall off the table. And, you know, what people contribute to society is not proportional. Somebody that, you know, gives their life, fight a new war that they don't need to get them. I always admired Hank Greenberg, get away, be a tough competitor and everything in the business. But he lied about his age upward in order to go in the Army and he landed in Normandy. That, I mean, that is really something. So I've been lucky, and, you know, I always tell people I found everything I liked to eat by the time I was sick. I mean, why should I pull her out with all these other foods? I know all these people eat all these green things and everything, but if somebody told me I would live an extra year if I ate nothing but broccoli and a few other things all my life instead of eating what I like to eat, I would say take a year off the end of my life and let me eat what I like to eat. But I don't really think of it, because I think happiness makes an enormous amount of difference in terms that you can't measure very well in terms of longevity. And I'm happier when I'm eating hot food Sundays or drinking Coke or whatever, many hot dogs.
QuestionerWell, Warren, we are lucky to have spent the last three hours with you. We want to thank you for your time today.
WarrenThanks for inviting me. You invited us, but thank you.
OtherWarren Buffett.