[0:00]
QuestionerI want to just go back to 2008 for a moment and just even start with a very big picture sense of it all. What do you think happened that led to 2008?
WarrenWell, I think the main thing, but, you know, there's all kinds of tributaries feeding into the Big Missouri River on this. But you had people think that housing could do nothing but go up. And you had a $20 trillion market in residential housing. So it was a big, big asset class, and people started using it as a currency, basically. And they found out that it wasn't straight up in the end. And they borrowed on them. And there were levels. of participation up and down the line. I mean, people at the top were writing mortgages that they knew they'd never have to hold, so they'd sell them to some way, but in Norway after they'd been put in a package. And you had people refinancing, figuring that didn't make any difference whether the monthly payments were too high, and you had them lying on loans, and you had the lenders participating in it. And you basically just had a huge speculation in housing. And 50 million of the 75 million owner-occupied homes in the United States were a mortgage, 25 million were free and clear. So they were okay. But you literally had a crash in the value of something that 50 million families owned, owned on margin, had thought we're going to go up. They'd base their living standards on it in many cases. They'd borrow the incident. And it was unlike any widespread financial participation, you know, anybody had ever seen. So it manifested itself in all kinds of ways. I mean, everybody behaved badly. But they believed, you know, and when people start believing something kind of crazy, you get that sort of thing.
QuestionerIt's early 2008. Hedge funds with a lot of subprime mortgages are going under. There were a couple. At that point, how worried were you? Do you remember being worried?
WarrenWell, I wasn't worried because I've always assumed that in a lifetime of participating in the American economy, it's going to move forward dramatically over time, and also it's going to have a lot of hiccups. And it's just, it's part of our economic system that we will periodically have some craziness go on. And so I don't try to predict markets or I don't try to predict markets or I don't try to predict markets. predict business, I just try to adapt to what comes along. I did see in the summer of 2008, I got a call from one of the top officials of one of the main
[3:18]
QuestionerWall Street firms trying to sell us many, many, many billions of dollars worth of equity securities in Freddie Mac, and I knew something was wrong. So take us back, I don't know if you remember this, this is after Bear Stearns goes down. So this is before, before Fannie and Freddie, but after Bear Stearns, you get a call from Dick Fold. Right. And he tells you that his stock is getting killed by shortsellers.
WarrenYeah. When anybody says that to me, I get very suspicious. I love to have short sellers in Berkshire. How can a short seller hurt you?
QuestionerAnd he says there's an opportunity. for you to invest somewhere between $3 to $5 billion. Are you interested?
WarrenI'm interested in hearing him out, yeah.
QuestionerAnd what did you tell him?
WarrenI told him, tell me what your ideas are, and I'll do some looking at it, but tell me what you'll pay first, and then I'll know whether I want to do some looking. And so he threw out some tentative ideas. I do remember, and actually, I He said, can I have Hank Paulson call you? And so Hank called about, I think it was six or seven on a Friday night. And then he stopped short of giving a totally unqualified endorsement, but he, you know, he was probably hoping I was going to finance it, but he wasn't going to try and saw me too hard. I'm sure he didn't feel that was right. So anyway, I spent that evening. That evening, going through there, probably at 10K, I've got it at the office still, where I made notes as I went through it, and it was 250 or 300 pages. And I just wrote down on the front page, the number of the pages where I was finding problems. And when I go through, I knew that it was not for us. Because you saw what?
QuestionerI just saw a lot of things that made me very worried about their financial condition and what would be happening to them under the circumstances that we're happening in Wall Street. Now we're in September, September of 2008. And this is Friday, September 12th. This is the weekend. The weekend. The weekend. And you get a call this time, not from Lehman Brothers, but from AIG, asking if you'd be interested investing $10 billion in the company. Yep.
WarrenI said that, don't count on us. I know time is of the essence with you guys, so just don't waste it on me. me. So I'm out at that point now. They re-entered the picture a little later. But I said, I can't figure this thing out. It would have been $20-some billion. And we could have paid it
[6:18]
Warrenif I'd known what we were getting. Well, the very fact that they were calling me and, you know, sending out stuff Friday evening at 8 or 9 o'clock in New York indicated they were in peril. What does a call to Warren Buffett mean, do you think? Well, it means that they know we will act fast if we like something. So we are the best fast buyer for anything that involves in the billions of just about anybody. And they knew I'm interested in the property casualty business in this particular case. And, you know, that they are desperate for something that's going to close within a few days.
QuestionerYou know, a lot of people still look back at that weekend, and Lehman Brothers in particular as the moment of the moment of the crisis. and wonder whether the U.S. government should have stepped in or not. The next morning, the New York Times and the Wall Street Journal both wrote op-eds, editorials, praising.
WarrenSure. That's the way everybody felt the hell of those guys in Wall Street. We've had enough of them, you know, basically. Long ago, some Fed chairman told me that whatever the Fed thinks it can do it could do. Now, that may have changed some under Hartscott, I mean under Dodd-Frank, but that was the prevailing view of at least one. the Fed chairman of it.
QuestionerSo you think the Fed could have done it if they wanted to?
WarrenI think if I were chairman of the Fed and I saw what was going on in the United States then, I think I would have done it whether I could do it or not. I mean, are they going to come down? The Supreme Court are going to send down some kind of arrest me as President of the Fed. I mean, I would feel it would be an act that I should do in the interests of the country if I were in that that position.
QuestionerSo you think it was a mistake?
WarrenNo. I mean, because they'd have had to guarantee so much of public opinion. Can you imagine public opinion if all of a sudden, you know, people are losing their houses and facing, facing, being underwater on the, and all kinds of personal problems, and all of a sudden you've guaranteed that everybody at AIG is going to be okay and everybody is going to be okay. I'm not sure it would have been, it would have been very tough to do.
QuestionerHow much political pressure at that time, do? you remember was on both Hank and the Fed and everybody came to bailout.
WarrenThat was huge. That was huge. I mean, I think that Bernanke, I think that Hank Paulson, I think that Tim Geithner, I think they did an error.
[8:55]
WarrenAnd I think George W. Bush did the right thing. I think they were heroic, but you weren't going to sell that to the American people. Lehman files for bankruptcy. Bank of America buys Merrill Lynch, AIG gets rescued, and yet there's still a serious anxiety that GE might go, Goldman Sachs, Morgan Stanley. Well, when Lehman goes, the big commercial paper holders were money market funds. I mean, these things were just hitting one after another, and both Hank and Bernanke had to worry very much. very much about the congressional reaction to anything they did. Congress really didn't get it. George Bush got it. I give him great credit. I didn't vote for him, but I give him great credit for understanding just how big the problem was this. And you get a call later in the week about Goldman Sachs. Do you remember that call?
QuestionerWell, I remember the call. Yeah. When Goldman Sachs needs money, you'll remember it. And what did you think?
WarrenI thought, I did think that we were in there. think that we were in very good hands. Congress was one that scared me. I thought we were in good hands at the Fed. I thought we were in good hands at the Treasury. I thought we were in good hands at the presidency. And I thought that there was, there was, Goldman Sachs was sound under any situation except if markets just totally were closed up. I think the unsung hero of the whole thing, although it was a stupid thing to do. I think the unsung hero was, was Ken Lewis, uh, buying, uh, buying, uh, By Merrill, I mean, Merrill would have been there on Monday morning. You know, I think he got some fairness opinion that said it was okay to pay 30 bucks. He got, I think he got it twice between Saturday at noon or something. And the deal getting announced on Sunday morning, nobody knew what, what Merrill was worth at that time. But he got the fairness opinion, and he says, we'll pay whatever it was, $30 or thereabouts. It wouldn't have been worth 30 cents on money. Big mistake then. Well, it wasn't for the system. And incidentary mayors worked out fine subsequently, but I mean, under the conditions that existed, on Monday morning, if Bank of America hadn't announced that purchase on Sunday, it wouldn't have just been Lehman. The second that Lehman would not have been, if they backed away from Lehman, they'd have to tell Merrill to stand on its own, too, and bingo, bingo. When you look back in retrospect, is there anything you wish that you had done,
[11:38]
Questionerthat you didn't do? Any investments that you wish you could have made, given?
WarrenI could look back on any week and come up with that. I mean, the situation, we'd have been better off, considerably better off at Berkshire, if we waited four or five months to buy anything. I mean, the low was set in March, and it was much lower than that. I wrote that op-ed for the New York Times in late October, well, it was right on a long-term basis, but it was way off for three or four months, four or five months at least.
QuestionerWas there ever a moment that you thought that the system would gum up so much that people, I mean, that we would be back in sort of a great depression, that there really would be red lines and, I mean, people...
WarrenIt could have, it mishandled, it could have, it could have lasted quite a while. It wouldn't, it wouldn't have lasted as long as them. But it would have really gummed things up. There's no question. They're already gummed up, but it would have, at some point, the government has to step in. I mean, when everybody in the world, wants to de-leverage. There's only one party that can leverage up. There's just one party. And if for some reason they don't do it, you've had it.
QuestionerAnd when you look back now, is there a great lesson, you think, for the public, for new generations of people who are going to hopefully learn about and think about this crisis?
WarrenNo, because the answer is people have always panted. And that's why they set up the Fed. We had all kinds of panics in this country in the 19th century. When people were people, People are afraid, they are afraid. Confidence comes back one at a time, but fear is instantaneous. Thank you. And it doesn't make any difference how sophisticated people are, whether they've got PhDs or anything else. When they are afraid, they are afraid. I know a number of people that would surprise you who during that panic period subsequently, you know, went right to gold and felt that nothing would be worth anything. And, you know, I mean, it's... People really... Fear is extraordinary with most people.
QuestionerDo you draw any parallel or connection between the crisis 10 years ago now and the politics of today and the distrust of institutions and governments?
WarrenSure. People have long memories just like they did after 1929. It took a long time. I mean, people, when they've experienced extreme fear, it sears something into them where that,
[14:06]
Warrenof them where they, A, they want to know who did it to them, and they correctly don't blame themselves. I mean, you know, they're not supposed to be finance experts or anything. All they did it was buy a house and lie a little bit on their loan application, you know, just figured this was going to go up and then they'd refinance and so on. I mean, who's going to blame anybody for that? Is there anyone to blame for the crisis? Because that's been also a political... You can blame a lot of people for doing very foolish things. But I don't think anybody was... I mean, there's a certain number of people who are doing crooked things all the time. And to some extent, they were attracted to the real estate market because the money was flowing so easily. I mean, when you can create a mortgage, you know, in Bakersfield, California, and sell out to somebody in Norway, and then when you get these permutations of these things where you get one instrument that's dependent on another instrument. I made a calculation once on one security I saw that had been raided by the agencies. and I had to read 300,000 pages in order to understand both the primary security and then the ones that it was dependent on and so on. And it just gets, you know, and nothing goes wrong for a while, so everybody gets used to doing it. It's, it'll happen again. Do you worry about another crisis? Well, there'll be one sometime, but, but no, I don't worry about it in the least. Because? Because... Because I conduct myself, so there's another crisis, I'll still be around. be around, Berkshire will be in good shape. What do you look around today and say, okay, I got to be anxious about that? Well, asset appreciation draws in people that really don't know anything about the asset. And people start, they start being interested in something because it's going up, not because they understand or anything else, but the guy next door who they know is dumber than they are is getting rich, and they aren't, and their spouse is saying, you know, can't you figure it out too? And I mean, it is so contagious. So that's a permanent part of the system. But in terms of the specific excesses, I don't see them now, no. Are we better prepared for another crisis? Do you look at either the regulations or? That's an interesting question because I've never read Dodd-Frank in its full 2000 plus page. I've read little summaries.
[16:24]
QuestionerI have the impression, and I may be wrong on this, but I have the impression that it somewhat weakens the ability of the Fed to act. promptly and unilaterally. And I said, that's a terrible mistake. And we need a powerful fed. You may not like them. They may do things that bother you. But you need somebody that if this country with now a hundred trillion of household wealth, with now 75 million plus, that it doesn't come to a stop because everybody's trying to deal everybody's trying to de-leverage. Was there ever a moment in that week where you, either between everybody calling you were talking to, you thought, wow, we really, this is...
WarrenWell, I described it actually on CNBC as an economic Pearl Harbor. That's not a term I've ever used before. So, I mean, I was using, I felt it was something different than I'd never seen. And I felt it was actually worse than 29, in a sense, in terms of the immediate panic that was induced. In 1929, if you remember, in September, 29, the Dow hit a high of 381, then it collapsed in the fall, but I was born August 30th in 1930, and it was back up to 250-some by that point. I mean, we didn't, it didn't hit that many people. It, you know, it hit everybody on Wall Street, but Wall Street wasn't as broad than remotely as it is now, you know, in 401Ks or whatever it may be. So this Holmes, that touches everybody.