Thursday, October 02, 2008

Buffet on the credit crisis

Charlie Rose interview

Skeptics will claim he is talking his own book, with the recent GS and GE investments. But I agree with most of it. Buffet says that if he could take a 1 percent stake in the bailout (investing $7 billion), he would. He thinks the bailout will make money investing in distressed mortgage securities at current market prices.

"I love to buy distressed assets... I just don't have $700B to do it with." (At about 13-14 minutes into the hour long interview.)

Bubble logic: "Innovators, Imitators and then the Idiots" (20 minutes)

"Confidence in markets and institutions is like oxygen... when you have it you don't think about it... but you can't go 5 minutes without it." (24 minutes)

"Beware of geeks bearing formulas!" (takes a shot at quants at 27 minutes)

Upper income people should pay more taxes (basically endorses Obama's tax plan) (42 minutes)

"It is terrible that income from investments (capital gains) should be taxed less than income from labor." (against regressive taxes) (44 minutes)

"If AIG had to unwind their derivatives book, it would have hit every institution in the world." (50 minutes)

"The Fed structured the AIG deal very well. They are very likely to get their money back or more." (51 minutes)


Anonymous said...


Sorry, but I am all confused because of so many conflicting stories/explanations I have read lately.

I am still puzzled by why the plan is to buy up bad assets is better than equity (as I understand it was done by Sweden in the 90s). See, for example Krugman.
It has been known to work, and seems safer to me; appears to me to be not an option purely for ideological reasons. It also seems that the distressed assets will be purchased at higher than market price, something that Warren would never do.

Also, I understand that $700 billion is not going to do it: need at least $5 trillion, according to some! No one really knows, I suppose.


Anyway, the days of US lecturing the rest of the world on economic matters is over. The consequences for India and China would have been FAR worse if they had followed the advice on financial deregulation.

Steve Hsu said...

It's not at all clear how the bailout will work. I think under the current bill they'll have pretty broad powers and they can take equity in banks, etc. Not much is really precluded.

I do have confidence in Bernanke and Paulson. If I did not I would be much more worried.

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