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Wednesday, October 31, 2007

CNBC: Warren Buffett and NBC's Tom Brokaw: The Complete Interview

Warren Buffett and Tom Browak in sit-down interview
The Tom Brokaw piece on NBC Nightly News Monday night highlighting Warren Buffett's call for a higher tax rate on very wealthy Americans includes an excerpt from a sit-down interview with Buffett.

You can see the Nightly piece and read the transcript in the Warren Buffett Watch post NBC's Tom Brokaw Puts Spotlight on Warren Buffett's Call to "Tax the Rich!"

Brokaw appeared on CNBC's Squawk Box the next morning with a few more minutes of the interview and for a discussion with the Squawk team that turned into a semi-debate between Joe Kernen and Brokaw. WBW post: CNBC's Kernen Challenges Buffett's Call for Higher Tax Rates on the Rich.

With many thanks to our colleagues at NBC Nightly News working with CNBC's Patti Domm (who also writes the always informative Market Insider blog on, Warren Buffett Watch is now able to bring you Brokaw's complete interview with Buffett.

Along with tax rates, the two also discuss:

  • Threats to the U.S. economy
  • A million dollar challenge to Buffett's "fellow rich guys"
  • Investing in China and human rights
  • CEO compensation

The interview is Below:

Tom: Mr. Buffett, everyone's obviously concerned about what's going to happen to the American stock market and to the economy for that reason. Is there reason to be concerned about the fundamentals of the American economy?

Warren: Not over the long term. I mean, in the last century-- American standard of living in real terms improved seven for one. We've-- we've got a system that works well. But we will have recessions from time to time. There-- we had 'em in that century. We had the Great Depression in that century.

But still at the end of the century, seven for one is not bad. And-- we could be-- we could be heading into a recession now. I don't know. But certainly there are some signs of that. And-- and there are certain fundamentals that are out of whack for-- temporarily. But they will get solved over time.

Tom: Is the housing crisis as serious as a lot of people think it is?

Warren: I think it probably is. There-- there are a lot of people that-- have mortgage payments that they simply aren't going to meet. Housing price appreciation which was built on everybody's model a few years ago is not going to occur for a few years. In fact, it could well be depreciation. And that changes the game a lot. It'll get solved eventually. We've got a growing population, which helps us if we get out of whack in terms of the-- the houses available. Population solves that. But it doesn't solve it next month, or even next year.

Tom: Well, you've got some businesses that are attached to housing. Furniture, for example.

Warren: Right.

Tom: When something goes wrong in housing, it really does drop down through the economy. Appliances, furniture--

Warren: You bet. (LAUGHTER) We-- we have-- we have furniture stores in a number of cities, and what you see is in a Las Vegas, where-- where the foreclosure rate is very high, sales are way off there. On the other hand, in Omaha, in Kansas City, they're up.

Tom: Are you surprised there's not more talk in this presidential campaign about economic fairness and economic justice?

Warren: Yeah. I-- I-- I am surprised-- it may be that everybody wants to be cautious-- while they're looking to get nominated, but-- but the degree to which the-- economic-- well, the taxation system has tilted toward the rich and away from the middle class in the last ten years is-- is dramatic, and I don't think it's appreciated. And I think it should be addressed.

Tom: You've gone very public with this.

Warren: Right.

Tom: You've talked about in your office, for example, you pay a much lower tax rate with all of your wealth than, say, a receptionist does.

Warren: That's exactly right, Tom. And I-- I think the only way to do it is with specifics, and-- and - and in our office, 15 people cooperated in a survey out of 18. I didn't make anybody do it. And my total taxes paid-- payroll taxes plus income tax-- and the payroll tax is an income tax. It's based on income.

Tom: Yeah.

Warren: Mine came to-- 17.7 percent. That-- that was the-- that was line 61 I think-- or, no, line 43-- is the percent of taxable income, plus payroll taxes, 17.7 percent. The average for the office was 32.9 percent. There wasn't anybody in the office from the receptionist on that paid as low a tax rate. And I have no tax planning. I don't have an-- I don't have a-- an accountant. I don't have tax shelters. I just follow what the U.S. Congress tells me to do.

Tom: Why do you think that there's not more outrage about that?

Warren: I-- I don't think people understand it. For one thing, you'll see a lot of surveys that say the rich, the top one percent pay this much of the income tax. Now I think what people don't realize is that almost one third of the entire budget comes from payroll taxes. And payroll taxes on income, just like income taxes are taxes on income.

And the payroll tax is over $800 billion out of two and a trillion, or something like that. And people don't understand-- they-- they-- that the rich pay practically no payroll tax. I mean, I paid payroll tax last year on $90 odd thousand, whatever the number is. I paid income tax on $66 million. But my double income tax, one of 'em quits at $90,000. And the remaining $66 million does not get taxed with payroll tax. So, the person who makes $60,000 in our office gets ta-- taxed in full on the payroll tax, and taxed in full on the income tax. And-- and all the statistics you read, particularly the one don't like taxes, well now, they totally ignore the payroll tax. And it's huge now.

Tom: Of all the tax lines that you've seen proposed over the years, a flat tax, a consumption tax, a more progressive income tax, which is the one that appeals to you the most?

Warren: Well, in theory a progressive consumption tax makes the most sense. I mean, if you tax the people who use the resources of society rather than ones who-- who-- who provide the resources of society, that makes more sense. And a consumption tax can be very progressive.

You can have just an unlimited IRA. As long as you invest money, and don't actually spend it for yourself, or your kids don't spend it, or whatever-- you don't get taxed. As soon as you start making withdrawals from society's bank, start using the resources, the-- the sweat of other people to-- benefit yourself, you would pay on that. That-- that's the one that makes the most sense. I don't-- it isn't gonna happen-- in all likelihood.

Certainly the worst taxes-- is something like a sales tax. I would say that we've got a pretty bad system, when we tax the person who-- who cleans out my office, the receptionist. They are paying 15-- payroll taxes, over 15 percent now, just for openers.

Most of my income is taxed at 15 percent, and-- and doesn't pay a payroll. Mainly it’s dividends and capital gains. And if you look at the For-- Forbes 400, a bunch of my fellow rich guys-- they will-- their tax rate overall to the federal government will be less than that of their receptionist. And I challenge anybody. If they want to make me a bet on that, and I've urged Congress, both the Senate and the House, to get the figures anonymously from the IRS. Just look at that Forbes 400. Takes a billion three to get on the Forbes 400 this year. And the aggregate wealth is just staggering. And those people are paying less percentage of their total income to the federal government than their receptionists are.

Tom: Will you put some money on the table on this one?

Warren: What--

Tom: You said-- you said you'd pay a million dollars to somebody.

Warren: I'll-- I'll bet-- I'll bet a million dollars against any member of the Forbes 400 who challenges-- me that the average for the Forbes 400 will be less than the average of their receptionists. So, I'm-- I'm-- I'm-- I'll give 'em an 800 number. They can call me. And the million will go to whichever charity the winner-- designates.

Tom: How much are you hearing from your fellow rich fellows, as you describe them?

Warren: I don't hear anything. They're happy. They are not paying the tax rate their receptionists are.

Tom: Why do you think that is? I mean, Congress took a look at this this year with the hedge fund operators.

Warren: Right.

Tom: Who are getting taxed at about 15 percent.

Warren: And they-- and they're screaming about that. And they-- and-- and it-- and they're often deferring taxes by-- by using-- foreign tax statements. And what happens--

Tom: But why-- why won't Congress step up on this in your opinion?

Warren: Well, I-- I-- I don't know the answer to that. I do know that the hedge fund operators made a record amount lobbying-- in recent months, so they give money to the political campaign and-- and who represents the cleaning lady?

Tom: The hedge fund operators and the U.S. Chamber of Commerce and others have said, "It's going too far." In fact, the hedge fund operators have created enormous wealth for the little guy as well, pension funds and other people who participate in those private equity partnerships. And so in the end it really does spread the wealth in a way.

Warren: Well, they say they work hard and that in the process of working hard they make other people money. And-- and that's true of you. That's true of a whole bunch people in the world. But that doesn't entitle them to a preferential tax rate. And the-- and the truth is that their occupation is going to work everyday. Working on the companies they buy, or working on trying to find what securities are cheap.

And when they get-- the day is done, they are taxed at a lower rate on-- on so-called carried interest and that sort of thing, they are taxed at a lower rate than the beginning rate for their cleaning lady and the payroll tax, forgetting about our income tax.

And the truth is that-- that-- that group, and really all the rich in one way or another-- have lobbyists, you know, coming out of their ears. And are down there-- whenever-- whenever something threatens their favored status, they are in Washington, you know-- en mass. And who is there representing the person that pays the payroll tax? I don't know of any group that is going around saying the-- that is saying, "It's too tough for these people who-- barely eke out a living to be paying 15 percent on payroll taxes."

Tom: Well, the Senator just across the state line here, Charles Grassley, of Iowa has spoken out about this.

Warren: I'm for him. He's a terrific guy. I mean, he-- he really wants to do something about it. But he's a very lonely man.

Tom: On the Democratic side where you would think this would be a hot issue, there hasn't been a lot of people-- there haven't been a lot of people …

Warren: No. They-- they talk about it some. But they-- they feel the pressure of money and politics, and-- and you know how-- how the number of-- of-- of lobbyists has mushroomed. And a number of the hedge-- or the private equity people were down there personally lobbying going from one Senator to another. And-- and these people make campaign contributions. They hire lobbyists. And I just don't know who's lobbying on behalf of-- of the person-- the people in my office.

Tom: Grover Norquist, who is-- the anti-tax guy, mostly on the Republican side. Why isn't there a Grover Norquist representing the receptionist and the cleaning lady?

Warren: Well-- maybe I'm trying to be that, but maybe I'm-- ineffective. And-- and it-- it's-- you know, people-- it's that old story, you know, don't-- don't tax you. Tax-- don't tax me. Tax the fellow behind the tree. Everybody hates taxes, and-- yeah. But if we're gonna raise two and a half trillion, we've gotta get it from somebody. And-- and it's-- it's very nice to say that, you know, that "I'm too heavily taxed and they should get it from somebody else." But they get-- they get almost a third of that money from the payroll tax now. And nobody ever talks about it.

Tom: On the other hand-- you'd have members of this administration and others who are adherents of this administration saying, "The great lesson-- of the last 20 years has been: cut taxes. Fewer taxes, especially for the wealthy. That helps the whole economy. We wouldn't have gotten through the post-9/11 period without the tax cuts that George Bush pushed through."

Warren: Tom, I've been around rich people all my life. And I have seen capital gains taxes close to 40 percent. No one went home at 3 in the afternoon and said, "I've worked enough, and because tax rates are so high, I think I'll-- I'll go to the movies." I mean, people-- people want to maximize their after tax income, and there's two ways to do it. In-- increase their income, or get Congress to lower the tax rates for them. But I have never seen anybody with capital say, "I'm going on strike. I won't invest." I-- I've been managing capital for 50 years for other people. No one left and said, you know, "This-- the taxation system's too tough. I-- I think I'll just stick it all under my mattress." They can't stick under their mattress. They're going to invest their money regardless.

Tom: When you talk to presidential candidates-- and you-- you've been now outspoken about your preference for Democrats--

Warren: Yeah.

Tom: --when you put this before Hillary Clinton, or Obama, or the people who come to see you--

Warren: Both the people you mention have heard me talk about it--

Tom: Right.

Warren: Yeah, probably more than they'd like to.

Tom: But they haven't moved it to the top of their agenda.

Warren: Well, it's-- if you read-- if you read Obama's book, for example--

Tom: Yeah.

Warren: --it's in there. And if you talk to Hillary-- no. I think-- I-- I think in general they feel that the middle class and-- and-- and really the lower class in terms of income have-- have gotten too much shoved on them. And-- and it's been-- it's been to benefit the rich. It-- but it-- it has not been the main thrust of anybody's campaign.

Tom: Have you ever seen a tougher time in many ways for the middle class in this country?

Warren: Well, the middle class is a lot better off than it was 50 years ago, or 100 years ago. I mean, it-- it is true that if the economy improves, everybody benefits. So-- so it is-- it was a lot tougher, you know, 50 years ago. It was tougher 30 years ago. They-- people have improved their standard of living. But-- but if you look at the cutoff point on the Forbes 400 20 years ago, 21 years ago I think, it was a hu-- it was $190 million. It's now a-- a-- a billion three hundred million. I mean, it's up roughly seven for one. I will guarantee you that the working stiff is not up seven for one in the last 20 years.

Tom: You have some interest in China… Has that been complicated for you, your investments in China and the kind of attention that you've gotten with it?

Warren: Well, not-- not really. I mean, we-- we bought PetroChina stock when it wasn't so well known. Last week at one day, it was the second most highly valued company in the world next to Exxon Mobile. It was above General Electric. I mean, it was number two in the world. So, the Chinese have made enormous progress in the last ten or 15 years. And-- and-- and they'll continue to make progress. What they're doing is they're finding out what the human potential is. I mean, they've always had an incredible number of smart people, energetic people. But their system didn't allow those people to develop their potential. And now they're doing it.

Tom: They're taking a look at Bear Stearns. You've got a lot of friends at that-- house on Wall Street. That make you nervous at all that the Chinese will become involved in our capital markets in such a direct fashion?

Warren: Well, Tom, everyday-- net we're going to buy about $250 billion worth of goods and services from China beyond what we sell to them. So, we're handing them, call it $700 million a day. And what are they gonna do with it? We don't expect them to stick it under the mattress. They have to invest in something. They can buy stock in Bear Stearns. They can buy U.S. government bonds. They can buy real estate here. But we are force feeding dollars to them, and we're taking their goods in exchange. And for them to want to do something with those dollars-- it's perfectly understandable.

Tom: Does it make you anxious?

Warren: No. Well, it-- there are things about the whole foreign exchange situation that make me a little anxious. But it-- it is not specific to the Chinese at all. We are making free decisions everyday to buy their furniture, or buy their-- buy their shoes, or whatever it may be.

And we give them-- we give them a little piece of America in exchange. That's the nature, because you gotta give 'em something in exchange for it. And-- and-- we're not giving 'em enough products.

Tom: You've got a lot of fans out there, but some people have said you could have a lot greater influence on social justice in China in the human rights area, if you use the leverage of your investment—there, in that fashion. Is that tempting to you?

Warren: No. I-- I don't seem to be able to use the leverage of my investment in the United States (LAUGHTER) to do anything about tax policy. So, I-- the-- the Chinese government is going to behave in their own self interest to a great degree like the U.S. Government. When our values clash with theirs, that's something to be worked out basically government to government.

But-- we have been treated very well in terms of our investment in PetroChina. Twenty-nine of the 30 largest companies that are publicly owned in China are controlled by the Chinese government. That's a fact of life in China.

So-- all-- the three major oil companies, they're all-- they all have a majority of their stock owned by the Chinese government. And you can go up and down the lines, the banks, and the life insurance companies and everybody else. So, you are-- you are going into a state controlled company when you buy stock in China. But-- they've done pretty well by their-- by their investors. And-- and-- they don't like some of our policies, and we don't like some of their policies. And--

Tom: Do you-- do you raise that with them?

Warren: No. No. No. I-- if I-- if I raised with-- take the stock. It's something we own in the United States, I raise tax policy with them, do you think (LAUGHTER) is that gonna change what the U.S. government does? No. It's-- it's determined by other factors.

Tom: Do you think the 21st century will be the century of China?

Warren: Well, certainly China is going to gain economically relative to the rest of the world in this-- in this century. There's no question it that. They're galloping forward. They come from a very low base, and-- and-- and that's gonna cause a lot of problems for people.

I mean, we-- we worry about, you know, global warming or something like that. But we're using 12 times as much oil per capita-- as China. Now as they use more, if we start pointing fingers at them, I think they're entitled to point fingers back at us. We're the ones that have been using up the resources of this planet-- at a-- a clip far beyond-- you know, our per capita-- position in the world.

So-- I-- I think China is going to be-- I think they're going to be moving pretty fast in terms of-- economics. And it'll take 'em a long time, because the base is so low. But-- they will be a big story.

Tom: When you look at China as an investment, however, don't you have to factor in more fully the politics of China than you do-- when you're making an investment in this country--

Warren: Sure.

Tom: Or in western Europe?

Warren: Sure. No. You're going into a different society. And-- and they aren't gonna change their society dramatically to-- adapt to us. But we're still delighted to go in there. But they-- that's true around the world generally. But obviously in China, there you've got a-- you've got a planned society in effect. And-- and-- and it's different than the United States.

Tom: A lot of wealthy people that I've talked to have said about this, "But Warren doesn't factor in how much we pay in state taxes, you know." Those who live in New York-- face a very heavy tax burden. Their estate taxes in New York, to some of them, seem confiscatory. So, it balances out over the long haul.

Warren: Well, the state taxes go to states. But we still have $2.6--

Tom: Yeah.

Warren: --trillion raised for the federal government. And-- and the state taxes obviously vary enormously. But the disparity-- the rich-- the-- the very-- the super rich at the federal level are paying lower tax rates to the federal government. That is not true on the-- on the state level. But that-- you know, if somebody pays a high tax rate in-- in-- in New York, they can always move. I think there's close to a dozen states that don't have an income tax. My friend, Bill Gra-- Gates, was in Washington. They don't have a state income tax. So, there-- there are options available on that. There are not options available to the poor on the federal income tax.

Tom: If the taxes get raised on the super wealthy, do you think it'll cut into philanthropy?

Warren: No. No. If you look at philanthropy in this country, it's been about two percent of GDP. We've had 70 percent tax rates. We've had 40 percent almost tax rates on capital. We've all kinds of different tax rates. Two percent of GDP end up going to philanthropy. It won't change things.

Now the estate tax, incidentally, I mean, the estate tax raises about $30 billion a year. That $30 billion, which some people want to get rid of, that would provide a $1,000 a family to 30 million families. If you take the 30 million poorest families in the United States, a $1,000 each would make a difference to every one of 'em. The $30 billion raised through estate taxes-- just guess how many people die in the United States every year. It's a little over 2.4 million. How many people will pay an estate tax this year? How many estates will pay a tax? About 12,000. One out of every 200.

So, by letting one out of every 200 off the hook, you get rid of a sum which would give a $1,000 to every one of 30 million poor families. I mean, I think it's an outrage that-- that people talk about, you know, getting rid of an estate tax that only gets one out of every 200 to start with.

Tom: Executive compensation. You feeling any better about it?

Warren: (LAUGHTER) Well, I-- I-- I feel fine with people making a lot of money for doing a great job. I mean, you know, the people in your field that do a great job make a lot of money. (LAUGHTER) ….

Yeah. But-- what-- what I object to is the people that the-- the biggest payday of their life is the day that they leave a company from which they failed, or-- or where they get paid automatically big sums. If you want the shot at the brass ring-- if you want a shot at making tens of millions of dollars a year, if you flop, why in the world should you be making $5 million a year, or $3 million a year? That-- it's-- pay for performance is fine, you know. Pay for showing up is not-- with the-- with the huge goodbye present, you know-- or-- or bonuses that are not tied to real performance, I think that's terrible.

Tom: But, again, that's not getting very much attention. I mean, it was hot for a while.

Warren: It was hot for a while.

Tom: It's gone away.

Warren: Now, well-- the CEO cares enormously. The comp committee doesn't care …. I mean, if you-- you-- if-- if-- if the CEO is negotiating with a labor union, they stay up 'til 3 in the morning, and they do it over the weekends and everything else. And they worry about a few cents per hour. The comp committee meets for a couple of hours. I've never heard of a comp committee meeting at 3:00 in the morning, you know.

Tom: Right.

Warren: Or staying there over the weekend to negotiate with the CEO. So, you've got this intensity of-- of caring on the part of one party to the negotiation. And you've got people on the other side to whom often it's play money.

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Friday, October 26, 2007

CNBC: Warren Buffett and Jack Welch Live on Squawk Box: The Transcript


On the Road with Warren Buffett
This morning on CNBC's Squawk Box, Warren Buffett chatted by telephone with the Squawk team and guest host Jack Welch, the former Chairman and CEO of CNBC parent General Electric. Becky Quick is traveling with Buffett in China, and put him on the phone to react to news this morning that Merrill Lynch had to write-down almost $8 billion in bad bets on mortgage securities and leveraged loans.

A video clip appears in this earlier WBW post.

Among the topics: Merrill Lynch's big write-down, the SIV "super fund", the health of the U.S. economy, the railroad industry and why lots of furniture-buyers in Boston are hoping the Red Sox win the World Series.

Carl: If you're just waking up, Merrill Lynch coming out with an addition two-and-a-half billion dollars in writeoffs for the third quarter. We have Becky Quick traveling with Warren Buffett in China this morning. They arrived in Dalian, how long ago Becky?

Becky: Carl, we've been here for just about ten hours, less than 12 hours. We arrived this morning, I believe, around 9:30. We've just finished up from that dinner we told you about before. Last time I called in, you were asking about some of those PetroChina headlines that have been coming out, and my guess is that happened because Mr. Buffett earlier today, probably about three hours ago, was at a press conference with somewhere between 35 to 50 journalists here in Dalian. He was asked a series of questions, one of which was what about that PetroChina stake? He did point out he has sold off his entire stake, as he said before. And he also added to that today, that since he's sold off, since that news was made, he had written a letter to the head of PetroChina thanking him for all of his efforts and his work and the reason he sold out of that stock is because it had appreciated so much and he did make a handy profit out of it. Of course, the stock's taken off since then, and he pointed that out as well. He had written that letter to make sure it arrived in China before he did today.

This news from Merrill Lynch that you were just talking about, was something Mr Buffett and I had just been talking about. We just heard the news ourselves when we called into the control room. But he's here right now and I thought I'd put him on with you. I hear you also have a friend of his on the set, Jack Welch, so maybe the two of them could talk a little bit about that. I'll put him on right now.

Joe Kernen: Great. Mr. Buffett?

Warren Buffett: Jack?

Joe: How are you? It's Joe Kernen.

Warren: Good.

Joe: Good to hear from you.

Warren: Oh, hi, Joe.

Joe; You avoided the Bear Stearns investment, never had any interest, we found that out now. Now we see that Merrill Lynch lost $2.85, their write-down in the last month has become seven-and-a-half billion. Do you think we're getting close to fair value yet on some of this stuff?

Warren: Well, I don't know the answer to that. That is a big number, but, I, you know, I've, I've looked at some of the instruments out there and they're hard to figure the value of.

Joe: Is it marked to myth, that's a term you like to use. Are we still at mark to myth or is it getting closer to being marked to reality?

Warren: Well, we're getting closer, but that doesn't mean we're there. (Laughs.) The way to find out what something is worth is to sell a small piece of it. You know, if they sell 10 percent of their position, it's hard to argue the other 90 percent is worth more than that. It may be worth less because of size, but it's not worth more. You know, they may not like the market but I didn't like it with some of the stocks I've owned over the years but that was the market.

Jack Welch: Warren .. Jack.

Warren: Jack, how are ya?

Jack: Hey, how are you?

Warren: I'm here in China, and they're all asking me about the round of golf you played against Greg Norman some years ago. You have anything you'd like me to tell them?

Jack: Give them the t-shirt you made.

Warren: I'm giving it to them hole-by-hole, just the way you've always gave it to me. (Laughter.)

Jack: You know, when I heard you were looking at some Bear Stearns stuff, it reminded me of our joint forays into Wall Street. (Laughter.)

Warren: Jack, I never figured out which one of the two of us was getting the other in trouble. (Laughs.) You went into Wall Street, I went into airlines, or maybe it was vice versa, but (laughs) we went hand in hand into trouble. (Laughs).

Joe: Mr. Buffett, this super fund. The SIV super fund. Do you think that's a good idea?

Warren: Well, I don't know the facts on it but I do think if they sold paper into the super fund they ought to sell 10 percent of the paper independently and find out what that brings in terms of the price they seek for what's put into the super fund.

Joe: Do you see, from what you know so far, do you see the problems here, the SIV problems, the mortgage-related problems, do you see, have we got a good handle on how badly it's actually going to hit the economy or the stock market at this point or could it get a lot worse?

Warren: No, it's hard to figure because they're a lot of people having trouble with their mortgages now but there could be more, particularly if there are reset provisions in the monthly payments. So, it's hard to tell. I mean, in the end, our economy does fine. But that doesn't mean it can't have some dislocations for a year or two. Overall, five years from now, ten years from now the American economy will be fine, but that doesn't mean it will be true in five months or ten months.

Carl Quintanilla: Warren, it's Carl. I know you had a press conference earlier today in Dalian, talking about the Chinese market. You've got 47 billion in cash and you've talked for months about your inability to find investments that are worth your time. All of a sudden, you're traveling to Israel, you're now in China for the first time in 12 years. Are you finding anything overseas that you were not finding at home?

Warren: No, well, we've bought some international stocks this year and we were buying them last year but I'm over here in connection with an operating business, Iscar. They're opening a plant here, it's a major plant. It's a terrific company so I just came over to cut a ribbon which is about the limit of my talent. (Laughter.)

Carl: I bet you cut ribbons better than just about anybody,

Warren: (Laughs) Well, I've had a little practice.

Carl: You're quoted this morning as saying the China market is still, I'm thinking, your words, 'too hot.' Too hot to buy, you need to keep looking.

Warren: No, I, I, just said that we very seldom buy into a market that's gone up a whole lot, and I don't know anything real specific about the Chinese market or Chinese stocks. But I do know that when prices have gone up a whole lot then I'm more skeptical when they've gone down a whole lot. I really like the look of markets that have gone down rather than markets that have gone up. But I will say this, what I've seen in China just today, in terms of the industrial development in Dalian, is making a believer in me, certainly in the economy, but that doesn't mean that I think the stocks are attractive.

Joe: You probably, I don't know if you watch all your companies. You probably saw Burlington. You're right again on Burlington Northern, Mr. Buffett. There it goes. I just like to get your take on what you find so appealing about the railroads. I've heard people say you're going to run fiber optics on all your rails ..

Warren: No.

Joe: .. I've heard people say it's an ethanol play. Why are you going into the railroads in a big way? What do you see?

Warren: It's neither thing you mentioned. The railroads are a better business than they were in the past. They aren't a wonderful business, they're very capital intensive. They earn reasonable returns on capital but they don't earn sensational returns, they're just too capital intensive. But, they're a lot better business than they were in the past. Their position is a is trucking has improved. And just the excess capacity in the rail system has declined a lot, or disappeared, to some extent. So, it's better business than it was but it's not a marvelous business. And I don't see how it ever will be given it's as capital intensive as it is.

But, you know, for a hundred years, it was a terrible business for a hundred years. It's like what someone once said about the Chicago Cubs: every team has a bad century every now and then. (Laughs.) Well, the rail industry had a bad century, too. But it's gotten a lot better. But it's not a wonderful business.

Jack: Warren, Jack. There are 40,000 consumers in Boston who hope like hell that Jordan's loses that bet and ... (Warren laughs) .. your insurance payment has to be made.

Warren: There's going to be a lot of free furniture in Boston. (Laughter.)

Jack: 40,000 people went in and loaded up.

Warren: Yeah, well, that sounds about right, Jack. (Laughs.) I figured you were one of those that bought furniture there when you got (inaudible) the Red Sox won the World Series.

Jack: Absolutely.

Warren: When you're coaching they'll probably take it. (Laughter.)

Carl: Warren, I don't want to keep you too long, but, is there anything that the Chuck Princes of the world of the Jimmy Caynes of the world can do to whet your appetite for some of these names that are obviously getting a lot of attention?

Warren: It's always possible, but, we haven't done anything, but, well, it depends on whether you're talking about the securities that they own or whether you're talking about their own securities. Jack's my advisor on brokerage stocks. (Laughter.)

Joe: That whet my appetite. Would it, so you like some of the securities they own maybe more than the securities of the banks themselves?

Warren: Well, I do think there could be possibilities down the line, although we haven't seen it yet, but there could be possibilities down the line in some distressed paper. But my guess is that there could also be a lot of money lost in distressed paper, too. It's very hard to figure.

Joe: OK, I'm just going to try one more time on a big picture thing, Mr. Buffett. And that is, the rate cuts we're getting from Bernanke and company right now, are we getting enough benefit from the rate cuts to make up for the decline we're seeing in the dollar?

Warren: Oh, I really, I really don't know the answer to that. the Fed is ... (silence).

Joe: See, he doesn't want to answer that one. I want to try one more time but it looks like we lost him.

Carl: If we lost the signal, it was the best-timed phone signal ..

Joe: He doesn't weigh in, really, on big policy things, like that.

Carl: He says he's not an economist. He's said that for years.

Joe: But he makes bets on the dollar. Huge bets on the dollar. He ..

Carl: He was wrong for awhile but he's been right, in a big way.

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