Warren Buffett on the Economic Recovery Bill and the Economy
Yes, that’s what Warren Buffet called it on the Charlie Rose Show. Why? ‘Cause the bill will open up the credit markets to get money flowing again.
Money is the life blood of our economy. Credit is the artery through which money flows. If credit arteries are cut, money flow stops. And that’s what happened. Not because money doesn’t exist. Everyone is so scared and nervous right now they’re pulling their money out of markets – equities, money market funds, commodities – and putting it in Treasury Bonds which, Buffett said, is earning at 1/20 of 1%. That’s the level of the fear investors have right now. Better almost nothing in return than risk losing it all.
Buffett said our economy right now is like a “great athlete who’s down on the floor with a heart attack.” He went on to say that paramedics and doctors don’t stand around arguing about what caused the heart attack or in what position the oxygen mask should be, they do what needs to be done. Then, after the patient is up – and alive – it’s time to figure out what caused the heart attack and how to prevent another. He said that’s what this bill will do. It will resuscitate the economy and give us time to figure out what caused the “heart attack” and how to fix it. But first save the patient!
He added that once the Treasury infuses a large enough sum of money into the system, investors will feel confident enough to return to the markets…and the economy will stabilize. Although he cautiously added that it will be months before we’re out this recession.
Buffet kept reminding Charlie Rose that the money Paulson asked for is not being spent, it’s being invested. It’s being used to purchase assets. He added that, if the assets are bought at market or at a very good price, he wouldn’t mind buying some of it himself. He said buying those mortgage securities would yield a very good return on the initial investment.
He went on to praise Paulson as Treasury Secretary, saying he’d known Paulson for a very long time and there could be no one better at this time in that job. He added, too, that he’d like to hire the person who negotiated the AIG deal. And he went on to praise the Chairwoman of the FDIC for her remarkably smooth and easy handling of the recent bank transitions.
Buffett’s only complaint, minor though it was, is that President Bush did a lousy job of explaining the credit crisis to the American people.
He added his opinions of other economic ideas as well:
– Keeping mark to market because it reflects the value/price now rather than some made up value. Sure, the asset might gain value in the future but no one knows how much. And in the case of the mortgage securities, he said Paulson if buys them at market price, the government was sure to make money.
– He spoke against reducing capital gains because he believes to do so is fundamentally unfair to middle and lower income groups.
– He spoke against the extremely low taxes for the wealthy while lower income groups are not getting any tax breaks. He said again that he pays lower taxes than the ordinary people working in his office. He added, why should he pay lower taxes than the woman who empties the garbage can in his office?
Even though many people fear this Administration is leading them down the proverbial garden path as it has so many times before, this time the Administration is telling the truth. Hard as that may be for people to believe. So, regardless of the fact that Bush has lost all credibility, Buffett can be believed. He’s probably one of the most honest, most credible men in financial circles.