Warren Buffett was interviewed (along with his son and grandson, both named Howard) on the Charlie Rose Show on October 22. These are some of the highlights relating to the economy and finance:
(1) The U.S. can service its current debt which equals approximately 70% of GDP. However, future debt should not increase at a faster rate than growth in GDP. (Debt should not increase as a percentage of GDP.)
(2) Nobel laureate Robert Shiller is correct in his prediction of more bubbles in the future.
(3) The 2008 financial crisis resulted from a huge housing bubble. Homeowners “were margined to the hilt”.
(4) Dodd Frank will not have an impact on cycles of greed and fear (1929 and 2008).
(5) It was a mistake for the U.S. government to fine J.P. Morgan $13 billion for actions taken by Bear Stearns and Washington Mutual before they were acquired. Jamie Dimon did the U.S. government and the American people a big favor by acquiring these failing companies. J.P. Morgan should have been indemnified against subsequent lawsuits resulting from Bear Stearns and Washington Mutual’s behavior prior to their acquisitions. J.P. Morgan can afford the $13 billion fine.
(6) It was AIG’s shareholders (and society) who lost money as a result of AIG’s bailout. If a company needs to seek government assistance to be saved, then the CEO should be made to walk away “broke”. The Board of Directors should surrender their previous five years of income from this company.
(7) IBM (large investment by Berkshire Hathaway) will report record earnings per share this year despite its current problems. Every company, including Berkshire, has “blips over time”. IBM will perform well in the years ahead.
(8) The U.S. will continue to grow and prosper as it has over the past 237 years.