CRIPT: Warren Buffett on Recession, Taxing the Rich, and Capitalism's 'Regenerative Capacity'
Published: Thursday, 23 Sep 2010 | 12:54 PM ET Text Size
By: Alex Crippen
This is a transcript of Warren Buffett's complete interview with CNBC's Becky Quick on Wednesday, September 22, 2010. Portions of their conversation aired today (Thursday) on Squawk Box.
Buffett was in New York for a Goldman Sachs event celebrating the first graduates from the firm's "10,000 Small Businesses" initiative.
BECKY QUICK: Warren, thank you for joining us today.
WARREN BUFFETT: My pleasure.
BECKY: This is-- the event the 10,000 Small Businesses-- itís-- been hosted by Goldman Sachs. Youíre one of the co-chairs of that. But-- you can talk about small business all day long. What is this really about?
BUFFETT: Well, this is really about giving these-- in this case, 23 students-- sort of a crash course in a lot of subjects they-- that-- are gonna be useful to them in running their small businesses. Now, these people are already successful. I mean, they-- they-- during the time to the course-- a number of them added employees. And so, weíre not talking about hotdog stands here. Weíre talking about-- about real businesses.
But they learn things like negotiations. How many-- how many people have had a chance really-- if you had a parent that could teach you something, that would be one thing. But-- but itís important. And I had two of Ďem-- told me earlier, one of Ďem negotiated down her lease, another oneís negotiating up her franchise payment. I mean, it-- it-- itís-- theyíre learning important skills. But theyíve got the motivation to do it, too. These people are self-starters.
BECKY: Why-- why did you get involved with this program?
BUFFETT: Well, I just think itís terrific. I mean, the idea-- you know, I had all kinds of lucky things going for me. And my people-- that taught me a lot of stuff when I was eight or ten years old-- been useful subsequently. And-- and some of these people have had some of that. But-- but thereís nothing like combining education, in this case, they get mentoring, and then they get financing. So, thatís-- thatís-- a big push towards success.
BECKY: Whatís the state of small business right now? We hear an awful lot-- from some arenas that small businesses are having trouble getting credit. We hear in other places, thatís not the case.
BECKY: What do you thinkís happening?
BUFFETT: Well, my experience is that they-- they-- they really-- the business has reasonable equity, reasonable prospects. Now, you-- if you want to start a business and have no equity, you can try and borrow the whole thing, you-- you shouldn't get the money. I mean, it-- it-- so, a lot of dumb loans were made three, four, and five years ago. And not only in real estate, but-- but in-- commercial businesses.
But the-- the banks I know are dying to get the money out. Right now, there's over a trillion dollars of the banks, and they only have deposits of $7 or $8 trillion, there's over a trillion dollars on deposit with the Federal Reserve, earning a quarter of one percent. You go broke with a bank earning a quarter of one percent on your money, even if it doesn't cost you anything. Your operating expenses will eat up. So, you want to get it out in loans. And-- there is-- there is-- there is money available.
BECKY: So-- how are small businesses faring right now, if you had to-- look overall? Obviously, everyone's in a different position. But overall, how do you think they're doing?
BUFFETT: I think they're doing about like the economy is. That they-- they've been through-- a terrible period. And I know some in Omaha, and Omaha hasn't been as hard hit as many others, but all businesses went through a terrible period. And-- and basically, the government did the right thing in-- in terms of-- of getting the economy going again. It can't do it overnight or anything of the sort. I think most small businesses have come back somewhat. But they've-- they-- they're nowhere near their peaks.
BECKY: The NBER said this week that the-- recession officially ended back in June of last year.
BUFFETT: Well, they define it differently. (Laughs.) But I-- I mean, I-- I define it-- I think we're in a recession until real per capita GDP gets back up to where it was-- before. That is not the way the National Bureau of Economic Research measures it. But I will tell you that to any-- on any common sense definition, the average American is below where he was before, or his family, in terms of real income, GDP. We're still in a recession. And-- and we're not gonna be out of it for awhile, but we will get out of it.
BECKY: We're not gonna be out of it for awhile meaning, you can see what? A quarter, two quarters, a year down the road? Just from your businesses are telling you?
BUFFETT: Our businesses are coming back-- on average, we've got 70-some businesses. But most of them-- the great majority are coming back slowly. If you take our railroad business (Burlington Northern Santa Fe), and our railroad business is typical of the other railroads in the company. If you take the peak period for shipments and then you go all the way down to the bottom, we're 61 percent of the way back up. That's better, I think, than most businesses are in the country. I don't think most businesses are 61 percent-- our-- our carpet business, our brick business, our insulation business, they're not back 61 percent, but they are moving back.
BECKY: What about-- from an employment perspective. We still have nine and a half percent unemployment in the country. What-- what are your businesses doing right now in terms of hiring?
BUFFETT: Adding-- very few people. But the-- the-- the railroad will have added a fair number of people, because if you've come back 61 percent, you've come back a fair amount unemployment. But if you take our carpet business, it fell from 13 million yards a week, we'll say, to seven million yards a week. And with that cost 6,500 jobs. We're back up to maybe nine million yards a week. But we haven't had to add yet. If we get to ten million, we'll start adding people. But it-- it's lagging and it'll continue to lag.
BECKY: The Fedís Federal Open Market Committee also met this week and came out with a statement that has many looking at it saying the Fed is now poised to go ahead with QE2, quantitative easing, if-- the economy doesnít improve, at this point. Is that your understanding of that? And you think thatís the right call?
BUFFETT: We've got three tools really in fighting a recession. And the ones you read about are monetary policy, which is the Fed. And, of course, fiscal policy. I think the most important factor in getting out of the recession actually is just the regenerative capacity of-- of American capitalism. And we had many recessions in the history of this country when nobody even heard of fiscal policy or monetary policy. The country always comes back.
There are 309 million people out there that are trying to improve their lot in life. And we've got a system that allows them to do it. It doesn't allow things to get changed overnight, though. And-- and-- it's-- it's important to have the right monetary policy. It's important for-- to have the right fiscal policy. But it's nowhere near as important as just the normal regenerative capacity of American capitalism.
BECKY: It sounds like you're-- asking for patience. That that's what it takes to get through this.
BUFFETT: Well, unfortunately, I just-- I don't know how to do it. I mean, if-- if it was a question of, you know, I think the Fed is paying those banks a quarter of a percent now. I thought maybe-- maybe they ought to charge them a quarter of a percent to leave their money on deposit and that would really push it out. (Laughter.) But-- but I mean, we've used up a lot of bullets. And we talk about stimulus. But the truth is, we're running a-- federal deficit that's nine percent of GDP. That is stimulative as all get out. I mean, that is more stimulative than any policy we've followed since World War II.
And, of course, World War II, we had a huge stimulus and it-- it took us out of-- a depression. But we are-- it doesn't depend on calling it the 'Stimulus Bill' to be stimulating. I mean, if-- if-- if the government is spending $3 for every $2 it takes in, that is-- that is fiscal stimulus. And it isn't kick-starting things as much as the American public would like. I'm sure as much as the Administration or Congress would like. It's probably had some effect, probably less than the economists thought it would have going into this.
What will take us out of this is people like these 23 people that-- that we gave a diploma to today. And big business. I mean, everybody glorifies small business. God bless 'em, you know? And-- and I'm not supposed to talk about mother on Father's Day. But-- but I would say that-- that-- remember, the jobs that-- medium-sized businesses, large businesses, giant businesses, they're all important.