Warren Buffett Relives The 2008 Financial Crisis | July 11, 2018 | Summary and Q&A

Transcript

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Summary

In this video, Warren Buffett discusses the 2008 financial crisis and shares his thoughts on what led to it. He talks about the speculation in the housing market, the levels of participation and borrowing, and the crash in housing values. Buffett also talks about his experiences during the crisis, including receiving calls from top officials of Wall Street firms and the government. He discusses his decision not to invest in certain companies, such as Freddie Mac, AIG, and Lehman Brothers. Buffett reflects on the actions taken by the government and the challenges they faced. He also emphasizes the importance of fear in driving the crisis and the need for a powerful central bank. Despite the crisis, Buffett remains confident in the long-term growth of the American economy.

Questions & Answers

Q: What do you think happened that led to the 2008 financial crisis?

The main cause was the speculation in the housing market, with people believing that housing prices could only go up. This led to a huge array of problematic practices, such as borrowing, refinancing, lying on loans, and the participation of lenders. The crash in housing values affected 50 million families who owned homes on mortgage and based their living standards on the assumption that the value of their homes would continue to rise.

Q: Were you worried during the 2008 crisis?

Buffett explains that he has always assumed that the American economy moves forward over time, but also experiences periodic hiccups. While he wasn't worried, he did recognize signs of trouble when he received a call from a top official of a Wall Street firm trying to sell billions of dollars worth of securities. This indicated that something was wrong, and soon after, the roof fell in with the conservatorship of Freddie Mac and Fannie Mae.

Q: Did you consider investing in Lehman Brothers when they were in trouble?

Buffett recalls receiving a call from Dick Fuld, CEO of Lehman Brothers, who asked if he would be interested in investing between three to five billion dollars. Buffett asked about the details and the payment terms, but ultimately decided not to invest after going through the company's financial information and finding concerns about their financial condition.

Q: Did you think the system would completely freeze up during the crisis?

Buffett describes the crisis as an economic "pearl harbor," a blow to the country's economy that was comparable in magnitude to what happened during the attack on Pearl Harbor. He believed that if the system froze up completely, it would have a significant impact on the economy and people's lives, as it would result in a decrease in productivity and a loss of confidence. He also mentions the fear and panic that spread throughout the population.

Q: Do you think it was a mistake not to save Lehman Brothers and AIG?

Buffett acknowledges the difficult decisions that government officials had to make during the crisis. In the case of Lehman Brothers and AIG, he believes that they had to be put into conservatorship to prevent further damage to the financial system. The government faced challenges in terms of guarantees, the need to limit exposure, and the fear of public opinion and potential backlash.

Q: Do you worry about another crisis?

Buffett admits that there will likely be another crisis at some point but doesn't worry about it personally. He believes in conducting himself and his investments in a way that can withstand a crisis. He emphasizes the importance of having a powerful central bank, like the Federal Reserve, to keep the economy running smoothly.

Q: Is there anyone to blame for the 2008 crisis?

Buffett acknowledges that many people made foolish decisions and engaged in dishonest behavior during the crisis. However, he also recognizes that fear is a natural response and cannot be blamed on individuals alone. He believes that a crisis of this magnitude affects public opinion and creates a desire to punish those deemed responsible.

Q: How would you describe the impact of the crisis to the man on the street?

The crisis had a significant impact on the economy, reducing overall productivity and causing fear and panic. Buffett compares it to a train going off the tracks, where everything comes to a stop and people lose confidence in each other. It becomes difficult to conduct business, and the effects are felt by ordinary individuals.

Q: Were there any investments you wish you had made during the crisis?

Buffett admits that with hindsight, he could have made better investment decisions during the crisis. He believes that waiting a few months before making any purchases would have been more advantageous. However, he also notes that his investments were not heavily affected by the crisis.

Q: Are we better prepared for another crisis?

Buffett expresses his concern that some regulations, such as Dodd-Frank, have weakened the ability of powerful institutions like the Federal Reserve to act promptly and unilaterally during a crisis. He believes that a strong central bank is essential to the stability of the economy and that it is important to learn from past experiences to better prepare for future crises.