Innovators, Imitators, and Idiots: the Buffett 10/1/08 interview with Charlie Rose:
Excerpts:
people...don't get smarter about things that get as basic as greed, and you can't stand to see your neighbor getting rich. You know you're smarter than he is, and he's doing these things, you know, and he's getting rich, and your spouse is getting unhappy with you because you aren't doing -- pretty soon you start doing it. And so you get what I call the natural progression, the three Is: the Innovators, the Imitators, and the Idiots. And that's what happens. Everybody just kind of goes along. And you look kind of silly if you disagree.
If you do smart things and use leverage and do one wrong thing along the way, it could wipe you out...it's a lot like Cinderella at the ball. I mean you know at midnight everything is going to turn to pumpkins and mice, right? But as the evening goes along, I mean, you know, the guys look better all the time, the music sounds better, it's more and more fun, you think, "Why the hell should I leave at quarter of 12. I'll leave at two minutes to 12." But the trouble is, there are no clocks on the wall.
The reason we haven't used our cash two years ago, we just didn't find things that were that attractive. But when people talk about cash being king, it's not king if it just sits there and never does anything. There are times when cash buys more than other times, and this is one of the other times when it buys a fair amount more, so we use it...You want to be greedy when others are fearful. You want to be fearful when others are greedy. It's that simple.
...in my adult lifetime, I don't think I've ever seen people as fearful economically as they are right now...this really is an economic Pearl Harbor. That sounds melodramatic, but I've never used that phrase before. And this really is one.
...we've been in a recession, by any common sense definition...the American public, they've got 20 trillion worth of residential homes. They've got 20 trillion worth of stocks, very roughly. Those are the two big assets of American families. They are both down dramatically for different families. But 95 percent of the people at least are worse off in terms of their residential wealth plus stock wealth from a year ago or two years ago. That is bleeding into the real economy. I mean, that's bleeding into auto sales and jewelry sales and furniture sales and all that. But that wave is just starting to hit...Unemployment's going to go up under any circumstances.
..the recession is going to get worse. (Economic conditions) will turn around. I don't know whether it will be six months or whether it'll be two years. (6 months,) that's sort of the best case... Worst case is a long time...If we don't do the things we should do, it could be five years, sure.
This economy doesn't work well without the lubrication of credit and trust. And that's been lost. It's a huge problem. What you have is you have the major institutions of the world all wanting to deleverage....There is only one institution in the world that can leverage up in a way that's all a countervailing force to that, and that's the United States Treasury...the commercial paper market, when that dries up, you know, that’s just like sucking the blood out of the economic body of the United States. And that’s happening.
Confidence in markets and in institutions, it's a lot like oxygen. When you have it, you don't even think about it. Indispensable. You can go years without thinking about it. When it's gone for five minutes, it's the only thing you think about.
AIG would be doing fine today. It was one of the ten largest companies in the United States in terms of market value, over 200 billion, the most respected insurer and everything in the world. If they never heard of the word derivatives, they'd be doing fine.
I believe in Mark-to-Market...once you start saying we’re going to peg these things at some price that isn’t market, God knows...once you start putting phony figures into financial statements, you get in a lot of trouble. And we've seen so much of that in the last 20 years.
I think it's much better to live in the world where those around you, particularly when some of them have nuclear bombs, I think it's much better to live in a world where their lives are getting better also.
inflation...is a likely consequence out of what's going on now. Right now, we are in effect making a...choice between future inflation and...getting off the floor. And we're likely...to have more inflation in the future as a consequence of the things we do to fight the present situation.
I think it's terrible for people in effect to say that income from investment should be taxed at a much lower rate than income from labor...I make a lot of money by capital gains, and I pay 15 percent, and I pay no payroll tax on it...the woman that comes in, takes the wastebasket away, she's paying 15.3% or whatever it is, on payroll tax alone.
..as long as you have markets, you’ll have excesses. People went crazy with tulip bulbs. They went crazy with the South Sea Bubble, they went crazy internet stocks, they went crazy with the uranium stocks back when I was first getting started. I mean, you know, you’re not going to change the human animal. And the human animal really doesn’t get a lot smarter.
transcript: cnbc.com
video: charlierose.com |
