Warren Buffett on recession and bailouts

Berkshire Hathaway CEO Warren Buffett (pictured) spent the morning with CNBC and made some news worth noting: He thinks we are in a recession right now and the housing market is still worsening.

On recession, from the AP: "I would say, by any common sense definition, we are in a recession."

On housing, from the CNBC transcript: "I get the figures every month. We have a number of real estate brokerage operations around the country, and I get the -- I get the figures from many markets on listings and sales, and I've seen something like Dade and Broward County [Fla.] go from 6,000 listings and 3600 sales a month to where they're now, I think, 82,000 listings and about 1,500 sales a month. So unless there's some major intervention by the government in some way, or something of the sort, home prices have not stopped going down. Now, they will at some point."

CNBC's Becky Quick follows up on the "intervention" (read bailout) comment:

"QUICK: Any of the intervention plans we've seen from the government strike you as being a good idea?

BUFFETT: Well, that -- I haven't seen the details on many of them, but I think it's very hard to start interfering with markets without having a whole lot of unintended consequences."

Thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo Credit: Bloomberg News

Comments

[MyLessThanPrimeBeef]

Muni bond market may not again be as big as it was and Warren might get a better deal later, so he pulled back his last offer. No one is perfect, but you will win more often than not with Buffet who was not afraid to admit he made mistakes like Pier 1.

[mbob]

OK, courtesy of Bigpicture at typepad comes the following bit of insight re: housing bottoms...

"People have tried to take me to task when I differentiate between stocks and houses. The half joking quote is "The difference between stocks and houses is, outside of Love Canal & Detroit, houses don't go to zero."

As you can see from web page listings, that is only the slightest of exaggeration, as there are quite a few house in Detroit for sale at $100 each.

And, if you search for $0 - $5,000 price range in Detroit, MI, you will find 1,397 properties in that range, out of 20,881 properties for sale.

Why is "zero" only a slight exaggeration? Renting an apartment (no property tax, no maintenance obligations, no heating costs) is cheaper in Detroit than owning a home -- even one that costs $100 . . ."

So, bear in mind that nobody spent time and money building these houses in expectation that they would return to compost. Just because it doesn't rain in Southern California doesn't mean we are immune to economic dislocations.

Just where are all those granite counter top and stainless steel appliance sellers going to live now?
Start calculating how many people can share one house.....

[l.a.guy]

"Buffet who was not afraid to admit he made mistakes like Pier 1."

I remember seeing an interview where he said "Berkshire-Hathaway" was one of his worst investments. According to him about the only thing they got out of it was the name.

I saw a lot of the interview and still love his uninhibited honesty.

[sean j]

Hey Warren, it's called a price correction.

For years, the price of homes has been OVERLY INFLATED. It's only natural that they come down in price before we reach equilibrium.

Any government intervention will simply blow hot air into an already inflated balloon keeping many buyers on the sidelines.

[lefty]

hey, mr. buffett is more likely to sell you new furniture than a new house! he knows you don't need a house but you do have to sit down! so make your own 'discretionary' move right now into metro L.A., the world's finest location!! good luck!

[Uncle Billy]

I watched all 3 hours of Warren and Becky, and I'm falling in love with both of them. Trouble I'm having with Warren is that he's too damned perfect. The self-effacement, the burgers and candy. The consummate sportsfan. It just doesn't jibe with my villain radar.

Maybe I should just accept that this is America at its best? You can't even fault the guy for being insanely wealthy -- he's giving it all back. Maybe he really *is* the backbone of america? It's just so hard to accept after getting jaded in L.A. for so many years.

[bottom line]

I've always really admired Warren for his personal qualities. I revere integrity foremost, & he flat will tell the truth, & let the chips fall where they may. What's the old saw, "You can't cheat an honest man".

Really, though, you didn't need to be the "Oracle of Omaha" to say RECESSION. Many have seen indicators go well back but certainly at least to last fall, September-October '07.

What my parents always preached, & what Buffet espoused today, was common sense. Most people today don't have any, or if they ever possessed any, have exercised it so little in the last decade or longer that it has fallen dormant.

Wall Street & White House cheerleaders continue to blow smoke up people's butts, however if you stopped to consider, might you not be way worse off than you were 5 years ago? The smartest folks started cutting a year to 2 years ago. Maybe I was lucky to get the parents I did, but I'm just not a voracious consumer.

My grandparents & parents always said "If you can't pay cash for it, you either don't need it, or you don't deserve it"' This included EVERYTHING, with the exception of a home. Dad had another saying, which might be timely to some here at this juncture, "Treat a shoe clerk like a banker, and a banker like a shoe clerk".

That doesn't mean exhibit rudeness toward your local people in your bank! The thought was that most people throughout time have been intimidated by the "money lenders/bankers" when/if they ever needed to approach them for help.

They would call the tune, & we would dance to it. HOWEVER, the point of the saying is if a person or family has savings, has little or NO debt, & has excellent credit, a banker will get down on her/his knees to do business with you. ALSO, you may well be in charge of dictating the terms, lol.

[l.a.guy]

Couldn't have said it any better Uncle Billy.

In spite of the fact Maria Bartiromo and Erin Burnett get a lot of the press attention, to me Becky Quick is actually the best of the bunch and tends to do the most informative interviews.

[mark knowles]

Frankly, it amazes me that no one is saying they saw this coming. It's a great big shock to everyone concerned.

And the picture is not the same all over the country. I don't see luxury Manhattan condos hitting the auction block at 50% discounts.

But, he's right. For much of the country, it's not over yet. Think 2-3 years of continued falls in price uncertainty in some markets.

[Tombstone Realty]

Wanna hear something really scary? Marketwatch is reporting that the Saudi sovereign funds people are saying they won't be able to save Citigroup on their own.

*Save* Citigroup. Not bail out, or ameliorate a temporary condition - no, they said "save".

http://www.marketwatch.com/News/Story/
gulf-investors-may-not-save/story.aspx?guid=%
7B6C374435%2D5314%2D4A8E%2DB689%2DB8916
D529B7B%7D

Maybe that's why even Bernanke is talking about having the principal reduced on home loans now.

[Laker]

Tombstone Realty, "Maybe that's why even Bernanke is talking about having the principal reduced on home loans now."
Well, do you think banks will reduce a $1MM loan down to $500,000 to reflect the true market value???
They might as well, foreclose, and sell for $500,000. Then the shareholders will not sue them for breaking the contracts.
Additionally, how about the moral hazard in having the loan balance reduced for those that lied, over extended themselves, or simply gambled. There are some home owners with fixed rate loans that will not get bailed out and will keep their super hyper inflated loan balances...is that fair?
Why doesn't uncle Ben reduce my credit card balance too? How about my auto loan or student loan balance?
WHAT KIND OF BULL **** IS THAT?
Uncle Ben should be fired and replaced by a fed that will fight for a strong dollar! WE don't want to become Argentina!

[Uncle Billy]

Well, if it's time to save Citigroup, maybe the Norwegians can do it. Or Berkshire-Hathaway? They've got $100B burning a hole in their pocket. But then again maybe we can withstand the failure of a major bank despite Nouriel Roubini's inclusion of this event on his 12 step program for economic armageddon.

C'mon, let's start feeding ourselves some good news. We don't want to be slaving over our desks and powertools in a few years for the benefit of a bunch of galabiyehed jokers that drive Turbo Bentleys through town at 100 MPH at 2 in the morning.

[Tombstone Realty]

Hey now Laker - don't shoot the messenger....I was just reading what Reuters was reporting on Bernanke's speech, and what the Saudis were saying about Citi.

There ain't nowhere in my blurb about any of this being a "great" idea. Just that something as large as Citi was being talked about in past tense, and that perhaps Bernanke knows others in the same situation - hence the talk about reducing loan principal, which has since gotten its own post on the blog. That's alllll I was saying.

As far as I'm concerned it's bull, because it means those who cheat win, and those who play fair, lose. Not to mention the fact that the banks won't have any way to peg "true" market worth, when said market is in free fall.