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I want to just go back to 2008 for a moment and just even start with a very big picture sense of it all. What do you think happened that led to 2008?
Well, I think the main thing, but you know, there's all kinds of tributaries feeding into the big Missouri River on this. But you had people think the housing could do nothing but go up. And and and you had a a 20 trillion dollar market in residential housing. And so it was a big, big asset class. And people started using it as a currency. And basically, and they found out that it wasn't straight up, you know. And they borrowed on them. And they and there were levels of participation up and down the line. I mean, people at the top were writing mortgages that they knew they'd never have to hold, so they'd sell them to some way, everybody in Norway, after they'd been put in a package. And and you had people refinancing, they're going, that didn't make any difference whether the monthly payments were too high. He had him lying on loans. And yeah, the lenders participating in it. And you basically just had had a huge speculation in housing. And and 50 million of the 75 million owner-occupied homes in the United States were were mortgaged. 25 million were free and they were okay. But but you literally had a crash in the value of something that 50 million families owned, owned on margin, had thought we're going to go up. They based their living standards on it. In many cases, they borrow the unsaid. And it was unlike any widespread financial participation, you know, anybody's ever seen. So it it manifested itself in all kinds of ways. I mean, everybody behaved badly, but they believed, you know. And when people start believing something kind of crazy, you get that sort of thing.
It's early 2008. Hedge funds with a lot of subprime mortgages are going under. There were a couple at that point. How worried were you? Do you remember being worried?
Well, I wasn't worried because I I've always assumed that in a lifetime of participating in the American economy, that's going to move forward dramatically over time. And also, it's going to have a lot of hiccups. And you know, it's just, it's it's part of our economic system that we will periodically have some craziness go on then. And so I I I don't try to predict markets or I don't try to predict business. I just I just try to adapt to what comes along. I did see in the summer of 2008, I got a call from one of the top officials of one of the main Wall Street firms trying to say, awesome, many, many, many billions of dollars worth of equity securities in Freddie Mac. And I knew something was wrong.
So take us back. I know if you remember this. This is after Bear Stearns goes down. So there's before before Fannie and Freddie, yeah. But but after Bear Stearns, you get a call from Dick Fuld, right? And he tells you that his stock is getting killed by short sellers, yeah. And when anybody says that to me, I get very suspicious. So yeah, I'd love to have short sellers in Berkshire. You know, how could how could a short seller hurt you? And he says, there's an opportunity for you to invest somewhere between three to five billion dollars. Are you interested?
I'm interested in hearing hearing him out, yeah.
And what did you tell him?
I told him, tell me what your ideas are and I'll do some looking at it. But tell me what you'll pay first. And and then I'll know whether I want to do some looking. And so he threw out some tentative ideas. I do remember. And actually, he said, can I have Hank Paulson call you? And so Hank called about six or seven on a Friday night. And then he stopped short of giving it totally unqualified endorsement. But he he he was probably hoping I was going to finance him. But he wasn't going to try and saw me too hard. He didn't. I'm sure he didn't feel that was right. Ah, so anyway, I spent that evening going through there. Probably a 10 gig. Okay, I've got a at the office still where I made notes as I went through it. And it was 250 or 300 pages. And I just wrote down on the front page the number of the pages where I was finding problems. And when I go through, I knew that it was not for us. Because you saw what I just saw. A lot of things that made me very worried about their financial condition. And and what would be happening to them under the circumstances that were happening in Wall Street.
Now we're in September. September of 2008. And this is Friday, September 12th. This is this is the weekend. So the weekend, the weekend. And you get a call this time, not from Lehman Brothers, but from AIG asking if you'd be wise investing 10 billion dollars in the company.
Yep. I said, don't count on us. I know time is of the essence with you guys. So just don't waste it on me. So I'm out at that point. Now they they reenter the picture a little later. But I said, I can't figure this thing out now. It's just it would have been 27 billion dollars. And we could have paid it if I'd known what we were getting. Well, the very fact that they were calling me and you know, sending out stuff Friday evening at 8 o'clock in New York indicated they were in peril.
What is a call to Warren Buffett mean, you think?
Well, it means that they know we will act fast if we like something. So we're the best fast buyer for anything that balls in the billions of just about anybody. And and they knew I'm interested in the property casualty business in this particular case. And and, you know, that they are desperate for something that's gonna close within a few days. You know, a lot of people still look back at that weekend and Lehman Brothers in particular as this moment of the crisis. And and wonder whether the US government should have stepped in or not.
The next morning, the New York Times and The Wall Street Journal both wrote op-eds, editorials praising if you're. That's why everybody felt, ah, to hell with those guys in Wall Street. If we've had enough of a middle, basically it long ago. Some Fed Chairman told me that whatever the Fed thinks that can do, it could do now. That may have changed some under Hard Scott, I mean, under Dodd-Frank. But but that was the prevailing view of at least one Fed Chairman.
So you think the Fed could have done it if they wanted to?
I think if I were chairman of the Fed and I saw what was going on in the United States then, I think I would have done whether I could do it or not. I mean, are they gonna come down? The Supreme Court is going to send down some kind of arrest me as president of offenders? I mean, I would feel it would be an act that I should do in the interest of the country if I were in that position.
So you think it was a mistake?
I don't know. I mean, because they they'd have had to guarantee so much. The public opinion. Can you imagine public opinion if if all of a sudden, you know, people are losing their houses and facing facing their being underwater on the and all kinds of personal problems. And all of a sudden you've guaranteed then that everybody at AIG is gonna be okay. And everybody was gonna be okay. I'm not sure it would have been. It would have been very tough to do.
How much political pressure at that time do you remember was on both Hank and the Fed and everybody who seems to bail out?
There was that was huge. I mean, I think that Bernanke, I think that Hank Paulson, I think the Tim Geithner, I think I think they didn't know. And I think George W. Bush, the right thing he did. I think they did. They were rowing. And I'm but you weren't going to sell that to the American people.
Lehman files for bankruptcy. Bank of America buys Merrill Lynch. AIG gets rescued. And yet, there's still serious anxiety that GE might go, Goldman Sachs, Morgan Stanley.
Well, when Lehman goes, the big the big commercial paper holders were money market funds. I mean, these things were just hitting one after another. And both Hank and and and Bernanke had to worry very much about the Congressional reaction to anything they did. Congress really didn't get it. George Bush got, give him great pepper. I didn't go for him, but I give him great credit for understanding just how big the problem was.
And you get a call later in the week about Goldman Sachs. Do you remember that call?
I remember the call. Yeah. When Goldman Sachs takes money. You'll remember.
And what did you think?
I thought I did think that we were in very good hands. A good Congress was one scared me. That I thought we're in good hands at the Fed. I thought we were in good hands with the Treasury. I thought we're in good hands at the presidency. And I thought that there was there was Goldman Sachs was sound under any situation except if markets just totally were closed up. Then I think the unsung hero of the whole thing, although it was a stupid thing. So I think the unsung hero was was Ken Lewis buying by Merrill. I mean, Merrill would have been there on Monday morning. You know, I I think he got some fairness opinion that says it was okay to pay 30 bucks. He got, I think he got it twice between Saturday at noon or something and and the deal getting announced on Sunday morning. Nobody knew what Merrill was worth at that time. But you got the fairness opinion. He says, we'll pay for whatever was $30 in there. But it wouldn't have been worth 30 cents on money.
Big mistake then?
Well, it wasn't for the system. And then soon a merge worked out fine. But I mean, under the conditions that existed on Monday morning, if Bank of America announced that purchase on Sunday, it would've just been Lehman the second. That Lehman would not have been. If they backed away from Lehman, they know they'd have to tell Merrill to stand on its own too. And bing-gle bing-gle.
When you look back in retrospect, is there anything you wish that you had done that you didn't do? Any investments that you wish you could have made?
Given I could look back on a week and come up with that. I mean, the situation and we'd have been better off considerably better off at Berkshire if we waited four or five months to buy anything. I mean, the law was set in March and it was much lower than I wrote that op-ed for the. There are times in late October while it was right on a long-term basis. But but it was way off for three or four months, four or five months at least.
Was there ever a moment that you thought that the system would come up so much the people? I mean, that we would be back in sort of a Great Depression? That there really would be red lines? And I mean, people, it could it mishandled it, could have it could have lasted quite a while.
It wouldn't it wouldn't have lasted as long as them, but it would have really come up. There's no question. They're already gummed up. But it would have at some point, the government has to step in. I mean, what everybody in the world wants to wants to deleverage. There's only one party they can love her job. There's just one party. And if for some reason they don't do it, you've had it.
And when you look back now, is there a great lesson you think for the plug for the public, for new generations of people who were gonna hopefully learn about and think about this crisis?
No, because it answers people always Pat. That mean that's why they set up the Fed. That they we had all kinds of panics in this country in the 19th century. When people are afraid, they are afraid. Confidence comes back one at a time. But fear is instantaneous thing. And and and the negative words. How sophisticated people are, whether they've got PhDs or they guess. When they are afraid, they are afraid. I know a number of people that would surprise you who who during that panic period subsequently, you know, went right to gold. And but nothing would be worth anything. And you know, I mean, it it people really, the fear is extraordinary with what most people do.
Do you draw any parallel or connection between the crisis ten years ago now and the the politics of today and the distrust of institutions and governments?
And people have long memories, just like they did after 1929. Took a long time. I made people when they think when they'd experienced extreme fear, it sears something into them where that A, they want to know who did it to them. And and and they correctly don't blame themselves. I mean, you know, they're not supposed to be finance experts or anything. All these it was buy a house and lie a little bit on the application. You know, I'm just figured as we're gonna go up. And then they'd they'd refinance and so on. That mean that who's gonna buy him anybody for that?
Is there anyone to blame for the crisis? Because that's been also a political.
You can blame a lot of people for doing very foolish things. But I don't think anybody was. I mean, that there's a certain number of people are doing crooked things all the time. And to some extent, they were attracted to the real estate market because the money was flowing so easily. I mean, when you can create a mortgage, you know, in in Bakersfield, California and sell it to somebody in Norway. And then when you get you get these permutations of these things where you get one instrument that's turbine on in other words, I mean, the calculation once on one security. I saw that been rated by the agencies. And I'd had to read 300,000 pages in order to understand both the primary security and then the ones it was dependent on. And so on. And it just gets, you know, and nothing goes wrong for a while. So everybody gets used to doing it. It it's it won't happen again.
Do you worry about another crisis?
Well, they'll be one sometime. But but no, I don't worry about it in the least. Because because I conduct myself well. If there's no crisis, we'll be around. Berkshire will begin good in good shape.
What do you look around today and say, okay, I got to be anxious about that?
Well, as that appreciation draws in people that really don't know anything about the asset. And people start they start being interested in something because it's going up, not because they understand anything else. But the guy next door, who they know is dumber than they are, is getting rich. And they aren't. And their spouse is saying, you know, can't you figure it out too? And I mean, it it is so contagious. So that that's a permanent part of the system. But in terms of the specific excesses, I don't I don't see them now. No.
Are we better prepared for another crisis? Do you look either the regulations or?
That's an interesting question because I've been I've never read Dodd-Frank in its full 2000 plus phase. Every little summaries. I am the impression, and I may be wrong on this, but I have the impression that it's somewhat weakens the ability of the Fed to act promptly and unilaterally. And I would say that's a terrible mistake. And we need a powerful Fed. You may not like them. They may do things that that that bother you is in there. But you need somebody that if this country with now a hundred trillion of household wealth, with now seventy-five million plus or the dozens come to a stop because everybody's trying to deleverage.
Was there ever a moment in that week where you, either between everybody calling you or talking you, thought, wow, we really are in?
Well, I described it actually on CNBC as an economic Pearl Harbor. That's not a term I've ever used before. So I mean, I I was using. I felt it was something different then. Then I never seen. And I thought it was actually worse than '29 in a sense, in terms of the immediate panic that was induced. In 1929, if you remember, in September '29, the Dow hit a high of 381. Then it collapsed in the fall. But I was born on August 30th, 1930. And it was back up to 250 something by that point. I mean, we didn't it didn't hit that many people. It you know, it hit everybody in Wall Street. But Wall Street wasn't as broad than remotely as it is now. You know, with 401ks or whatever maybe so. This homes that touches everybody.