Video: Buffett on economy, mortgage mess

updated 8/22/2008 11:43:46 AM ET 2008-08-22T15:43:46

Billionaire investor Warren Buffett said Friday the economy continues to be in a recession, by his definition, and will continue to be for at least several more months.

During a live appearance on CNBC, Buffett said ripples of the credit crunch are continuing to cause problems in financial businesses and the economy.

Earlier this year he said a financial crisis reveals which players have been “swimming naked,” because the tide goes out. That picture has worsened along with the crisis.

“We found out that Wall Street has been king of a nudist beach,” said Buffett, who is chairman and chief executive of Berkshire Hathaway Inc., which is based in Omaha.

Buffett said activity at businesses Berkshire owns, especially ones related to housing construction such as Shaw carpet and Acme Brick, continued to slow during the summer.

He’s confident the nation will be doing better five years from now, Buffett said, but the economy could be worse five months from now.

Buffett said the economy is in a recession because most Americans aren’t doing as well today as before. The technical definition of a recession most economists use is two consecutive quarters of negative growth in the nation’s gross domestic product.

Regarding the nation’s credit crunch, Buffett said he believes mortgage giants Fannie Mae and Freddie Mac are too big to fail, but that doesn’t mean that all the shareholder equity in those companies can’t be wiped out.

“They’re looking for help, obviously. And the scale of help is such that I don’t think it can come from the private sector,” Buffett said.

Buffett: Government will help Fannie, Freddie
So the Oracle of Omaha predicted that the federal government eventually will have to step in to help because the troubles of Fannie Mae and Freddie Mac seem to be growing and feeding on themselves.

Together the companies hold about half of U.S. mortgage debt and are the largest source of funding for home mortgages. But they are seeing too many defaults. Losses between April and June for the two companies totaled $3.1 billion, and investors fear they will continue to grow.

Buffett said it’s likely more banks will fail, especially in areas where there was a real estate bubble and the bank got heavily involved in the housing market.

“What we’ll see is failures where the bankers were dumb in what they did,” Buffett said.

But Buffett said the Federal Deposit Insurance Corp.’s guarantee on accounts up to $100,000 should prevent bank failures caused by panic.

Buffett said the nation’s current economic struggles create investment opportunities, and his phone is ringing more lately than it was three months ago. But Buffett said many of those calls have come from desperate people and didn’t represent good investment opportunities.

As the stock market problems continue, Buffett is looking for ways to use Berkshire’s roughly $31 billion in cash.

“The cheaper they get, the harder I’ll look,” he said, referring to shares.

Buffett and another billionaire investor, Pete Peterson, appeared at a special screening of a new documentary on the nation’s debts Thursday in Omaha. The two Nebraska natives were part of a panel discussion after the premiere of “I.O.U.S.A.” The film was shown in 358 theaters nationwide.

The film’s message is that an economic disaster will befall the nation if the federal government’s $53 trillion in debt continue to grow.

Buffett said he doesn’t think the situation is as dire as the film portrays.

“I admire the fact they tackled the subject,” Buffett said. “I don’t agree with many of the conclusions in the movie.”

Berkshire subsidiaries include insurance, clothing, furniture, candy companies, restaurants, natural gas and corporate jet firms. Berkshire also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.

About Anheuser-Busch: 'I was wrong'
Buffett said Friday he sold nearly two-thirds of Berkshire’s 35.6 million shares of Anheuser-Busch Cos. stock because he hadn’t been sure Belgian brewer InBev SA’s takeover bid of $65 a share would succeed. Anheuser agreed to the $52 billion bid in July.

“In retrospect, I was wrong to partially sell the holdings,” Buffett said, disclosing that he sold the stock for about $61 or $62 a share. At the end of June Berkshire still held 13.8 million shares of Anheuser.

Buffett said the trip he and friend Bill Gates took earlier this week to Canada to look at Alberta’s oil sands shouldn’t be interpreted as a sign that he or Berkshire will invest in mining companies.

Buffett said what he learned on the trip may be useful a couple years down the road, but he has no current plans to invest in oil sands mining.

On the political front, Buffett encouraged Americans not to expect perfection from candidates. He said the presidential race features two good candidates this year, but he favors Democrat Barack Obama even though he doesn’t agree with all of his proposals.

“The only way to get somebody who agrees with you 100 percent is to run yourself, and I have no interest in that,” Buffett said.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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