Billionaire investor Warren Buffett said the nation has been hit with an "economic Pearl Harbor," and the government must respond quickly.
Buffett talked about the nation's ongoing financial woes in an appearance on the "The Charlie Rose Show" that aired Wednesday night on PBS stations.
"This really is an economic Pearl Harbor," Buffett said. "That sounds melodramatic, but I've never used that phrase before. And this really is one."
Buffett's spokeswoman did not immediately respond to messages left Wednesday afternoon and Thursday morning.
Buffett said the nation's economic problems are already starting to be felt by furniture and jewelry stores such as the ones owned by Buffett's company, Berkshire Hathaway Inc.
The billionaire predicts that the rest of the "Main Street" economy will start to have problems if the government's financial bailout plan doesn't pass Congress soon.
"In my adult lifetime, I don't think I've ever seen people as fearful economically as they are now," the 78-year-old Buffett said.
The fear in the marketplace has allowed Buffett to make several sizable investments over the past month in proven companies that needed cash quickly. And Berkshire, which had $31.2 billion cash on hand at the end of June, was ready to invest because, Buffett says, he always tries to be greedy when others are fearful.
But Buffett said in an interview with CNBC Wednesday that if Congress doesn't approve the bailout plan soon, then "I will have done some dumb things."
Berkshire, based in Omaha, Neb., announced Wednesday afternoon it would buy $3 billion of preferred shares of General Electric Co., which carry a 10 percent dividend. The terms are similar to those Buffett struck with Goldman Sachs last week when Berkshire invested $5 billion in preferred Goldman Sachs shares with a 10 percent dividend.
Berkshire also has the option to buy $3 billion worth of GE common shares for $22.25 each and an additional $5 billion in Goldman Sachs common stock for $115 per share at any time over five years.
Buffett said he was approached about the GE investment Wednesday morning by someone at Goldman. And Buffett quickly decided to invest in GE because he's familiar with the company and confident in its long-term prospects.
"It was an attractive investment," Buffett said.
Both GE and Goldman appeared to want Buffett's endorsement of their companies as much as Berkshire Hathaway's cash, so they were willing to grant concessions. Morningstar analyst Justin Fuller said Berkshire will receive $800 million a year in dividends on the preferred stock in GE and Goldman for at least the next three years.
"The terms for Berkshire are just incredibly attractive," Fuller said.
Investment fund manager Whitney Tilson, who founded T2 Partners LLC, said Buffett's backing may help Goldman and GE regain the market's confidence, and that may prove crucial.
"This is a market where companies have literally gone under because of a lack of confidence," Tilson said.
Buffett and his company will certainly benefit if Congress passes the $700 billion bailout plan. But he told Charlie Rose that the main beneficiary of the bailout will be the U.S. economy, not Wall Street or investors like him.
Buffett compared the U.S. economy to a top athlete who has suffered a sudden and severe heart attack. He said the proper response to such a heart attack is to use a defibrillator as soon as possible, not argue about the precise placement of the paddles or argue about whether the athlete should have taken blood pressure medication beforehand.
And Buffett said taxpayers will eventually turn a profit on the $700 billion plan if the bailout passes and the U.S. government buys mortgage debt at market prices.
"We are not spending the money. If we buy these assets intelligently, the United States Treasury will make money," Buffett said.
But Buffett warned that taxpayers shouldn't expect immediate results from the bailout plan, because it may take several years for the economy to recover.
"The recession is going to get worse," Buffett said. "I don't want to hold out false hopes that — by some magic bullet — that things will turn around in a couple months."
Buffett has said for several months that 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.