Berkshire Hathaway 2009 Annual Meeting Audience Question # 3

Warren commends the actions taken by the government in response to the financial crisis

Warren Buffett:

Becky?

Becky Quick:

Warren, first of all, we’ve been asked to pass on a message that the attendance today is 35,000.

Warren Buffett:

Good. Now…

Becky Quick:

This…

Warren Buffett:

Now if they all just spend appropriately, it’ll be a big day.

Becky Quick:

This question comes from James Lewis from Logan, Ohio, who said it was OK to use his name and city.

He says, “One of the substantial investments of Berkshire is Wells Fargo. The chairman of Wells Fargo supposedly indicated that he did not want to take TARP funds from the federal government.

“He, furthermore, recently said that some of the programs of the federal government to reinvigorate the banks were asinine.

“Mr. Munger, do you agree with the chairman of Wells Fargo? And please explain why you do or do not agree. And Mr. Buffett, do you agree with Mr. Munger?”

Warren Buffett:

Yes.

Charlie Munger:

When a government is reacting to the biggest financial crisis in 70 years, which threatens important values in the whole world, and the decisions are being made hurriedly and under pressure and with good faith, I think it’s unreasonable to expect perfect agreement with all of one’s own ideas.

I think the government is entitled to be judged more leniently when it’s doing the best it can under trouble.

Of course, there’s going to be some reactions that are foolish. And I happen to share one of the troubles of some of the Wells Fargo executives, in that I’m pretty blunt.

I happen to think that the accounting principle that says your earnings go up as your credit is destroyed… because if you had any money left, you could buy your own debt back at a discount… I happen to think that’s insane accounting.

And I think the people who voted it into effect ought to be removed from the accounting board. So a man who talks like that has to have some sympathy with the people at Wells Fargo.

Warren Buffett:

He usually gets to hang them by their thumbs, but he held back this morning.

The government, in mid-September last year, really did… they were facing a situation that was as close to a total meltdown throughout the financial system as I think you can imagine.

You had a couple hundred billion dollars move out of money market funds in a couple of days. You had the commercial paper market freeze up, which meant that companies all over the country that had nothing to do with the financial world, basically, were going to have trouble meeting payrolls.

We were… we really were looking into the abyss at that time. And a lot of action was taken very promptly. And overall, I commend the actions that were taken.

So as Charlie says, to expect perfection out of people that are working 20-hour days and are getting hit from all sides by new information, bad information, that one weekend with Lehman going, AIG going, Merrill would’ve gone, in my view, unless the BofA had bought it.

I mean it was… when you’re getting punched from all sides and you have to make policy and you have to think about congressional reaction and the American people’s reaction, you know, you’re not going to do everything perfectly.

But I think overall, they did a very, very good job.
I’m sympathetic… that remark was made by Dick Kovacevich, who came in second last year to Charlie in the plain speaking contest around the world.

And it’s true that Dick Kovacevich was called on a Sunday at a little after noon, as I understand it, and told would be in Washington the next day at 1- or 2 o’clock, without being told what it was about.

And there were 11 bankers there and some officials. And they were told that they were going to take TARP money. And they were going to take loans from the government and preferred stock. And that they only had an hour or two to sign it and they didn’t get to consult with boards.

But that’s the nature of an emergency. You know, it… I think you… well, you’re going to have some decisions that later can be looked back at and somebody will say, “I could’ve done it a little bit better.” But, by and large, the authorities, in my view, did a very good job.

And all banks aren’t alike by a long shot. And in our opinion, Wells Fargo is a… among the large banks particularly… it’s a fabulous bank and has some advantages that the other banks don’t have.

But in a time like that, you’re not dealing in nuances.

Incidentally, I would recommend to all of you, that you go to the internet and read Jamie Dimon’s letter to his shareholders. Jamie Dimon of JPMorgan Chase. It’s a fabulous letter. It talks about a point that Charlie made there.

But it… Jamie did a great job of writing about what caused this and what might be done in the future. It’s as good a shareholders letter that I’ve ever seen. So by all means, look it up. It’s long, but it’s worth reading.

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Q&A with Warren Buffett and Charlie Munger: A Compilation of All Shareholder Questions and Answers from The Berkshire Hathaway Annual Shareholder Meetings

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