Warren Buffett on the Business and Government Connection

Warren Buffett rolled up his sleeves on the Fox Business Network in a very candid interview with the channel's Liz Claman, in which he discussed CEOs of failing banks, reconfirming Ben Bernanke, and his Berkshire company.

On the Bank Situation

"You'll always have banks that are too big to fail. We can't operate in this world without very big banks…If they are toppling the government will have to do something about it." This is contrary to conventional wisdom and of this writer. After a year we see that banks had more money than expected (witnessed in the pace in which they paid off their bailouts) and these government programs have done little to increase the pace of loans, since banks have found a way to get "money for nothing." Why risk their resources if they are washed in capital from Uncle Sam?

Furthermore, these policies have only undermined moral hazard at a time it is so greatly needed. The US cannot be in the business of rewarding bad decision making."If I were running things if a bank had to go to the government for help, the CEO and his wife would forfeit all their net worth…I think you have to change the incentives. The incentives a few years ago were try and report higher quarterly earnings. It's nice to have carrots, but you need sticks. The idea that some guy who's worth $500 million leaves and only has $50 million left is not much of a stick as far as I'm concerned." This was actually the highlight in the Buffett interview. We need a restoration of moral hazard in banking and that will only come when those responsible for bad decision making suffers for those choices."The CEO has to be the chief risk officer for a bank." This is a great observation and a view that needs to be restored. This is best achieved, in my opinion, by letting banks fail. Any executives behind such will find themselves looking for something else to do for a living.

On members of Congress who feel Ben Bernanke should not be reconfirmed:

"They ought to get down on their knees every night and thank the Lord that Bernanke was there through this. He took some unprecedented actions…He took the actions that were necessary to prevent panic from paralyzing this country." "Unprecedented" often means unconstitutional and has led to the expansion of government like we have never seen in our history, even in the Great Depression. What he has done is created instability in our monetary policy by pumping dollars into the economy at a pace we have never seen. Furthermore, his bailouts of large corporations have undermined the normal functions of a free market economy, such as moral hazard. He has created an economy without risk, which is far from free market in design. What he has done is criminal...two thumbs up for those members of Congress who wish to see him go.

On the future of Berkshire Hathaway's business acquisition

"We'll keep buying businesses, as long as I'm alive we'll keep buying businesses…we'll try to buy them for cash, sometimes we may have to use some stock, but we'll use as little stock as possible." If the US economy continues to reel from the unstable monetary and fiscal policies of the Obama administration, large corporations like Berkshire Hathaway will continue to benefit from them. It should be no wonder that, when questioned about Tim Geithner, he replied "I think he's terrific." Maybe for Buffett, but not the rest of the country.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Tim Geithner Plays with Words on Fox Business

Liz Claman of the Fox Business Network is one of my favorite interviewers in media today. She is warm and cordial, which also means her guests are easily disarmed and she follows that up with some of the tougher questions in business news.

Recently Treasury Secretary Timothy Geithner was a guest of Liz Claman on the Fox Business Network and said that we will be able to “solve this financial crisis at a dramatically lower cost than we initially anticipated," he goes on to actually claim that the U.S. taxpayers have made money on banks paying back TARP.

On whether the US taxpayer made money on banks paying back TARP:

Geithner: “Absolutely. Just on that particular investment (Bank of America) the taxpayer got probably more than $2.5 billion even before we sell our warrants…We’re going to be able to solve this financial crisis at a dramatically less cost than we initially anticipated.” On the flip side, our financial industries have developed a new type of "freezing effect" as banks stop making investments because they have huge reserves to sit on and are paid for by taxpayers. Loans are risky; government subsidies have allowed banks to avoid that type of risk. Furthermore, this does not even address the bigger issue of nationalization and the inappropriate use of government power.

On the opposition to government tax credits to small businesses:

Geithner: “There’s a pretty good case for looking at targeted tax incentives to encourage investment and new hiring.” Unfortunately this administration seems to "target" tax cuts or subsidies to political allies, be it political organizations that support its agenda (e.g., ACORN) or corporations that they are trying to win favor (first Wall Street and now a "new" bailout for Main Street).

On what it will take to create jobs:

Geithner: “It will not be one thing. It’s going to have to take a mix of approaches, and you’re right, we have limited resources.” What happened to the money we "made" from TARP? This type of political double talk is common for Obama and his team. With the highest unemployment in a quarter of a century, it is difficult to stomach watching this President spending close to $1 trillion just to launch a health care program that is unconstitutional, promises to create a systems of rationing, and will not event go into effect for almost a half of a decade. Allowing the states to determine its own minimum wage, eliminating taxes on corporations (since those taxes only undermine competitiveness), and making it easier for employers to hire should be on the top of Geithner's priorities.

You can watch the interview by visiting here.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Buffet is Bullish on Trains

There has been a great deal of buzz this week about Warren Buffet discussing a recent purchase by his company. Buffet is noted for his candor, which makes him one of the more credible voices when it comes to the status of the economy and Wall Street in particular.

Recently, Buffet was found on the Fox Business network visiting with anchor Liz Claman. In particular, he was discussing his Berkshire Hathaway's gamble into the railroad business. Just recently the company purchased Burlington Northern Santa Fe in a deal worth about $44 billion.

This is a bold move for Buffet in a shaky economy, but typical of a person who has learned to take advantage of sales that can be found when a business environment is in decline. Furthermore, with the move towards reducing energy costs in order to support the environment and save dollars, trains are a very smart form of transportation. Buffet does not buy things he is not comfortable with and had already owned 25 percent of the company before he acquire the rest of it in a recent meeting in Fort Worth, Texas.

Why trains versus trucks or other forms of transportation? Buffet told Claman that "the rails move a freight at a much more environmentally friendly way than the truckers do. And they also only use about a third of the fuel. So, it's helping...It helps in terms of the atmosphere. It is a very, very efficient, effective, environmentally friendly way of moving freight. And, you know, our rail system is a huge asset to the country."

Claman covered a topic that is extremely important to anyone concerned about transportation. She noted that trains are, in transportation, the "cheapest, best way. But then there's cap-and-trade, Warren. Some analysts are very skittish about coal and a possible backlash if cap-and-trade goes through. You mentioned now -- you said, we're going to see a diminishing of coal use. But what do you think cap-and-trade would do to the business if that went through?"

Buffet can not easily dismiss the topic, but noted "It won't change the composition of what utilities are doing tomorrow or next week or next year. The utilities over time are going to use less coal and probably more nuclear. Our own utility, for example, uses wind very substantially in Iowa. So, over time, coal is going to diminish somewhat. Now, I think that will hit Eastern coal more than Western coal, but that's a fact of life over a considerable period of time. And that's true whether there's cap-and-trade or not, yes."

One of the things that caught my eye in the interview was Buffet's discussion of his view of the dollar in this current economy, stating "You're seeing us get rid of a lot of dollars today in exchange for a lot of assets. So, I would rather own physical assets than own dollars." Why? Because of the rapid decline of the value of dollars through the printing of money. Those of us who cannot afford to purchase railroads, might want to consider precious metals as a part of an investment strategy.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

T. Boone Pickens' Crystal Ball...Predicting Oil Prices

Something is up with oil prices and T. Boone Pickens was discussing this on the Fox Business Network with Liz Claman. It is interesting to me that this important subject has not gotten more exposure on business television networks since consumers and companies dependent on gasoline have been concerned by the upward trend. Fortunately, Fox chimed in with one of the industry's leading authorities.

Today, oil closed slightly down at $58 a barrel, but that is not the direction one can expect it to go in the future, according to Pickens. In fact, he believes it will go to "$70 before $50” and that oil will be at “$75 a barrel by the end of the year.”

Concerning the continued stressful situation in both the United States and around the world, Pickens had a great deal to say:

• Concerning the Middle East, Pickens stated that "If Saudi Arabia falls, you will have $200 to $300 overnight. It’s razor thin where you are. When half our oil comes from unfriendly countries, anything goes off track, that’s where you are.”


• On Believing the Obama Administration Will End US Dependence on Foreign Oil, the tycoon showed incredible optimism: “Absolutely...This administration is going to have renewables, no question about it. They are going to reduce dependency on foreign oil. I have had meetings with Speaker Pelosi, [Senate] Majority Leader Reid, and they understand the problem and will get it corrected.”

Other highlights of the Claman and Pickens discussion:

• Pickens expressed concern about the huge number of oil imports, stating "This is more than half the trade deficit [and] has far-reaching tentacles and influence over what goes on in this country, where it has not been exposed or even explained to anybody,"


• Regarding obtaining oil from countries that are potentially hostile (such as Venezuela, Nigeria, and nations in the Middle East): "This is absolutely insane, that this country is dependent on supplies as precarious as Nigeria for instance or Venezuela," said Pickens. "Look at Saudi Arabia: They produce 9 million barrels a day. What we import is greater than what Saudi Arabia produces."


• In sum, the long term predictions are very dire indeed, with Pickens noting "I promise you this is going to get tight, very, very quick," said Pickens. "You're going to be back to $75 oil by the end of the year -- and $200 per barrel within five years."

The 80-year-old oil baron turned alternative energy guru provided interesting insights on an issue that is crucial for consumers and business owners in their decision making. Fortunately, Fox Business Network provided this interview. However, I want to remind the reader that his commentary is colored by his significant investment on alternative fuels. His predictions almost certainly must come true for his investments to pay off accordingly.

In July 2008, Pickens announced his ambitious Pickens Plan which focuses on alternatives such as natural gas, wind, and solar energy. His multi-media efforts to get the US government behind these alternatives are predicted to cost $58 million. This doesn't include the considerable investment that is going to be necessary to create the economy of scale required to make the goal of energy independence possible.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. Eric Bolling of Fox News and Fox Business says that Price’s Blog “is very influential and moves the blogosphere.” Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.