Tuesday, December 11, 2007

Warren Buffett and Hillary Clinton at San Francisco

I heard Warren Buffett and Hillary Clinton speak today as part of a fundraiser in San Francisco. Overall, it went exactly as I expected- Warren showed an uncanny ability to explain things intelligently and simply. Below are some notes I took from the event.

Q: "Buffett, why are you a Democrat?"

A: I have what I call the minus 24 hour genie test. Imagine a genie poofed up 24 hours before you were born and asked you what kind of world you would want to live in. And you being the smart minus 24 hour baby would ask, "what's the catch?" And the genie would respond that you would have to participate in the "ovarian lottery" and draw one of 6 billion tickets. Things such as born United States or Bangladesh; white, brown, or black; male or female; smart or dumb; these would all be completely up to chance. Well then, what kind of world would you create? And my [Buffett's] world would be a society with equality that treated everyone fairly. And the Democrats seem to be better at doing that.

Q: Your views on the US Dollar?

A: The most important question to ask in economics is "X happens, and then what?". We are living prosperously but every day we are sending 2 Billion dollars overseas because we consume more than we purchase. It is similar to if we owned say a large farm in Texas. We are extremely wealthy, but every year we mortgage a little bit of that farm in order to enjoy more of the present. And it is gradual, but then at some point you have to spend an hour or maybe 2 hours a week of your work to go towards servicing this debt. The problem is at some point either foreign investors will stop financing our consumption, or our future generation will be burdened with a debt and have to work some X hours towards servicing the debt of the earlier generation. But the present over-consumption is unsustainable.

Q: Your views on new products such as derivatives, SIVs, etc. ?

A: There's utility in securitizations. But the problem is these have become complex and the originators and investors have been stretched so far in part in the whole process.
"If you can't make money off the things you do understand, how do you expect to make money off the things you don't?"

Q: On Taxes.

A: In the U.S., 2 Trillion out of 2.5 Trillion in taxes come from income and payroll taxes. Of those, 60% is income taxes, and 40% is payroll taxes. I [Buffett] did a survey at Berkshire HQ and the average worker paid 33.2%. I paid 17.7%.

The worth of the Forbes 400 was 220 Billion in 1987, and for 2007 it is 1.5 trillion. A seven-fold increase. During the same period, wages went up only 80%.

Q: What is the best way to get kids off to the right start?

A: The most important job is parenting, and there is no rewind. Imagine if you could get one car of your choice, and get it for nothing. But the catch is you only get one. Well you will do everything and take the best care of it, reading the car manual, garaging it, etc. You should have the same mentality with your kids.

Clinton added: The Federal Reserve of Minnesota did a survey into the best investment that can be made for the country as a whole. Their answer was early education. We have to get government into a quality mentality and improve early education.

Q: Sense for the future of our country Warren?

A: In the 20th century, real standard of living increased seven-fold. That was unprecedented, and included the Great Depression and other scares. The American system has unleashed the greatest potential of its citizens. Back in 1790, China had 290 million people, and America had 4 million. But today look where we are at. We will be better off in the future, the real question is how it will be shared.


Anonymous said...

Thanks Nick!

Anonymous said...

Thanks Nick! -- Did he provide any clues as to how Berkshire will ride out all the financial crises going on?

Nnejad said...

There was nothing specific about Berkshire Hathaway. But I did come across this today:

In response to a question about whether financials might be the best-performing stock sector next year, Buffett advised against buying financials as a group. He said some will do well but others have done some "really dumb things."


In general, I think Berkshire has stayed away from the silliest behavior, and they have a large cash pile that can take advantage of any market crisis.

Kimi said...

Excellent interview Nick, very helpful to know more about Mr Buffett

Anonymous said...

Good Wisdom from Warren Buffet. Thanks Nick!

GDI Investor said...

Thanks Nick! Warren Buffet inspires me always to where I am now.

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