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Even the great Warren Buffett scratches his head over the complex financial instruments that underlie the nation's foreclosure crisis.
"You can't turn a financial toad into a prince by securitizing it," he said to Hillary Rodham Clinton at a fundraising lunch in San Francisco on Tuesday. The 77-year-old billionaire admitted that even after scrutinizing funds that package up mortgages, he found them confusing.
Buffett and Clinton took the stage at the Hilton San Francisco in front of 1,500 people who had paid from $100 to $2,300 each to hear the Democratic presidential candidate ask questions of the legendary investor - and put in a few pitches for her own ideas. The event was expected to raise $1 million.
On the issue of the securitized mortgages, Buffett said one can make more money "selling toxic waste to customers," but that doesn't mean it's a good idea.
"Wall Street started believing its own PR on this - they started holding this stuff themselves, maybe because they couldn't sell it. It worked wonderfully until it didn't work at all."
Now, "Wall Street is reaping what they've sown," Buffett said. "It will sort itself out over time with a fair amount of pain. We have an economy that can take it."
Spinning his trademark folksy analogies, Buffett addressed a range of topics brought up by Clinton and audience members who submitted questions in advance.
To a question about tax disparities, Buffett said he surveyed 13 workers in his office and found that they paid an average tax rate of 32.9 percent, compared with the 17.7 percent that he pays.
"My cleaning lady pays a higher tax on her earnings than I do on my dividends and investments," he said. "It's better to earn in the boardroom than in the bathroom."
Buffett also touted one of his pet causes: He opposes a repeal of the estate tax, which now brings in $24 billion a year.
"Leona Helmsley left $12 million to her dog," he said. "If there were no estate tax, the dog would have gotten $22 million."
Both Buffett and Clinton talked about the growing income disparity between average Americans and the wealthy.
Alluding to Bush administration policies, Buffett said: "In the last seven-eight years, the super-rich have gotten a huge break... It has been a marvelous, marvelous time to be super-rich." The catch: "Nothing trickles down."
He has faith in "the ability of the American economy to generate more and more prosperity," Buffett said. "The real test of this country will be how widely is that prosperity shared."
Buffett also said he feels strongly that the United States is making a serious mistake by importing $2 billion a day more than it exports.
"If you force-feed $2 billion a day to the rest of the world, they get somewhat less enthusiastic over time - and the dollar is worth less," he said.
"We're like a very rich family; we own a farm the size of Texas but want to consume more" than the farm generates, he said. "Every day, we sell off or mortgage a piece of the farm."
If the policy continues, over time, the rest of the world "will own more of our farm" and future generations will resent that they spend part of their workweek paying off those costs of consumption, he said.
One topic not addressed was Buffett's endorsement of a presidential candidate. The businessman supports both Clinton and rival Democrat Barack Obama, who has been gaining ground on Clinton in recent days.
"I vote the same way I select a CEO - I'm looking for someone with brains and quality who can lead," Buffett said.
You wouldn't know Clinton has been losing momentum to judge from the adoring crowd, which sprang to its feet for her entrance - twice, because she was a no-show for five minutes after the initial introduction by Gavin Newsom.
The San Francisco mayor used his time on stage to mock the advice on homelessness offered him by former New York mayor and Republican presidential candidate Rudy Giuliani in a Chronicle interview on Monday.
"I got a little lecture..." he said. "The sum total was: 'The mayor needs to discourage, not encourage, homelessness.' Unbelievable insight," Newsom said, shaking his head to laughter and applause.
"It was a wonderful double-whammy" to get to see both Clinton and Buffett, said Sheila Chandrasekhar of Oakland. "Warren Buffett is even more articulate than I had imagined him to be, and I'm a strong Clinton supporter."
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