See Fox Business Video from this Transcript - Buffett & Alexis on CIT | Buffett & Alexis on teaching kids finance
ALEXIS GLICK, FOX BUSINESS ANCHOR: A Squared Entertainment and AOL are teaming up to create educational Webisodes for kids. One of the short features is legendary investor Warren Buffett. And it is titled "Secret Millionaires Club." And Mr. Buffett joins us right now from Washington, D.C.
Good morning, Mr. Buffett, thanks for being here.
WARREN BUFFETT, CHAIRMAN AND CEO, BERKSHIRE HATHAWAY: Good morning to you. A pleasure.
GLICK: I like this idea, Mr. Buffett, because I have three young boys, and I think we need to teach them a little about finance. Tell me why you decided to do this?
BUFFETT: Well, Andy Heyward is terrific at telling a story. I mean, he has done it with thousands of episodes with children over the years and I was particularly impressed a few years ago when he did something called "Liberty's Kids."
And if your three children have not seen, it is a great story about how this country came about in the late 18th Century. And 45 episodes, but it was not only good for kids, I re-learned American history in a great way through that.
So, I've been very impressed with Andy. And when he came up with this idea that maybe we could help young people like your children develop better habits for their lifetime in terms of how they thought about money and savings and their own self-worth, investing in themselves and all of that, I just thought it was a terrific idea and here we are.
GLICK: Yes. A favorites in the Glick household is the FDIC chair's "Rock, Brock, and the Savings Shock," because I'm trying to keep -- teach them what compound interest really is.
You know, Warren, there are a lot of people who would suggest that perhaps a lot of adults need to watch this to get sort of comfortable, re-educated about how to control their personal finances, particularly what we've gone through over the past couple of years.
Is that important that we empower ourselves to take a little bit more ownership?
BUFFETT: That is a terrific idea, just like I had relearned some American history, I do think adults can use some of the lessons that we will be trying to work into the stories for the young children.
The lessons are timeless. I mean, if you develop good financial habits, you know, that will last a lifetime, it makes life easier in all kinds of ways. And if you -- to the contrary, if you get bad financial habits, and I hear from people every day that write me about they have gotten into with credit cards or something of the sort, it can ruin your life.
I mean, it hurts marriages. It hurts health. So, it's really important to get the right ideas early. And habits, you know, they say the chains are too light to be felt until they are too heavy to be broken. So you want to get the right habits early. And if we can help some young people to do that, you know, I will salute Andy for getting that job done.
GLICK: Well said. Let's talk a little bit about some of the habits that you've put into action. You guys, as I recall, had a fair amount of cash on the books at the end of the quarter. I am curious, how are you spending it? Are you still investing at these levels? Because we've had a remarkable rally off of those March lows?
BUFFETT: Yes, if I can find things that I think are reasonably priced and that I think understand, I buy them. I don't -- I don't attempt to time the markets at all. I never give a thought to timing markets. I do price individual companies that have -- so something looks attractive to me and it is way more likely to be attractive at 9,000 on the Dow than at 12,000 or 13,000 on the Dow.
I'm likely to find more things, I buy them. I buy them not because I think they are going to go up next week or next month or next year, but because I think I am bound to make a lot of money over time, I just don't know when it's to happen.
So, pricing is key. And obviously, prices are somewhat higher now than they -- a fair amount higher than they were in early March. But you know, I would much rather own equities that I understand and like than have my money in fixed dollar investments because I think the value of the dollar will decline over time.
GLICK: A lot of people talk about the initial Goldman Sachs investment and whether or not you will consider redeeming the existing warrants.
Have you thought about that or has Goldman tried to consider paying back their initial investment with you? Because it is a good investment for you, a little rich for them.
BUFFETT: That's right. But don't tell them that.
(LAUGHTER)
BUFFETT: Let's keep that between ourselves. We are getting about almost $1,000 a minute off of the preferred stock investment, so I try not to answer the phone if I think Goldman is calling.
But the warrants, we will hold the warrants. You know, it -- I can't say, you know, what -- for sure what I will do at any time, a year in the future, two years in the future, but my -- every instinct in my body tells me that we will want to hold those warrants until they're very close to their expiration date at which time we will end up exercising them in all probability.
But, no, the preferred pays us the dividend, and the warrants are going to make us the money.
GLICK: That's exactly right. I'm curious about CIT, Warren, a lot of talk about that. As you know, it impacts so many different small to mid-sized business owners across this country.
The government made a decision, they decided not to step in. And there have been reports that you have been interested in some of their financing units. Why would you be interested and how crucial is that we address this issue, particularly since that factoring business is so crucial to so many industries across the country?
BUFFETT: Yes. Well, I would -- I am not on the inside on it, but I would think that factoring business will be -- oh, I'm sure it will be continued by somebody else. I mean, it's a -- it serves a business function.
Now the problem with CIT is that their raw materials, which is money, cost them far, far, far more than their competitors. So the banks have access to money at average rates that are really very tiny now. And CIT's money cost them way more.
And if you are the high-cost producer in a business, you know, eventually it catches up with you and basically that business has to be transferred to somebody who has low funding costs.
Now CIT would like to get those low funding costs and God bless them if they can get them. But if they can't, and they haven't been able to so far, than that business has to go to somebody that has low funding costs.
It isn't like the loans won't get made. But they are going to get made by somebody who is getting their money currently at 1 percent instead of CIT, which has trouble getting it at -- well, on that interim deal they made the other day, they paid 13 percent plus…
GLICK: Yes.
BUFFETT: A minimum of 13, plus a lot of fees. You can't compete in the money business paying 13 percent for money today. I mean, you're going to -- it just doesn't work. It's not a successful business model. So one way or another, things have to get reconstituted there.
GLICK: You mentioned at the outset there that somebody else will pay for…
BUFFETT: Yes, maybe -- yes, excuse me just a minute. Maybe they should watch our show, the "Secret Millionaires Club"…
(LAUGHTER)
BUFFETT: … for a little advice on that. You can't pay loan shark rates and compete with people who are getting their money on a government guaranteed basis for practically nothing.
GLICK: Yes. And then give $30 billion of unencumbered assets as collateral to a $3 billion loan, a whole other issue. But, look, Warren, there is a lot of talk right now though with CIT that once they get through this next cash tender on a billion dollars of debt due that perhaps the company might have to go into a prepackaged Chapter 11-type restructuring.
There are some healthy businesses in there. And aside from the funding issue, as you rightly point out, some of those businesses could do very well under the right circumstances.
Would you have any interest in some of those businesses once they get through this process?
BUFFETT: It is conceivable. The real owner of those businesses ought to be somebody that essentially gets government guaranteed funding, which you -- I mean, a bank, you know, with the FDIC behind it is essentially getting government guaranteed funding.
And we can't touch those funding costs ourselves. So the weakest bank in the United States has lower funding costs than Berkshire Hathaway as long as it is insured by the FDIC. Those businesses have to go someplace where the funding costs are the lowest. And that is likely to be the banking system.
But you're right, the problem with CIT is the liability side, not overwhelmingly the asset side. They have got some problems on the asset side. But they -- the problem is that their money costs them too much and it's going to keep costing them too much. And you just have to get those assets placed someplace where the funding costs will be low.
GLICK: One thing, Warren, we've been talking about all morning long is whether or not we could have a jobless recovery. Where the economy stands today, particularly those that are under-employed, what is your view of the current state of the economy and could we have a jobless recovery or are we headed to a second stimulus package?
BUFFETT: Well, initially you will have -- I mean, the recovery will start before the jobs start coming back. But that is the nature of every recession. People are slow to let people go and they're slow to rehire them. They are going to have to see one or -- more than one or two robins before they're convinced it is spring.
But if we have a real recovery, jobs will follow. But the key word there is follow. They won't be simultaneous -- it won't be a simultaneous phenomenon. So I would not worry about an extended recovery that would be jobless, but initially it will look like it's a jobless recovery.
GLICK: So, just finally, Warren, in a nine-inning ball game, which inning of the ball game are we in, in the recovery?
BUFFETT: I can't time stocks, I can't time the economy. The one thing I can promise you is that the movie we're watching in the economy has a happy ending. I just don't know how long the movie will be.
GLICK: All right. Well, Warren Buffett, we appreciate you very much taking the time with us. And the "Secret Millionaires Club" scheduled to debut this fall on AOL. Thanks so much.
BUFFETT: Thank you. Thank you.
END
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