(Text below is condensed and edited for clarity from a CNBC interview with Warren Buffett on February 27, 2012)
I was on the fence about the auto bailout for quite a while. It kind of went against my instincts, but I will tell you, Steve Rattner is 100 percent right when he says there was not a dime of private capital that would have been available for a managed bankruptcy absent government help. It’s very clear to me in hindsight; it wasn’t so clear to me at the time.
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It’s very clear to me in hindsight that the auto bailout was one of the best things that have happened in this economy. We saw dominos fall in September of 2008. We saw them fall so fast and such big ones. We did not need a repeat of that with what would have started with the auto industry. But I do not claim any great foresight on that.
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If 90 percent of the American steel capacity, in March of 2009, was all running out of cash simultaneously, believe it, there would have been no private solution. I got a call in the spring — or maybe it was late winter — of 2009 from one of the automakers looking for capital. There wasn’t any place they were going to get a dime. It would have been crazy to put capital in unless an overall solution was going to be engineered by somebody that really had the capacity to write checks, and that was the federal government. And like I said, that’s not a philosophical answer; that is just a pragmatic answer of what was going on in the world at that time. It would have been devastating. It would have unwound the progress that we’d been making from the fall of 2008.
But what we learned in 2008 is that when dominos topple in this society, when big ones do, and when you start off with the two biggest institutions — Freddie and Fannie — of the United States government with 40 percent of the mortgages insured and they go under conservatorship, you will find out that there are an awful lot of dominos in line. And you’ve got to have a firewall someplace and the only entity that can come up with a firewall at that time is the US government. And incidentally, there’s not great moral hazard in doing what they did. The shareholders of AIG, of Citi, of Freddie, of Fannie, you name it, they got creamed. It isn’t like they got rewarded for the fact that they had their investment in it. They got totally creamed. They are not there sitting, `Goody, goody, I want to do this again.’ So the moral hazard thing can get misinterpreted.