What Warren Buffett Has to Say About Big Banks and TARP
Warren Buffett, TARP, Big Banks: Warren Buffett, the Chairman and CEO of Berkshire Hathaway, talked with CNBC's "Squawk Box" on the 5-year anniversary of the Troubled Asset Relief Program (TARP), together with former Treasury Secretary Hank Paulson. Amid the shutdown of the U.S. government, Buffett said that TARP was a success and that history will appreciate the move more positively than it is viewed now.
Buffett also considers that the bailout was crucially important at that time, one of the main reasons being the necessity to restore the credibility of the banking system: "If people think the banking system is unsound, it is unsound, because no bank can pay out all of its liabilities at the same time," Buffett said.
Also, the CEO of Berkshire Hathaway said that U.S. banks are not too big to be managed, and even though big financial companies might encounter "more surprises" than smaller ones, they also have the capability to handle different situations. As an example he provided Freddie and Fannie, which in Buffett's words: "where not to big do be managed, but where too big to be managed in the way they were managed." At the same time, Buffett emphasized that U.S. banks are not that big, in comparison with those from other countries, like France, or Canada, where banks held a much higher percentage of the GDP.
During the last financial crisis from 2008, Buffett played a major role, especially in relation to rescuing Goldman Sachs Group, Inc. (NYSE:GS), the CEO of which was Buffett's interview colleague, Hank Paulson. Berkshire offered a $5 billion lifeline to Goldman Sachs and has exercised warrants, purchased in the frame of the deal, which net for some $2 billion in Goldman stock, CNBC said. Berkshire also got $5 billion in preferred stock that offered it dividends worth $500 million per year, which were later repurchased by Goldman at a premium.