Why Warren Buffett Said No to Lehman and AIG in 2008

[Music] and fear is extraordinarily contagious and we saw that in September of 2008 like we've never seen it before international markets [Music] on Saturday I had a long-standing commitment to go to Edmonton and my wife and I went up with another couple and we checked in their hotel room about 6 o'clock or so and amazing thing I got a call I didn't think anybody knew I was there I said I'm going to this performance with another couple send me a fax describe exactly what you want and tell me how much you will pay so I came back from the performance and no fax and so I called the manager of the hotel must be a fax someplace and he said no there's no fax and I couldn't figure that out well they called me on a cell phone which I didn't a little flip phone which I still have and it was beyond my technical comprehension to figure out if that's what they done because actually they said they'd send the fax and the following summer I was arriving in Sun Valley with my daughter and she said there's a message on your phone I said I don't know how to bring it up and so she brought it up for me and of course it was a message from that Saturday night saying call us and do this or that so it's a little bit late so you don't think the message would have changed I know I could not make a commitment like that this is a 10k that of Lehman Brothers and this goes back a little before the panic Lehman was looking for money at that time and they approached Berkshire I came down to the office at night made these little notes on here of things that were red flags and you'll see a number of pages here and you had to get the page 150 or 200 but there wasn't there was clearly a lot of trouble there by the time I got through them I decided that the we were not in a position to on Monday the Lehman how you feeling how do you think on Lehman weekend on Friday preceding the weekend I got a call from AIG and AIG was going to run out of money the following week they've done some very foolish things in their financial products up operation so I looked at this and finally decided that there was no way that I could come up with a cash offer that could be done in the following week or really about me the following month but so I called him back late that night I wanted to convey to him promptly that I just wasn't a prospect I came back on Sunday again a long previously scheduled dinner but before but gone with I'm still getting more calls on the AIG and I went through dinner I think I'd behaved reasonably well I was still wondering what was going on obviously with AIG in New York but there was nothing to be done AIG was just going to run out of money big time in the next day or two and Lehman was going to go under unless something was happening that I didn't know about one of the lessons of the 2008 and 9 experience what we the 2008 experience was the fact that every company in the United States was a domino and those Domino's were placed right next to each other so when they started toppling everything was in line and they were very very close to it and its really like the old movies you know where there's a run on the bank if you have a run on the bank and there's a big line in front of the bank and you put your money in that Bank you're gonna get in line and if the president of Bank comes out and says our capital ratio is 13 percent you don't care because you know you don't know what a capital ratio isn't you don't know whether he knows what one is and you know he's probably lying to you a company like Lehman or or any major financial institution depends on people being willing to do business with them tomorrow and lend the money tomorrow and take their word the next day and nobody has to do business with Lehman earth or any any other institution once they lose confidence it's all over [Music]

Channel: Wall Street Journal

Views: 2,477,984

Rating: 4.8815365 out of 5

Keywords: warren buffett, Thomas Di Fonzo, drew evans, LEHMAN BROTHERS WARREN BUFFETT, AIG, Political Appointments, Terminations, Political, General News, Domestic Politics, Regional Politics, United States, North America

Id: 1QeUcfqkUzc

Length: 5min 2sec (302 seconds)

Published: Fri Sep 07 2018

Reddit Comments

[u/100_PERCENT_BRKB]

This is an unexpectedly hilarious video

[u/itrippledmyself]

I love that WSJ apparently has to define what a 10K is. I remember this video... I think it was before Robinhood, right?

Anyway, do any of you think there’s an implication here that Buffett would have loved to take a piece of AIG if he had the money? He doesn’t trash them (although foolish is a pretty big slam from Buffett, he’s pretty clear it applies to their FP division). He was clearly (and wisely) wary of being diluted out by the lender of last resort if he allowed himself to be the lender of second to last resort. He was also pretty clear that the timeline for the cash was an issue, not just the flat out quantity.

But I wonder what is true thoughts on bailing out AIG today with brk’s cash on hand. I think he would have done it. Unless he thought the only thing that could save AIG was the government’s “reputation” and not just cash, how many of you think he really wanted a piece of AIG?

And how many of you think this is one of the reasons he keeps so much cash now?