Saturday, May 24, 2008

Buffett On Bear Stearns

From Bloomberg:
``The worry was that there would be contagion; it was a very real worry,'' Buffett said. ``If Bear Stearns had gone, the next day, somebody else would have gone. It could've been a very, very, very chaotic situation.''

Buffett, 77, said he was contacted in March before JPMorgan, the third-biggest U.S. bank by assets, agreed to buy Bear Stearns. The person calling him, whom he wouldn't identify, was ``someone responsible'' and wasn't from the Federal Reserve or the Treasury. The call lasted about half an hour, Buffett said.

Too Big for Buffett

``As I understand it, Bear Stearns had $65 billion due on Monday and I didn't have $65 billion,'' Buffett said. ``I couldn't get my mind around that situation in the required time.'' New York-based JPMorgan was the right buyer for Bear Stearns, he added.
And from MarketWatch:
Some investment banks and commercial banks are too large and complex to run, Berkshire Hathaway Chairman Warren Buffett said Saturday.

"There are firms in terms of risk that are conducting themselves in a way that makes them too big to manage," he said.

Such financial institutions are designed to survive only until there's a shock to the system that may only occur once in 50 years, Buffett said.

"That may not be in the interest of a 62-year-old executive, who will be around for the next three years to worry about that," he said.
If Bear had failed, one or two other investment banks would probably have collapsed within a few days, he said.

Bear had roughly $14.5 trillion of derivative contracts outstanding the day after it was bailed out, he said.
"The parties that had those contracts would have had to establish the damages that they could claim against that estate very quickly," he said.

"Imagine the damage of everyone trying to unwind those contracts," Buffett said. "That would have been a spectacle of unprecedented proportions. It would have resulted in another one or two more investment banks going down in a few days."

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