Buffet

BECKY QUICK, co-anchor (Omaha, Nebraska):

Good morning, everybody and welcome to SQUAWK BOX right here on CNBC. This morning we have quite a show in store for you coming up today. As you probably know, our special guest for the next three hours is a man who needs no introduction. We are talking about Warren Buffett.

And, Warren, good morning. Thank you for joining us this morning.

Mr.WARREN BUFFETT (Berkshire Hathaway Chairman & CEO): Yeah, early morning,
right.

QUICK: Very early morning. You've only had a couple of complaints about
that, right?

Mr. BUFFETT: No, I try not to complain too much...

QUICK: One of the things we'd like to get straight to...is what you see happening in the economy right now. We've been talking to you for some time about what you see as somesignificant problems in the economy. And, from your perspective, have things gotten any better? Have they gotten any worse?

Mr. BUFFETT: No, they've rippled out some, and that's what you'd expect. So
the excesses in credit, the deleveraging that was required, the weak credits
that are exposed, all that is--we're seeing manifestations out as the ripples
go out, and I think I said one timethat, you know, you only find out who's
been swimming naked when the tide goes out. Well, we found out that Wall
Street has been kind of a nudist beach. There's--it's just one discovery
after another of firms that either didn't know what they were doing or that
did things that they shouldn't have knowingly. And all of the troubles have
not been revealed the first time around, usually, so there'sconsiderable
disillusionment that's set in in terms of are these guys telling us the truth
now or maybe they just don't know what the truth is. So all of that's having
an effect, and what we're seeing in business, in our retail businesses...

QUICK: Mm-hmm.

Mr. BUFFETT: ...certainly, anything to do with housing is even a further
slowing down. I mean, June and July, both in terms ofcredit experience with
people that first got into trouble of house payments and now on credit card
payments and so on. And retail trade, it's not over by a long shot.

QUICK: Does that make you think that things are going to continue to decline
over the next, let's say, six months?

Mr. BUFFETT: Oh, I think they could easily go beyond that, yeah.

QUICK: What's your prognosis, or what's yourbest guess or your best estimate
of what...

Mr. BUFFETT: You never know. I've said in the past it ought to be longer
and deeper, and I think it is going to be longer and deeper, but no one knows
when--what you do know is that it will turn around. I mean, the country will
be doing far better five years from now than it is now, but it won't be, in my
judgment, it probably won't be doingbetter five months from now.

QUICK: You talk about how this has rippled out and it's affecting the
consumer at this point. Have the credit markets themselves gotten any better?

Mr. BUFFETT: Well, the credit markets have had this situation where
periodically it's seemed like they were getting better and then something else
comes along. So the bankers feel a little bit better for a while andthen
something comes along and then they want to deleverage further. They find out
they've got more trouble. Right now, for example, they're taking back all
these auction rate securities. Well, they don't want to take things out of
their balance sheet. So it's just one more problem for them, and you've seen
these waves of problems and sometimes they create their own momentum. I mean,
if thestock prices go down enough of the banks, then they feel like they
can't sell securities. Of course, the extreme example was Freddie Mac
was--has sort of been chasing a rabbit down the hill...

QUICK: Right.

Mr. BUFFETT: ...and promised they would raise additional money and of course
the price of the stock got to the point where it became ridiculous. So
troubles feed on themselves....