Warren Buffett 2008 Financial Crisis: Lehman, AIG, Barclays, Goldman Calls

Core crisis explanation: '$20 trillion market in residential housing' with people 'thinking housing could do nothing but go up.' Became 'currency' with 50 million of 75 million owner-occupied homes mortgaged (25 million free and clear). Originators 'writing mortgages they knew they'd never have to hold' selling to 'Norway after they'd been put in a package.' People refinancing despite unaffordable monthly payments, 'lying on loans and lenders participating in it.' 'Everybody behaved badly but they believed...when people start believing something kind of crazy you get that sort of thing.' Unlike 'any widespread financial participation anybody ever seen' - literally 'crash in value of something that 50 million families owned on margin.'

After Bear Stearns, Dick Fuld called saying Lehman 'stock is getting killed by short sellers' (Buffett: 'when anybody says that to me I get very suspicious...how could a short seller hurt you'). Offered '$3 to $5 billion' investment opportunity. Hank Paulson called '6 or 7 on Friday night' giving qualified endorsement - 'stopped short of giving totally unqualified endorsement' probably hoping Buffett would finance but 'wasn't going to try and sell me too hard.' Spent Friday evening reviewing '250 or 300 pages' 10-K, still has it with notes at office. 'Wrote down on front page the number of the pages where I was finding problems' - knew 'not for us because...I just saw a lot of things that made me very worried about their financial condition and what would be happening to them under the circumstances that were happening in Wall Street.' Called back with polite rejection: 'I'm not interested...I don't start enumerating problems to him.'

'September 1st there were 35 million money market accounts and everybody felt they were 100% good and within a couple weeks you had conservatorship of Freddie and Fannie and Lehman...35 million people in particular were worried.' '$3.5 trillion in money market funds a couple trillion were in other than government...money market funds now if you've got people worried about $2 trillion dollars in this country you've got a panic like you've never seen and that's what we had.'

Friday September 12, 2008 - 'the weekend' - AIG called asking about '$10 billion' investment. Christopher Flowers and CEO Bob Willumstad on phone. Buffett interested in 'domestic PC operation perhaps the whole PC operation' - asked them to fax information to office that night. Went down to office but 'what came through was not really useful.' Called back despite being 'hard to find them even in the building' and said 'don't count on us...I know time is of the essence with you guys so just don't waste it on me.' Core problem: 'I can't figure this thing out...it was $20 some billion dollars and we could have paid it if I'd known what we were getting but I wouldn't know what intercompany guarantees there were or anything else and I don't think they knew...whether property casualty companies hadn't guaranteed some things that financial products was doing.' Very fact they're 'calling me and sending out stuff Friday evening 8 or 9 o'clock...indicated they were in peril' - 'when a triple A company is calling at 9 or 10 at night and faxing things out to you.'

Saturday after AIG call, flew to Edmonton with Walter Scott for 'charity dinner and performance.' In hotel room 'didn't think anybody in the world would know where I was' when Bob Diamond (Barclays) called. 'Run into problems with the Brits on doing a deal with Lehman' - UK rule requires 'shareholders have to vote on it if it involves more than...X billion.' Diamond: 'We want to buy an insurance policy whereby you will guarantee that Lehman performs on all of its contractual obligations until the British shareholders of Barclays have had a chance to approve the deal.' Buffett: 'How big a guarantee?' Diamond: 'Unlimited.' Buffett: 'That sounds a little unusual' but agreed to review if they send details. Went to performance (Paul Anka was there), came back at 11pm - no fax. Stayed up waiting, finally went to bed. They'd sent to his flip phone (still has same phone) instead. Discovered message 10 months later in July 2009 when daughter checked phone at Sun Valley. Doesn't think it would have changed outcome - 'idea of making an unlimited guarantee' was problematic.

After Lehman weekend, Tuesday night Lloyd Blankfein called. Buffett suggested buying common stock 'to show confidence' but Goldman wanted preferred instead. Agreed to '$5 billion preferred' with '10% dividend' and '5-year warrants at $115' strike. Structure gave Berkshire downside protection (preferred with priority) plus upside (warrants) while providing Goldman with visible vote of confidence. Deal announced Wednesday, temporarily calmed panic until Washington Mutual failed.

October 1, 2008 Charlie Rose appearance where Buffett 'actually suggested an RFC Reconstruction Finance Corporation model which came from the 1930s' when TARP still focused on 'buying distressed assets from banks.' 'Katherine Graham the Washington Post father was the first head of the RFC...appointed by Hoover and then Roosevelt came along put Jesse Jones in charge and the RFC was very very very helpful in terms of putting the economy together again at that time and in fact that's what was done about two weeks later.' Got call during Virginia Tech-Nebraska game from senator wanting to add 'limitations on bankers salaries...they want to punish bankers basically' to TARP bill.