On the after-effect of government bailout
...One likely consequence is an onslaught of inflation …On government bailout
Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown.On his own mistake …
I made at least one major mistake of commission and several lesser ones that also hurt. … Furthermore, I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action.On stock and bond price declines …
This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions.On home ownership
… enjoyment and utility should be the primary motives for purchase, not profit or refi possibilities. And the home purchased ought to fit the income of the purchaser.On the lesson of housing debacle
… Home purchases should involve an honest-to-God down payment of at least 10% and monthly payments that can be comfortably handled by the borrower’s income. That income should be carefully verified.On local governments fiscal problems
Local governments are going to face far tougher fiscal problems in the future than they have to date. The pension liabilities I talked about in last year’s report will be a huge contributor to these woes.On the danger of muni
… Losses in the tax-exempt arena, when they come, are also likely to be highly correlated among issuers. If a few communities stiff their creditors and get away with it, the chance that others will follow in their footsteps will grow.On modeling
Investors should be skeptical of history-based models …On the pricing of risk
The investment world has gone from underpricing risk to overpricing it …On Treasury bond bubble
When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.On cash and cash-equivalent
Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long.
On derivatives
Derivatives are dangerous. They have dramatically increased the leverage and risks in our financial system. They have made it almost impossible for investors to understand and analyze our largest commercial banks and investment banks…On counterparty risk
… Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease: It’s not just whom you sleep with, but also whom they are sleeping with.
On corporate survival (sarcastically)
Sleeping around, to continue our metaphor, can actually be useful for large derivatives dealers because it assures them government aid if trouble hits.On leaving during annual meeting (jokingly)
… If you decide to leave during the day’s question periods, please do so while Charlie is talking.Reader the more detailed Warren Buffet letter excerpt.
