Warren Buffett tells Crisis Commission it's powerless to stop `too big to fail'

Written by Biloxi


In a May 26 interview recording with the Financial Crisis Inquiry Commission (FCIC), billionaire Warren Buffett said that taxpayers will always be on the hook for collapses of the major banks. Buffett said, "You will always have institutions that are too big to fail, and sometimes they will fail. We still have them now. We’ll have them after your commission report." According to Bloomberg, Buffett told FCIC that the government would provide liquidity to the market again if needed:

The government would restart programs like the Commercial Paper Funding Facility, in which the U.S. backed short-term corporate debts, if crisis conditions return, Buffett said.

Of course, in 2008, Buffett injected $5 billion in Goldman Sachs Group Inc. after the collapse of Lehman Brothers Holdings Inc. and said "he was betting on the success of government intervention". Without a doubt with help of the government bailing out Goldman Sachs, Buffett got a good return from his investment.

And it will be interesting if Buffett is right about his predictions of the government to stop the "too big to fail" banks. The Dodd-Frank financial reform act will be enacted in July where President Obama touted that the financial reform bill will end bailouts and protect taxpayers from firms that are “too big to fail.” And Federal Reserve Chairman Ben Bernanke said that said "the 'too-big-to-fail' issue can be eliminated only when investors believe the U.S. won’t rescue firms". Unfortunately, Buffett's opinion differs:

“I do think that if you ran into a similar situation today the government would guarantee commercial paper again. They’d have to,” Buffett said. “You have to believe the government, the federal government, will act and they will act promptly and decisively.”