2007 Berkshire Hathaway Shareholder Meeting

A shareholder asked Warren and Charlie if they thought there was a risk of a credit crunch or liquidity crisis in the market. Warren responded that he doubted it as long as the spread on junk bonds stayed low compared to the yield available on high-grade bonds. One of the reasons is that it would be too easy for the markets to figure out which Federal agency was responsible for closing off the faucet of cheap capital and that would cause enormous political pressure and damage for them. No one wants to be to blame. Theoretically, a system-wide shock could occur in the same nature as the Long-Term Capital crises of the late 1990’s.

In Berkshire’s case, this could be a good thing because the company is able to use its enormous financial resources to take advantage of attractive pricing. In other words, Berkshire Hathaway prospers when the world suffers, as horrible as that sounds, simply because it is prepared and ready with a disciplined culture that results in cash building when bargains can’t be found.