Buffett : Economy 'on Floor' After Cardiac Arrest (Update1)

By Erik Holm and Andrew Frye
Bloomberg, October 1, 2008 19:28 EDT

Oct. 1 (Bloomberg) -- Billionaire Warren Buffett, the world's preeminent stock picker, said the U.S. economy is ``flat on the floor'' after a cardiac arrest as companies struggle to secure funding and unemployment increases.

``In my adult lifetime I don't think I've ever seen people as fearful, economically, as they are now,'' Buffett said today in an interview with Charlie Rose to be broadcast tonight on PBS. ``The economy is going to be getting worse for a while.''

The biggest housing slump since the Depression has spurred a wave of defaults and a yearlong contraction in global credit markets, squeezing companies' capacity for investment. Buffett's Berkshire Hathaway Inc., based in Omaha, Nebraska, agreed in the past two weeks to buy $8 billion in preferred shares from General Electric Co. and Goldman Sachs Group Inc. to help the companies fund their businesses.

The credit freeze is ``sucking blood'' from the U.S. economy, Buffett said.

The bankruptcy of Lehman Brothers Holdings Inc. and Washington Mutual Inc., and the emergency sales of Merrill Lynch & Co. and Wachovia Corp. fueled fears about the vulnerability of firms that rely on capital markets for short-term funding.

Buffett is taking advantage of fragile stock markets, the lack of available credit and his own reputation as a picker of successful companies to extract outsized payments for Berkshire's cash and endorsement. He has told shareholders that his strategy is to be ``greedy when others are fearful.''

`Seizing Opportunity'

``He's seizing the opportunity,'' said Tom Kersting, an analyst for Edward Jones & Co in St. Louis. ``His philosophy is always to keep some powder dry. That allows him to take advantage of the current turmoil we're in and take advantage when others can't.''

For both Goldman and GE, Buffett's endorsement comes with a cost. Both companies agreed to pay Berkshire a 10 percent dividend on his preferred shares, and each gave him warrants to buy their common stock at any point in the next five years at a price that's a discount to where it's currently trading.

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