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Financial Freedom

How I Met Warren Buffett in Prison

How I Met Warren Buffett in Prison

by Dr. Mark Skousen, Contributing Editor
Thursday, June 10, 2010: Issue #1278

Yes, it’s true. Last Wednesday, I met the “Oracle of Omaha” in Sing Sing penitentiary – the notorious maximum-security prison “up the river” from Manhattan.

It just goes to show what lengths I’ll go to for an Investment U interview!

The occasion was the graduation ceremony for prisoners who had completed their college degrees at the correctional facility. Buffett’s sister, Doris, is a donor of the college program and invited Buffett to the event.

I was there with my wife, Jo Ann. We teach in a four-year college degree program at Sing Sing through Mercy College. She teaches English Literature and Writing; I teach Economics. The program is privately funded and has been so successful that it attracted Buffett’s interest. A number of celebrities have also spoken at the commencement address, including singer Harry Belafonte, rap singer Ice T and actor Tim Robbins.

What’s so special about the Sing Sing college degree program? In 10 years, nearly 200 have graduated. Of those 200, 42 have left prison and re-entered the outside world. None have returned! All are living productive lives, working and supporting themselves. Meanwhile, the national rate of recidivism is 67%…

When Prison Becomes Paradise

Warren Buffett must have felt like he’d gone from one prison to another.

He arrived at Sing Sing direct from New York City, following a grueling two-hour interrogation by Congress’s sanctimonious Financial Crisis Inquiry Commission. It had subpoenaed Buffett against his will to testify about Moody’s rating of mortgage securities.

At the hearing, Buffett, who is Moody’s majority shareholder, was peppered with questions, demanding to know why neither he nor Moody’s accurately rated mortgage securities during the real estate collapse of 2007-2009 and failed to anticipate the crash. Buffett admitted that he, like practically everyone else, was surprised by the size of the real estate bubble and its role in threatening to bring down the entire financial system. It was “the greatest bubble I’ve seen in my lifetime,” he said.

Nevertheless, after a long day of testifying and appearing on television, Buffett was surprisingly energetic at the graduation ceremony. He told me how impressed he was with the college program at Sing Sing: “I’m blown away. This is a great program that nobody knows about.”

That’s about to change. A New York Times journalist was there to report on the event and a documentary will be released later this year, too.

It didn’t take long for Buffett and me to get down to business…

Warren Buffett’s Views on Europe, Debt and Gold

~ The European Crisis & Wall Street Selloff: Despite these two major events, Buffett told me he was quite bullish about the markets and expressed optimism about employment and the recovery: “It’s bound to go up,” he said.

~ The Debt Crisis: In response to his bullishness, I asked Buffett whether the growing budget deficits concern him. His sister, Doris, expressed deep concern about the debt crisis, but Buffett was less worried. With regard to the massive unfunded Social Security and Medicare liabilities (which Alexander Green mentioned in yesterday’s column), he told me he favors means testing as a way to reduce the costs of these entitlements: “I get Social Security and Medicare, but I don’t need it.”

~ Gold: I asked Buffett about gold – “the ultimate salvation investment.” Does he believe it’s a good long-term investment?”

“No – I’ve never invested in gold.” Buffett’s father, Howard, a conservative Republican congressman from Nebraska, believed in the gold standard and gave Buffett some gold coins. He told me he still has them, but “only as a keepsake, not as an investment.” He told me he’s no gold bug and instead prefers to invest in well-run businesses, on the belief that investing in free enterprise does more social good than investing in gold. He’s not interested in gold even as a speculation, although he did take a position in silver several years ago (not as a monetary metal, but as an industrial metal).

“So are you a collector of anything?” I asked Buffett. “Stamps, cars, art work?”

His response: “I collect businesses and friends.” (And with his Berkshire Hathaway stock is worth at least $50 billion, I’ll bet he has plenty of the latter!)

Dr. Mark Skousen and Warren Buffett

If you want to buy a value stock that Buffett currently favors, buy Goldman Sachs (NYSE: GS). It’s selling for only six times earnings and has profit margins exceeding 30%.

Good trading – AEIOU,

Mark


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