Warren Buffett: 'Too Big To Fail' Will Never Be Resolved

'Too Big To Fail' Will Never End, Buffett Says

No matter what the government does, taxpayer bailouts of the financial sector will sometimes be necessary, according to the nation's second richest man.

As markets crashed in the fall of 2008, government officials feared that if certain financial institutions failed, the entire financial system -- or perhaps even the entire economy -- would come down with them. In the months after the government extended a $700 billion bailout to the financial sector, lawmakers have striven to ensure that no institution poses such a systemic risk that it would be too big, or too interconnected, to be allowed to fail.

But famed investor Warren Buffett, whose own firm profited handsomely from the bailout, said bailouts are an inevitable feature of finance, Bloomberg reports.

Buffett, who is personally worth at least $45 billion, told the government panel charged with investigating the causes of the financial crisis that its work would not prevent the phenomenon of "too big to fail."

"You will always have institutions that are too big to fail, and sometimes they will fail," Buffett told the Financial Crisis Inquiry Commission in May, according to Bloomberg. His recorded comments were released Thursday by the FCIC, Bloomberg notes. (You can read the full set of FCIC documents here.)

"We still have them now. We'll have them after your commission report."

Buffett's diagnosis joins a chorus of similar warnings. Yale economist Robert Shiller, speaking last fall at The Economist's Buttonwood Conference in New York City, said the Dodd-Frank financial reform legislation would not stop financial firms from being of systemic importance.

"What we've seen so far is not going to eliminate the problem of systemic risk, because it's a very difficult problem. It involves the nature of the banking system, which is inherently vulnerable," Shiller said. "It's vulnerable to runs and collapses, just like steam engines are vulnerable."

Ending "too big to fail" has been a priority for government officials. Much talk was spent on a so-called "resolution authority," which would theoretically allow the government to break up banks on the verge of failure. But even before the bill was passed, Federal Reserve chairman Ben Bernanke expressed doubts that such authority would work.

As of now, the nation's four biggest banks are able to get even bigger before they even reach the government-imposed limits, HuffPost's Shahien Nasiripour reported.

Buffett, for his part, made a successful bet that the government would bail out the financial sector. His firm injected $5 billion into Goldman Sachs during the worst of the crisis, as part of a highly lucrative deal. Buffett's preferred stock earns a 10 percent dividend annually.

Last fall, when Goldman was reportedly trying to exit the deal early, the bank was paying Buffett's firm about $1.3 million every day. As the Wall Street Journal noted, that's about $15 per second.

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