WRAPUP 1-Buffett says US in recession; banks to face pain
OMAHA, Neb., May 4 (Reuters) - Warren Buffett, the world's richest person, said on Sunday the U.S. economy is in recession, putting him at odds with a government report that showed weak growth.
Buffett offered his assessment during a wide-ranging news conference, a day after a record 31,000 shareholders of Berkshire Hathaway Inc (BRKa.N) (BRKb.N) attended the insurance and investment company's annual meeting in Omaha.
Last Wednesday, the Commerce Department said the economy grew at a 0.6 percent annual rate in the first quarter. But Buffett said the nation's population also grew, making the real growth rate lower. He also said that, even if the data do not show the economy retracting, people feel as though it is.
"The U.S. is in recession as I define it," Buffett said. "I would define that as a situation where people are doing less well than they were three months, six months or eight months earlier and most businesses find themselves in that position too.
"If were are in a non-recession, I don't think people want to see it going in the same direction as it is and saying it's wonderful."
Weakness at Berkshire units that sell bricks, carpets and other products dependent on a healthy housing market contributed to a 64 percent decline in overall first-quarter profit.
Housing remains a critical problem, he said, as hundreds of thousands of homeowners find their mortgage payments heading higher, or that their homes are worth less than they owe.
Buffett said he wrote U.S. Treasury Secretary Henry Paulson a letter in which he favored giving people taking out mortgages one-page statements, headlined "WARNING" in red, describing the maximum rates they could face.
While Buffett said the government could help borrowers who were misled on what they would owe, he opposed helping people simply because their home values have dropped, or investors who bought mortgage securities without understanding the risks.
Borrowers, he said, "shouldn't be penalized for being misled, but shouldn't be protected against mistakes."
He estimated that more than 80 percent of borrowers with "option" or "pick-a-payment" mortgages that let them pay less than the principal due, in fact did so, and that many now owe more than their homes' values.
"Surprise, surprise," he added.
BEAR STEARNS A "WATERSHED"
Buffett said housing problems will weigh down bank results for "a couple of years" and the industry's large losses and write-downs due to bad debts are not over "by a long shot."
"There's going to be more pain, sure," he said. Continued...
