us: economic pearl harbor

From Times Online

March 9, 2009

Buffett: crisis is an economic Pearl Harbor

The billionaire investor, Warren Buffett, has likened the battle with recession to the attack on the US naval base

Tim Reid in Washington

Warren Buffett declared today that the US economy had “fallen off a cliff”, describing the current crisis as “an economic Pearl Harbour”, as concern continued to spread about the Administration’s fitful attempts to halt the collapse of the American banking sector.

The fabled investor and an informal adviser to President Obama, whose financial diagnoses are widely respected - even though he conceded that he failed to predict the severity of the crisis - said that the economy had come “close to the worst case” that he had imagined and that recovery will be slow.

Mr Buffett, a multi-billionaire and one of America’s wealthiest men, added that the entire banking sector had been hours from collapse last September and would have imploded without the $700 billion Wall Street emergency package rushed through Congress.

He also spoke of the mounting fears over Mr Obama’s muddled approach to the central issue in solving the economic crisis: what to do with the banks’ $2 trillion of toxic debt that is threatening the collapse of the financial sector.

Mr Obama and his Treasury chief Timothy Geithner have said they do not want to nationalise any banks, but they are coming under increasing pressure after massive and repeated injections of cash into crippled financial giants such as Citigroup, Bank of America and AIG have failed to shore-up confidence.

Some senior Republicans are now advocating that some of these huge institutions should be allowed to fail, with others urging Mr Obama to be far bolder by temporarily nationalising them.

Mr Geithner, who is woefully understaffed at the Treasury Department, has yet to come up with a clear and detailed plan to stabilise the financial sector. Mr Buffett told CNBC there needed to be a “very, very clear message”, adding: “People are confused and scared. People can’t be worried about banks and a lot of them are.”

On Sunday the World Bank predicted that the global economy will contract this year for the first time since World War II, a far grimmer assessment that it had previously offered. Its report highlighted the international nature of the economic crisis and warned that the recessions in developed nations was likely to play havoc with the economies of poorer and emerging countries, threatening political and social unrest.

Ahead of the crucial G20 summit in London next month, the Obama administration is urging a policy of global stimulus spending to turn around the world economy.

Yet the White House is running into opposition from some European nations, particularly Germany.