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Warren Buffet Speaks

Warren Buffett was on Charlie Rose the other night, and if you don't know by now he’s a genius for analogies. Here he's talking about the Great Recession and the real estate crash and what the government and the federal reserve need to do to get the economy going again:

"You've had an economy that's like a great athlete that's had a heart attack, cardiac arrest, and the paramedics that have come, (and are) arguing (about) who was at fault, the athlete should have been checking his blood pressure more carefully. The important thing is to apply the resuscitator. It doesn't help spending time worrying about who is to blame for the patient having the heart attack."

He has referred to the United States economy as a premier athlete who has had a heart attack. This isn’t the time to place blame or lecture the athlete; it’s the time to administer CPR. CPR is what the Congress needs to do in passing the rescue bill. Think about all the people who are retiring and have had their 401Ks or IRA hammered down to nearly nothing. Think about Norway’s pension fund that allows the country to invest its oil and gas revenues into stocks and bonds. (They had significant exposure to Lehman Brothers – Lehman was in charge of a portion of their fund.)

Buffett also talked about how greed gets the best of us. How your next-door neighbor is buying another house and you want to get in on the game. Buffett talked about the innovators, imitators, and then the idiots. Everyone’s chasing the dream of making it rich. The idea here is that if you don’t buy a house now, next year the prices will increase. Everyone is doing it and if you’re not in on it, then you’re an idiot.

He also said that the only way smart people lose money is if they’re over leveraged.

Interesting, since the key aspect of buying income properties is the way in which you can leverage other people’s money to make money. That's essentially what a mortgage is - you're using the banks money to buy a property.

But there’s no need to get over leveraged and take on too much risk – you could lose your job, the market could collapse, there could be a natural disaster, or something else could happen to completely change your financial status.

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