financial guru buffett predicts 'long, deep' recession

According to the Financial Times, however, Buffett warned that there could be serious consequences to that approach, and if they were dramatic enough, there could be an immediate expectation of huge inflation.

"A lot of things would happen that you might not like. The economy is definitely tanking. It's not my game, but if I had to bet one way or another - everyone else says a recession will be short and shallow but I would say long and deep," Buffett was quoted as saying in the book.

"The Snowball" was quite up to date as it included Buffett's comments following the Bear Stearns collapse earlier this year.

His comments preceded the US Treasury's proposal for a US$700-billion (Bt23.84 trillion) bail-out of Wall Street, now pending approval by Congress.

The bail-out package is the biggest since the 1929 Great Depression. It has been touted by the White House as a "must" or else there would be serious consequences to the US and world economy.

Initial media reports suggested that Congress would endorse the package shortly with conditions that would allow the US administration to use half of the package, $350 billion, in buying toxic assets from failed financial institutions.

Further approval by Congress would be needed for the other half of the package to be used by the administration, which is just a few months away from the presidential election.

Over the past one year, the US financial system has been going through dramatic consolidation with government bail-outs for Bear Stearns amounting to $30 billion and for Freddie Mac and Fannie Mae worth $200 billion.

In the meantime, Lehman Brothers, the fourth-largest US investment bank, has filed for bankruptcy, while Merrill Lynch, the No 3 investment bank, was sold to Bank of America for $50 billion.

Moreover, American International Group was bailed out by the government with an $85-billion rescue plan, while Washington Mutual, a retail bank, was already seized by US authorities.

The US financial crisis has also spread to British and European banks, with Fortis, a Belgian-Dutch bank, being the latest victim, requiring a government bail-out of ¤18 billion (Bt879 billion).

In the UK, Bradford and Bingley, a major British bank, was also seized yesterday by authorities as the credit crisis shut off funding while competitors refused to buy mortgage loans that customers were struggling to repay.

According to Bloomberg, Banco Santander, Spain's biggest lender, will pay $1.1 billion for Bradford and Bingley's 197 branches and £20 billion (Bt1.22 trillion) of deposits.

Based on the insight of Buffett, who committed $5 billion to buy a significant stake in Goldman Sachs, the largest US investment bank-turned-bank holding company, earlier this month, the road ahead will be highly challenging.

A U-shaped economic outlook in which a recession is rather long and deep now appears more likely than a V-shaped scenario of a short and shallow recession.