Warren Buffett: Nothing Improper in Goldman Transaction

Legendary investor favors financial overhaul, says Goldman chief should stay on.

May 3, 2010 — -- Legendary investor and financial guru Warren Buffett said he saw nothing wrong with the Goldman Sachs transaction that sparked a lawsuit from the Securities and Exchange Commission, adding that he would be disappointed if the company's chief executive stepped down.

"I don't think he should step down," he told "Good Morning America."

"Things happen on my watch at Berkshire [Hathaway, where Buffett is chairman]. We have 260,000 employees. Someone's doing something wrong right now. It's my job to find out and do something about it. I do not think Lloyd [Blankfein] should step down. I would be disappointed if he steps down."

The SEC filed a civil lawsuit against Goldman last month, alleging that the firm defrauded investors. The SEC's claim stated that Goldman Sachs structured a collateralized debt obligation (CDO) -- an instrument tied to the performance of certain securities -- that was secretly designed to fail, which the firm failed to disclose that to its investors.

Paulson & Co., the hedge fund that helped pick the investment's portfolio of securities that were linked to mortgages, later made $1 billion by betting against the deal.

Buffett, who has invested billions in Goldman over the years, said he had looked at the transaction in question and did not see "anything improper.

"I'm not paying them for investment advisory business, I'm trying to trade with them," Buffett said in the "GMA" interview that aired today.

"If I am buying bonds from them -- and I buy bonds from them all the time -- they may be shorting those bonds to me, they may be shorting other bonds, they have a position in futures. They have a huge worldwide business to run and they have risk management."

Buffett: Give CEOs 'Some Down Side'

On a broader scale, Buffett blasted CEOs who managed to walk away from the financial crisis that took such a toll on the public and said he was in favor of regulatory overhaul in general terms.

"I think it's disgusting that you've had all of these failures of major institutions and the government has had to step in for society's reasons to help and basically all of the CEOs that caused all the trouble went away rich," he said. "They have all kinds of up side, let them have some down side. That would change behavior."

Buffett said he has not read all of the proposed, lengthy financial overhaul bill but expressed optimism about the progress it could represent.

"America generally is the story of an improving society," he said. "We look at our problems and we try to figure out how to make society better. And there's room for improvement in financial regulation."

Buffett also said he sees signs of improvement in the overall U.S. economy, including job openings at his railroad, the Burlington Northern.

"In March and April, the economy has come on pretty strong. ... I mean, people talk about creating jobs but jobs come when you have demand for your product and we are seeing that demand in some areas," he said. "The Burlington Northern is a good example. Instead of 155,000 car loads a week we are now running 173,000 last [week]. We need more people.

"I think the momentum is on the upside. ... It builds on itself. I think three months from now we will feel better."

ABC News' Pierre Thomas, Richard Esposito and Alice Gomstyn contributed to this report.