The chairman and chief executive officer of Berkshire Hathaway Inc., Warren Buffett, interviewed former treasury secretary Hank Paulson at the Greater Omaha Chamber of Commerce’s annual meeting in Omaha, US. They rewound back to 2008, the year in which the US confronted an unprecedented financial crisis and Paulson was treasury secretary in the George W. Bush administration. Edited excerpts:

Both the president and the members of the administration had repeatedly said during the past years that they didn’t anticipate (such a tough economic crisis). But from the message you were giving them, you expected things this tough—didn’t you, or am I wrong on it?

Crisis management: Warren Buffett and former US treasury secretary Hank Paulson at a book promotion event in Omaha, US. Michelle Bishop/Bloomberg

So what does a prudent company do? They start cutting back, but Congress hadn’t seen this yet... So, I knew with a certainty it was going to get worse. I am not sure it was going to be 10% on employment but I knew it was going to be bad and I knew if they didn’t do something the businesses wouldn’t be able to fund themselves, wouldn’t be able to pay for the inventories and pay suppliers and would let employees go. And that would ripple through the economy and we would have Armageddon.

So then when the economy did turn down, we had this terrible situation—as Congress saw it because Congress saw it the way the American people had seen it—we went up and said, “Give us these authorities and if you don’t, we are going to be in deep doo-doo. It is going to be bad." They gave us the authorities and we were in deep doo-doo. It is very hard to get credit for preventing a disaster that people never saw or could see.

Did you really get down on your knees in front of Nancy Pelosi (speaker of the US House of Representatives)?

I did it just to try to break the tension and to get a smile or a laugh and it didn’t really have its desired effect because I remember I said, “Please don’t go and blow this thing up", and the speaker said to me, “we are not the ones that are blowing it up" and she was right.

You have said you have substantial fixed income (investments). Does that mean you don’t worry about a decline in the value of currency?

You are certainly not going to get a former treasury secretary talking—because I do believe that and I worked very hard at this—that the strong dollar is just very much in our interest and essential to the success of America.

So if I made you trustee for my children and I say you have to buy fixed income—what would you prefer?

I would go to you and ask you.

Let us go back to the fall of 2008 again. You think we wouldn’t have gotten into Tuesday on AIG (American International Group Inc.) if there hadn’t been action on Merrill Lynch that day? (The US administration took control of AIG on 16 September 2008, a Tuesday, after Merrill agreed to sell itself to Bank of America Corp. and Lehman Brothers Holdings Inc. collapsed.)

I don’t know what would have happened because I don’t think we could have taken one other big institution’s failure. Do you?

You and I own a huge investment banking and trading firm. It is our only family asset. We cannot sell it and we have got all these talented people who are making lots of money. You are the head of the compensation committee—what sort of an arrangement do you have with them? Anybody who makes $25-50 million a year—how are you going to treat these people, so that they keep making money for us and they don’t leave and go some place else?

I would say we have to talk about it when we are doing this and when we are making this decision.

Let us say we are doing it today.

You have to know that...the compensation levels on Wall Street are out of a whack...that is number one. Number two is that it should be in equity for high paid people or it should be something that warrants a long-term performance.