In an exclusive interview with WSJ.com’s Brett Arends, the super-billionaire shares his thoughts on Fannie and Freddie, housing, markets, taxes, and Sarah Palin.

Brett Arends

Updated Sept. 12, 2008 3:28 p.m. ET

Super-billionaire Warren Buffett warns that the federal bailout of Fannie Mae and Freddie Mac could end up costing the taxpayers hundreds of billions of dollars if the housing market continues to slump. But Mr Buffett, the world’s richest man, defended the controversial bailout as necessary nonetheless.

It all depends on what housing does, he told me from the sidelines of Boston’s Fenway Park, where he was appearing to throw out the ceremonial first pitch on Tuesday night. If housing falls off another 15 or 20%, they’re going to lose some real money on the bailout. (The they means the government, which actually means, you). It could get into the hundreds of billions, he said. But if housing is close to bottoming, they might not lose much money at all. The federal government stepped in over the weekend to backstop the two home loan giants, putting them into conservatorship and taking over most of the equity. We’d be crazy not to come a solution on this, Mr Buffett said. Otherwise there would be $5 trillion. of troubled instruments, on the market, he said, referring to the mortgage giants’ liabilities.

Bad news for investors in the two companies. There has been some speculation about what value, if anything, remains for holders of the companies’ common and preferred stock. Mr Buffett, arguably the most successful investor in history, thinks: Not much. They are probably wiping out the common and the preferred, he said.

Mr Buffett declined to call turns in the housing or stock markets, but in relation to the latter he did have some heartening news for value investors. I see value in a few places, he said. On the forthcoming presidential election, the business legend was diplomatic. He has publicly supported Senator Barack Obama (he also backed Senator Obama’s rival, HIllary Clinton), and said again on Tuesday that I think he’s a very very smart guy, I think he would make an excellent president. But he had supportive words for Sarah Palin, the surprise Republican pick for vice-president, saying: From what I know, she’s done a good job as governor of Alaska.