JPMorgan, the third-largest U.S. bank by assets, agreed to pay $10 per share for Bear, and the Fed agreed to guarantee $29 billion of Bear's assets.
"I think the Fed did the right thing in stepping in on Bear Stearns," Buffett said at the annual meeting of his Berkshire Hathaway Inc insurance and investment company. "Just imagine the thousands of counterparties around the world having to undo contracts."
He and Berkshire Vice Chairman Charlie Munger fielded questions for five hours, often humorously, on investing, the economy, politics and life.
RISK AT ISSUE
Buffett said the Bear debacle illustrates how some investment banks and commercial banks may have grown too large to effectively manage risk.
"The big investment banks, a number of them, and big commercial banks, I think they're almost too big to manage effectively from a risk standpoint in the way they've elected to conduct their business," he said. "You need someone at the top whose DNA is very, very much programmed against risk."
Berkshire is, he said. "We want to run Berkshire where if the world isn't working tomorrow the way it is working today, or in a way that wasn't expected, we wouldn't have a problem," Buffett said. "If we can earn a decent return on capital, what's an extra percentage point?"
One area of concern is the estimated $60 trillion market for credit default swaps, an insurance contract that covers losses to banks and bondholders when companies don't pay their debts, and lets investors bet on credit markets.
Yet Buffett doesn't foresee a collapse. "I don't think it's going to happen, and I think the chances of it happening were reduced significantly by the fact the Fed stepped in at Bear Stearns," he said.