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Chapter 43
1. From $89 million at the end of 1978 to $197 million in August 1980.
2. Interview with Charlotte Danly Jackson.
3. Interview withVerne McKenzie.
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4. Affiliated Publications——bought for $3.5 million，jumped to $17 million after nine years. The Washington Post ——bought for $10.6 million，now worth $103 million. GEICO——bought for $47.1 million，now worth almost seven times that，$310 million. Berkshire’s total common stock portfolio was worth double its cost.
5. Buffett and Munger took out a loan of $40 million from Bank of America National Trust and Savings Association for Blue Chip to protect against a rush of redemptions，according to Munger’s testimony in the Blue Chip case.
6. In 1976，the U.S. District Court in Los Angeles had said that Blue Chip no longer had to dispose of one third of its business，recognizing that it was impractical after management contacted more than eighty potential buyers and had no serious bids. Sales shrank from $124 million to $9.2 million. The woes of the Buffialo News ，which Blue Chip owned，made valuing Blue Chip problematic until 1983，given Buffett’s proportional interests in the different companies versus other shareholders，principally Munger.
7. Berkshire Hathaway 1983 annual report.
8. In 1984，during a period of relatively high inflation，the union agreed to a wage freeze.
9. The Bank Holding Company Act of 1956 placed restrictions on bank holding companies (those owning more than 25% of two or more banks，i.e.，the J. P. Morgans) owning nonbanking interests，in order to avoid monopolistic control in the banking industry. It was amended in 1966 and again in 1970 to further restrict the nonbanking activities of one-bank holding companies (such as Berkshire). In 1982，it was amended to further forbid banks from engaging in insurance underwriting or agency activities. In 1999，the Gramm-Leach-Bliley Act repealed parts of these acts.
10. Interview with Verne McKenzie. According to him and Buffett，Associated was never able to recover from the disintegration of urban centers after the 1960s and adapt to the new culture required to sell discount dresses in shopping malls.
11. Interview with Charlie Munger.
12. Interview with Howie Buffett.
13. Interviews with Dan Grossman，Peter Buffett.
14. Interview with Peter Buffett.
15. Interviews with Marvin Laird，Joel Paley.
16. Interview with Howie Buffett.
17. Ibid. As Susie Jr.says，“When Howie dies，it will be no ordinary death. It will probably be by falling out of a helicopter into a polar bear’s mouth.”
18. For a four-hundred-acre farm.
19. Interviews with Howie Buffett，Peter Buffett.
20. Peter Kiewit Sons’ Inc. was founded by the original Peter Kiewit，a bricklayer of Dutch descent，in 1884. Dave Mack，“Colossus of Roads，” Omaha magazine，July 1977; Harold B. Meyers，“The Biggest Invisible Builder in the World，” Fortune ，April 1966.
21. When Kiewit died，Buffett got the chance to take an apartment in Kiewit Plaza. He would have loved to do it，but Astrid didn’t want to leave her garden. So they stayed on Farnam Street.
22. “Peter Kiewit: ‘Time Is Common Denominator’” Omaha World-Herald ，undated，approximately November 2，1979; Robert Dorr，“Kiewit Legacy Remains Significant，” Omaha World Herald ，November 1，1999; Harold B. Meyers，“The Biggest Invisible Builder in the World”; interview with Walter Scott Jr.，Peter Kiewit’s successor，who also had an apartment at Kiewit Plaza.
23. Interview with Walter Scott Jr.
24. Peter Kiewit died on November 3，1979. Warren Buffett，“Kiewit Legacy as Unusual as His Life;” Omaha World-Herald ，January 20，1980.
25. Buffett read Flexner’s autobiography three or four times and gave copies to his friends.
26. $38, 453 for the year ended June 1980，of which $33, 000 went toward colleges，the rest toward local organizations. Five years earlier，in June 1975，the foundation had assets of $400, 000，with gifts of $28, 498 to similar organizations.
27. Rick Guerin letter to Joe Rosenfield，October 1，1985.
28. Warren Buffett letter to Shirley Anderson，Bill Ruane，and Katherine (Katie) Buffett，trustees of the Buffett Foundation，May 14，1969.
29. Richard I. Kirkland Jr.，“Should You Leave It All to the Children?” Fortune ，September 29，1986.
30. Larry Tisch as quoted by Roger Lowenstein，Buffett.: The Making of an American Capitalist. New York Doubleday，1996. Tisch is deceased.
31. Kirkland，“Should You Leave It All to the Children?”
32. Warren Buffett letter to Jerry Orans，cited in Lowenstein，Buffett .
Chapter 44
1. The Dream that Mrs. B Built ，May 21，1980，Channel 7 KETV. Mrs. Blumkin’s quotes have been rearranged and slightly edited for length.
2. Ibid.
3. “The Life and Times of Rose Blumkin，an American Original，” Omaha World-Herald ，December 12，1993.
4. Ibid.
5. Minsk，near Moscow，is relatively close to the Eastern European border of Russia，which would have been a difficult passage during the war. Her route created a longer trip than traveling between San Francisco and New York by train three times，then winding back to Omaha.
6. “The Life and Times of Rose Blumkin，an American Original.”
7. This and most of the other details of Mrs. B’s journey are from a Blumkin family history.
8. The Dream that Mrs. B Built .
9. Around 1915，roughly 6, 000 Russian Jews lived in Omaha and South Omaha，part of a general migration beginning in the 1880s to escape the pogroms (anti-Jewish riots) that began after the assassination of Czar Alexander II. Most started out as peddlers and small-shop owners，serving the large immigrant working class drawn by the railroads and stockyards. Until 1930，Omaha had the largest percentage of foreign-born residents of any U.S. city. Lawrence H. Larsen and Barbara J. Cottrell，The Gate City . Lincoln: University of Nebraska Press，1997.
10. Interview with Louis Blumkin. His father was comparing the pawnshop to the many banks that failed during this period.
11. The Dream that Mrs. B Built .
12. Ibid.
13. Louis Blumkin，who says she sold for $120 coats that cost her $100 and retailed for $200 else - where in town.
14. The Dream that Mrs . B Built.
15. “The Life and Times of Rose Blumkin，an American Original.”
16. Interview with Louis Blumkin.
17. Ibid. They were carving out a piece of their allotments for her.
18. “The Life and Times of Rose Blumkin，an American Original.”
19. Interview with Louis Blumkin.
20. James A. Fussell，“Nebraska Furniture Legend;” Omaha World-Herald ，August 11，1988.
21. Interview with Louis Blumkin.
22. “The Life and Times of Rose Blumkin，an American Original.”
23. Joyce Wadler，“Furnishing a Life，” Washington Post ，May 24，1984.
24. “The Life and Times of Rose Blumkin，an American Original.”
25. The Dream that Mrs. B Built.
26. “The Life and Times of Rose Blumkin，an American Original.”
27. Joyce Wadler，“Blumkin: Sofa，So Good: The First Lady of Furniture，Flourishing at 90，” Washington Post ，May 24，1984.
28. Buffett，in a letter to Jack Byrne in 1983，noted that Levitz stores averaged about 75% the size of NFM and did 10% the volume of NFM.
29. Buffett noted in the 1984 annual report that NFM operated with exceptional efficiency. Its operating expenses were 16.5% of sales，compared to 35.6% at Levitz，its largest competitor.
30. Warren Buffett letter to Jack Byrne，December 12，1983.
31. Frank E. James，“Furniture Czarina，” Wall Street Journal ，May 23，1984.
32. Speech given at Stanford Law School on March 23，1990.“Berkshire Hathaway’s Warren E. Buffett，Lessons From the Master，” Outstanding Investor Digest ，Vol. V，No. 3.，April 18，1990.
33. Chris Olson，“Mrs. B Uses Home to Eat and Sleep; ‘That’s About It，’” Omaha World-Herald ，October，28，1984.
34. Joyce Wadler，“Furnishing a Life.”
35. “Mrs. B Means Business;” USA Today ，April 1，1986.
36. Bella Eisenberg letter to Warren Buffett，June 8，1984.
37. “I can hear my mother [saying it] now;” said Louis Blumkin in an interview.
38. The Dream that Mrs. B Built .
39. In the documentary The Dream that Mrs. B Built ，Blumkin refers to this incident and said Buffett didn’t want to give her the price she wanted and she told him he was too cheap.
40. Interview with Louis Blumkin.
41. Possibly it might have had something to do with her early years of sleeping on straw on a bare wood floor.
42. Joyce Wadler，“Blumkin: Sofa，So Good: The First Lady of Furniture，Flourishing at 90.”
43. James A. Fussell，“Nebraska Furniture Legend.”
44. Berkshire Hathaway 1983 chairman’s letter. Initially，Berkshire bought 90% of the business，leaving 10% with the family，and optioning 10% back to certain key young family managers.
45. Contract for sale of Nebraska Furniture Mart，August 30，1983.
46. Robert Dorr，“Furniture Mart Handshake Deal，” Omaha World-Herald ，September 15，1983.
47. Buffett’s sentimental fondness for Mrs. B is notable in light of her similarity to his mother in the sense of her outbursts of abuse toward her family and employees. Only rarely did he take the risk of associating with anyone who could blow up on him.
48. Warren Buffett letter to Rose Blumkin，September 30，1983.
49. From a retired Berkshire employee (not Verne McKenzie，the star of this anecdote).
50. Interview with Verne McKenzie.
51. Several Buffett Group members swear to the exact number.
52. Adam Smith，An Inquiry into the Nature and Causes of the Wealth of Nations ，Book IV，1776.
53. Interview with Stan Lipsey.
54. “A Tribute to Mrs. B，” Omaha World- Herald ，May 20，1984; John Brademas，President，New York University，letter to Rose Blumkin，April 12，1984.
55. Interview with Louis Blumkin.
56. Joyce Wadler，“Blumkin: Sofa，So Good: The First Lady of Furniture，Flourishing at 90.”
57. Interview with Louis Blumkin.
58. Warren Buffett letter to Larry Tisch，May 29，1984.
59. Beth Botts，Elizabeth Edwardsen，Bob Jensen，Stephen Kofe，and Richard T. Stout，“The Corn-Fed Capitalist，” Regardie’s ，February 1986.
60. Robert Dorr，“Son Says No One Wanted Mrs. B to Leave，” Omaha World-Herald ，May 13，1989.
61. Andrew Kilpatrick，Of Permanent Value: The Story of Warren Buffett/More in ’04 (California edition). Alabama: AKPE，2004.
62. Robert Dorr，“Son Says No One Wanted Mrs. B to Leave，”
63. Sonja Schwarer，“From Wheelchair，Mrs. B Plans Leasing Expansion;” Omaha Metro Update ，February 11，1990; James Cox，“Furniture Queen Batfies Grandsons for Throne，” USA Today ，November 27，1989.
64. Robert Dorr，“Garage Sale Is Big Success for Mrs. B，” Omaha World-Herald ，July 17，1989.
65. Andrew Kilpatrick，Of Permanent Value .
66. Bob Brown，Joe Pfifferling，“Mrs. B Rides Again: An ABC 20/20 Television News Story，” 1990.
67. “A Businessman Speaks His Piece on Mrs. Blumkin，” Furniture Today . June 4，1984，Berkshire Hathaway 1984 annual report. Buffett used a line like this with great frequency as a tag to label a person or situation so that other parts of the bathtub could drain.
68. Linda Grant，“The $4-Billion Regular Guy: Junk Bonds，No. Greenmail，Never. Warren Buffett hwests Money the Old-Fashioned Way，” Los Angeles Times ，April 7，1991.
69. Interview with Louis Blumkin.
70. Harold W. Andersen，“Mrs. B Deserves Our Admiration” Omaha World-Herald ，September 20，1987; Robert Dorr，“This Time，Mrs. B Gets Sweet Deal，” Omaha World-Herald ，September 18，1987.
Chapter 45
1. Interview with Peter Buffett.
2. Interview with Doris Buffett.
3. Witnessed by a source close to the family who described it in an interview.
4. AIDS had first been discovered among homosexual men in the summer of 1981，but it was reported as pneumonia and as a rare，fatal form of cancer. President Reagan made his first mention of AIDS in September 1985 after his friend，the actor Rock Hudson，announced that he had been diagnosed with the disease.
5. Interagency Coalition on AIDS and Development. Also see And the Band Played On (New York: St. Martin’s Press，1987) by journalist Randy Shilts，who covered AIDS full-time in the early ’80s for the San Francisco Chronicle .
6. Interview with Marvin Laird and Joel Paley.
7. This story was pieced together from conversations with a number of sources.
8. Alan Levin，“Berkshire Hathaway to Close，” New Bedford Standard-Times ，August 12，1985.
9. A four-year-old loom that had cost $5, 000 went for $26 as scrap. Some of the equipment went to a textile museum.
10. Buffett used the term “disaster” in the 1978 chairman’s letter，discussing NICO workers’ comp businesses’ bad performance，which he laid largely at the door of industry problems.
11. Interviews with Verne McKenzie，Dan Grossman. The man was an agent who allegedly embezzled from Berkshire.
12. Interview with Tom Murphy.
13. Interview with Verne McKenzie.
14. Interview with Dan Grossman.
15. Several reinsurance managers presided during a short-lived interregnum: Brunhilda Hufnagle，Steven Gluckstern，and Michael Palm. For various reasons，none of them stuck.
16. Sir Arthur Conan Doyle，The Memoirs of Sherlock Holmes: The Adventure of Silver Blaze . London: George Newnes，1894. (The story in Mark Haddon’s prize-winning novel The Curious Incident of the Dog in the Night-time [New York: Doubleday，2003] kicks off with a dead poodle speared with a garden fork.)
17. Rob Urban，“Jain，Buffett Pupil，Boosts Berkshire Cash as Succession Looms，” Bloomberg News ，July 11，2006. While the author has been acquainted with Jain for years，he declined repeated requests to be interviewed.
Chapter 46
1. The Dow was sitting at 875 on the first day of 1982. It had hit that level for the first time back in September 1964.
2. Corporate profits reached what would become the second-lowest point in a fifty-five-year period in 1983 (the lowest was 1992)，according to Corporate Reports，Empirical Research Analysis Partners. Data 1952 through 2007.
3. Banks lost their fear of bad credit through the combination of an emerging asset bubble，simple greed，the advent of securitization，and an eagerness to find toehold ways to fund equity transactions，a signal that the wall between commercial and investment banks erected by the Depression-era Glass-Steagall Act was beginning to break down.
4. Eric J. Weiner，What Goes Up: The Uncensored History of Modern Wall Street as Told by the Bankers ，Brokers ，CEOs ，and Scoundrels Who Made It Happen . New York: Little，Brown，2005.
5. They started out as investment-grade bonds，but when their issuers cratered，the bonds became so cheap that they paid a higher rate; e.g.，a bond that yielded 7% would yield 10% if the price of the bond dropped to 70% of par.
6. See Connie Bruck，The Predators’ Ball:The Inside Story of Drexel Burnham and the Rise of the Junk Bond Raiders. New York: The American Lawyer: Simon & Schuster，1988.
7. Typically the deals worked either by giving shareholders who sold a higher price but leaving a much weakened company for those who didn’t，or by offering a premium that was only a fraction of the value the buyer would create through actions the former management should have taken themselves. Or both.
8. Leonard Goldenson with Marvin J. Wolf，Beating the Odds . New York: Charles Scribner’s Sons，1991.
9. Everyone from Saul Steinberg to Larry Tisch had taken a stake in the company. Meanwhile，management’s first-choice buyer was IBM. In the end，Cap Cities proved a strong fit because of the complementary TV license and the minimum divestiture required.
10. Interview with Tom Murphy.
11. Ibid. Details are also recounted in Leonard Goldenson with Marvin J. Wolf，Beating the Odds .
12. Buffett paid sixteen times earnings for Cap Cities，a 60% premium to its recent price，and，on banker Bruce Wasserstein’s insistence，threw in warrants that gave the seller a continuing equity stake in ABC. These terms，arguably，are the most lenient Buffett ever struck and suggest how badly he and Murphy wanted to buy ABC. Charlie Munger wrote to the Buffett Group on January 11，1983，that Tom Murphy at Cap Cities had “compounded the value of his original 1958 investment at 23% per annum for 25 years.” Donaldson，Lufkin & Jenrette report February 26，1980: “Earnings per share growth has compounded at 20% annually over the past decade and this rate has accelerated to 27% over the last five years.”
13. Geraldine Fabrikant，“Not Ready for Prime Time?” New York Times ，April 12，1987.
14. Murphy and his #2，Dan Burke，picked and chose to make divestitures required by the FCC. They kept eight TV，five AM radio，and five FM radio stations. Geraldine Fabrikant，Marc Frons，Mark N. Vamos，Elizabeth Ehrlich，John Wilke，Dave Griffiths，and Christopher S. Eklund，“A Star Is Born——the ABC/Cap Cities Merger Opens the Door to More Media Takeovers，” BusinessWeek ，April 1，1985; Richard Stevenson，“Merger Forcing Station Sales，” New York Times ，April 1，1985.
15. With 1984 sales of $3.7 billion，ABC earned $195 million，whereas Cap Cities，one third its size，earned $135 million on sales of $940 million. The disparity in profitability was mainly due to the different economics of network affiliate stations versus the network itself but also to Murphy and Burke’s management skills.
16. According to “Extortion Charge Thrown Out; Judge Cancels $75,000 Bond，” Omaha World- Herald ，March 19，1987，charges against Robert J. Cohen were dismissed after the case was referred to the Douglas County Board of Mental Health and Cohen was moved to the Douglas County Hospital from the Douglas County Corrections Center. Terry Hyland，in “Bail Set at $25,000 for Man in Omaha Extortion Case，” Omaha World-Herald ，February 5，1987，refers to the kidnapping plan.
17. Interview with Gladys Kaiser.
18. Ibid.
19. Based on examples of actual letters received.
20. Interview with Gladys Kaiser.
21. Interviews with Howie Buffett，Peter Buffett，Susie Buffett Jr.
22. Interview with Susie Buffett Jr.
23. Alan Farnham，“The Children of the Rich and Famous，” Fortune ，September 10，1990.
24. Interview with Howie Buffett.
25. Interview with Peter Buffett.
26. Billy Rogers letter to Warren Buffett，August 17，1986.
27. Warren Buffett letter to Billy Rogers，August 22，1986.
28. Billy Rogers letter to Warren Buffett，undated.
29. Interviews with Tom Newman，Kathleen Cole.
30. Richard I. Kirkland Jr.，“Should You Leave It All to the Children?” Fortune ，September 29，1986.
31. Interview with Kathleen Cole.
32. Interview with Ron Parks.
33. Interview with Peter Buffett. He was so shaken that he dialed “0” instead of “911，” as if taken back to childhood.
34. “Billy Rogers Died of Drug Overdose，” Omaha World-Herald ，April 2，1987; “Cause Is Sought in Death of Jazz Guitarist Rogers，” Omaha World-Herald ，February 21，1987.
35. Interview with Arjay Miller.
36. Interviews with Verne McKenzie，Malcolm “Kim” Chace III，Don Wurster，Dick and Mary Holland.
37. Interview with GeorgeBrumley.
38. Louis Jean-Baptiste Alphonse Bachelier，Theory of Speculation ，1900. Bachelier applied the scientific theory of“Brownian motion” to the market，probably the first of many attempts to bring the rigor and prestige of hard science to the soft science of economics.
39. Charles Ellis，Investment Policy: How to Win the Loser’s Game . Illinois: Dow-Jones-Irwin，1985，which is based on his article “Winning the Loser’s Game” in the July/August 1975 issue of the Financial Analysts Journal .
40. The modern-day equivalents of Tweedy Browne’s Jamaica Water warrants still exist，for example.
41. Burton Malkiel，A Random Walk Down Wall Street . New York: W. W. Norton，1973.
42. Aside from the Superinvestors article，Buffett did not write about EMH directly until the Berkshire 1987 shareholders letter，but he had led up to it with related subjects such as excessive trading turnover since 1979.
43. Transcript of Graham and Dodd 50th Anniversary Seminar. Jensen at the time was professor and director of the Managerial Economics Research Center of the University of Rochester Graduate School of Management. Within a year，he would be at Harvard，where he remains as professor of business administration emeritus.
44. Stanley Perimeter and the Washington Post pension fund. Although，as this book illustrates，Buffett shared ideas with some of these investors in the early days——for example，when he was short on capital——more often the use of similar rules led them to similar veins of ore.
45. One subtle underpinning of EMH was a free-market，quasilibertarian philosophy that aligned with the spirit of deregulation and Reaganomics，under which investors could fend for themselves as free agents in an unfettered self-regulating market. Thus one side effect of EMH was to subtly build support for other types of market deregulation and for government and Federal Reserve actions that arguably contributed to later asset bubbles.
46. Beta can be a godsend in helping manage an unmanageably large portfolio. Criticism of beta could also，therefore，be directed at the investors who put money into unmanageably large funds that are diversified this way，and then expect them to outperform the market every year，if not every quarter.
47. Hedge funds in this form，pioneered by A. W. Jones，preceded popularization of the randomwalk academic theory.
48. In a worst-case scenario，both sides of an arbitrage go the wrong way——the short rises，the long falls. This is the “earthquake risk” of the arbitrageur.
49. Buffett，speaking at the 1994 Berkshire annual shareholder meeting. Munger made the “twaddle and bullshit” comment at the 2001 shareholder meeting.
50. The model with junk bonds was based on average credit history，not the behavior of the stock or bond market. The two models are not only related，but have the same basic flaw，which is that “earthquake events” are never factored in correctly——because if they were，the model would reveal a prohibitively high cost of capital.
51. With the introduction of equity index futures in 1982，Buffett started trading these instruments as a hedge. Nevertheless，he wrote Congressman John Dingell，chairman of the House Energy and Commerce Committee，warning about their risk，and likewise wrote to Don Graham，“So much for the many claims as to hedge and investment type utilization; in actual practice，virtually all contracts involve short-term highly leveraged gambling——with the brokers taking a bite out of every dollar of public participation.” Letter from Warren Buffett to Mr. and Mrs. Don Graham，January 18，1983.
52. Berkshire Hathaway annual letter，1985. The deal was $320 million in cash and the rest in assumed debt and other costs.“Scott Fetzer Holders Clear Sale of Company，” Wall Street Journal ，December 30，1985. In Berkshire’s 2000 annual report，Buffett points out that BRK netted $1.03 billion from its net purchase price of $230 million.
53. Interview with Jamie Dimon.
54. Berkshire had $4.44 billion of assets on its books at the end of 1986，including $1.2 billion of unrealized gains on equities. Liquidating before the reform，Berkshire itself could have avoided paying any taxes，with the shareholders paying their 20% tax on the gain，or $244 million. If BRK liquidated after the Tax Reform Act took effect，Berkshire would be paying $414 million in corporate taxes (more than $185 million of which would have accrued to Buffett)，before handing over the net proceeds to investors to pay a double tax，adding up to a maximum of a 52.5% tax on the $1.2 billion unrealized appreciation，or $640 million. Thus the total effect was $400 million. See also James D. Gwartney and Randall G. Holcombe，“Optimal Capital Gains Tax Policy: Lessons from the 1970s，1980s，and 1990s，”A Joint Economic Committee Study，United States Congress，June 1997.
55. Berkshire Hathaway annual report，1986. Notably，Buffett phrases the statement in terms of the costly consequences if Berkshire liquidated after the act，not the huge benefits that wood have resulted from liquidating before the act went into effect.
56. This measuring stick has pros and cons，which are covered in investing books. Bottom line，it is a reasonable，conservative measure that can be distorted by acquisitions (something Buffett had discussed; see General Re).
57. Interviews with Walter Scott Jr.，Suzanne Scott; also Jonathan R. Laing，“The Other Man From Omaha，” Barron’s ，June 17，1995.
58. Interview with Walter Scott Jr.
59. Interview with Clyde Reighard.
60. Jerry Bower，in National Review ，August 11，2006，wrote that Reagan’s “supply-side policies have helped Warren Buffet [sic] amass the world’s second-largest pile of wealth，which he routinely uses as a stage on which to stand and denounce the very supply-side measures that helped lift him to incredible prosperity.” It is true that like any investor，Buffett has benefited from the supply-side policies that reduce his personal taxes on investment income and capital gains. Notably，much of that benefit is effectively offset by Berkshire Hathaway’s taxes. Since the Reagan years，Citizens for Tax Justice and the Institute on Taxation and Economic Policy have been studying the annual reports of the top 250+ companies in the U.S.，always coming to the conclusion that they are severely underpaying. See Robert S. Mclntyre and T. D. Coo Nguyen，Corporate Taxes & Corporate Freeloaders (August 1985)，Corporate Income Taxes in the 1990s (October 2000)，Corporate Income Taxes in the Bush Years (September 2004). The top 250 companies in the U.S.，while growing profits substantially，have consistently been shown to pay a fraction of the actual corporate tax rate throughout the 1980s，’90s，and today，due to breaks for depreciation，stock options，research，etc. Berkshire，however，has averaged a 30% effective tax rate (net earnings before taxes，divided by the taxes paid currently) since 1986——offsetting Buffett’s personal tax benefits. Regardless，Buffett’s taxes are irrelevant to whether he is entitled to criticize supply-side policies.
61. Robert Sobel，Salomon Brothers 1910~1985 ，Advancing to Leadership ，Salomon Brothers，Inc.，1986.
62. In other words，current partners were paid a premium above their invested capital by Phibro，in which retired partners who had already withdrawn their capital did not share.
63. Anthony Bianco，“The King of Wall Street——How Salomon Brothers Rose to the Top——And How It Wields Its Power，” BusinessWeek ，December 5，1985.
64. In the “Night of the Long Knives，” June 30~July 2，1934，Hitler executed at least eighty-five perceived enemies of his regime and arrested a thousand others.
65. James Sterngold，“Too Far，Too Fast: Salomon Brothers’ John Gutfreund，” New York Times ，January 10，1988.
66. Paul Keers，“The Last Waltz: He had the power，she craved the position. Life was a ball until he had to resign in disgrace and an era ended，” Toronto Star ，September 1，1991.
67. Roger Lowenstein，Buffett: The Making of an American Capitalist . New York: Doubleday，1996，who did not identify the executive giving this description.
68. Paul Keers，“The Last Waltz”; Carol Vogel，“Susan Gutfreund: High Finances，High Living，” New York Times ，January 10，1988; David Michaels，“The Nutcracker Suit，” Manhattan ，Inc .，December 1984; John Taylor，“Hard to Be Rich: The Rise and Wobble of the Gutfreunds，” New York ，January 11，1988.
69. As Mrs. Bavardage.
70. Paul Keers，“The Last Waltz”; Cathy Horyn，“The Rise and Fall of John Gutfreund; For the Salomon Bros. Ex-Head，a High Profile at Work & Play，” Washington Post ，August 19，1991.
71. Robert Sobel，Salomon Brothers 1910-1985 ，Advancing to Leadership.
72. The combative，powerful banker Bruce Wasserstein，a merger specialist，was supposedly going to run the firm. Gutfreund and his key lieutenants knew they would be instantly replaced by Wasserstein. And Perelman as the largest shareholder might scare clients away.
73. Salomon bought the Minorco block itself at $38，a 19% premium to the stock’s $32 market price. It then offered Buffett the stock at the same price. The premium was typical for similar deals at the time (which were also criticized). The stock conveyed 12% voting power in the firm. Perelman offered $42 and said he might raise his stake to 25%.
74. Salomon made a number of missteps. It took on a buyout of TVX Broadcast Group that ultimately failed，muffed a leveraged buyout of Southland Corporation，and wound up holding the bag on a problematic Grand Union buyout. After five unsuccessful years，Salomon exited the merchant-banking business in 1992.
75. Sarah Bartlett，“Salomon’s Risky New Frontier，” New York Times ，March 7，1989.
76. Buffett viewed his investment in Salomon as being like a bond. If he had wonderful stock ideas like GEICO or American Express，he would not be looking at bond equivalents and would not have done this deal.
77. Interview with John Gutfreund.
78. Interviews with John Gutfreund，Donald Feuerstein. Fenerstein’s son went to school with one of Perelman’s children. He knew Perehnan was observant and parlayed for a critical delay past the holiday.
79. According to Graham and Dodd，preferred stocks marry the least attractive features of equity and debt.“As a class，” they wrote，“preferred shares are distinctly more vulnerable to adverse developments than are bonds.” Benjamin Graham and David L. Dodd，Security Analysis ，Principles and Teaching . New York: McGraw-Hill，1934，Chapter 26. Preferreds are often described as “bonds with a kicker，” combining the safety of a bond with the upside of a stock. However，as Graham and Dodd note，this is not really correct. If a company gets in trouble，preferreds lack an enforceable claim to the interest and principal. When things go well，unlike a common stock，the investor has no right to the company’s profits. Speaking at the University of Florida in 1998，Buffett said，“The test of a senior security is whether you are getting an above-average return ，after tax ，and feel certain of getting your principal back. ” Here，the preference to the common was meaningless.
80. Beginning October 31，1995，in five installments over four years，it was mandatory to either convert into Salomon stock or “put” it back to the company for cash. Perelman offered to beat Buffett’s deal——and Gutfreund and several other managers told the board they would quit. He offered a conversion price of $42，much more attractive from Salomon’s point of view. He would have owned only 10.9% of Salomon，compared to Buffett’s 12%.
81. If a potential buyer for his block of convertible preferred appeared，Buffett was obliged to offer Salomon first refusal. Even if it did not buy back the shares，he was prohibited from selling his entire block to any one purchaser. Berkshire also agreed to limit its investment in Salomon to no more than 20% for seven years.
82. Michael Lewis，Liar’s Poker: Rising Through the Wreckage on Wall Street . New York: W. W. Norton，1989.
83. Interview with Paula Orlowski Blair.
Chapter 47
1. Berkshire Hathaway letter to shareholders，1990; Michael Lewis，“The Temptation of St. Warren，” New Republic ，February 17，1992.
2. At the University of Notre Dame，spring 1991. Cited in Linda Grant，“The $4-Billion Regular Guy: Junk Bonds，No. Greenmail，Never. Warren Buffett Invests Money the Old-Fashioned Way，” Los Angeles Times ，April 7，1991.
3. In “How to Tame the Casino Economy，” Washington Post ，December 7，1986. Buffett advocated a 100% confiscatory tax on profits from the sale of stocks or derivative instruments that the holder has owned for less than a year.
4. Linda Grant，“The $4-Billion Regular Guy.” Buffett hosannaed Gutfreund in his shareholder letters as well.
5. The principal conflicts inherent in Salomon’s business were the undisclosed bid-ask spread that Buffett had objected to while working for his father’s firm in Omaha，the conflict between proprietary trades for the firm’s account alongside customer trades，the investment banking business built off equity research stock ratings，and the arbitrage department，which could trade on the firm’s merger deals. As a board member who made Berkshire’s investment decisions，Buffett says he either recused himself from discussions involving deals or did not invest on information he had，yet his board membership did create the appearance of a conflict of interest.
6. The Standard & Poor’s 500 index was used as a proxy for the market.
7. Berrie would never make this bet. Since childhood，Warren had beaten her at every game they ever played; never once had he let her win. She would have known that he would eat a potato chip just so she would have had to pay up.
8. Letter from Warren E. Buffett to the Honorable John Dingell，U.S. House of Representatives，March 5，1982.
9. In the interest of brevity，the history of portfolio insurance has been shortened considerably. The rout began as the Federal Reserve raised the discount rate over Labor Day weekend 1987. Over the next month，the market wavered and showed signs that investors were nervous. On October 6，the Dow broke a one-day record when it fell 91.55 points. Interest rates continued to climb. The Dow dropped another 108 points on Friday，October 16. Professional money managers spent the weekend pondering. On Black Monday，October 19，many stocks failed to open at all in the early hours of trading and the Dow fell a record-breaking 508 points. The exact cause of the crash remains in dispute. Program trading and equity index futures accelerated the decline，but economic factors，military tensions，comments by Federal Reserve Chairman Alan Greenspan about the dollar，a slowing economy，and other factors have been blamed.
10. Interviews with Ed Anderson，Bill and Ruth Scott，Marshall Weinberg，Fred Stanback，Tom Knapp.
11. Interview with Walter Scott Jr.
12. In this case，the way to be hedged would be to short a broad group or index of stocks.
13. This account is based on both Doris’s and Warren’s versions of the story.
14. James Sterngold，“Too Far，Too Fast: Salomon Brothers’ John Gutfreund，” New York Times ，January 10，1988.
15. Salomon supplied its clients’ debt needs along all points of the maturity ladder. For a bond shop to eliminate its commercial paper department was a baffling decision.
16. Four past option grants to Gutfreund were about to expire worthless and a fifth would have yielded only a trivial gain. The revised exercise price reaped Gutfreund an estimated $3 million. The impact of swapping all stock options for new options affected 2.9% of outstanding shares. Salomon’s 1987 proxy did not disclose the repricing and instead contained an additional $4.5 million or 3.4% stock-option grant (Graef Crystal，“The Bad Seed，” Financial World ，October 15，1991).
17. Interview with Bob Zeller.
18. Ibid. Zeller says that Buffett represented the shareholders’ interests on the compensation committee with integrity，while trying to determine which employees genuinely deserved reward.
19. lohn Taylor，“Hard to Be Rich: The Rise and Wobble of the Gutfreunds，” New York ，January l l，1988.
20. Interviews with John Gutfreund，Gedale Horowitz.
21. Interview with Tom Strauss.
22. While technically the terms of the preferred stock didn’t work that way，if Buffett wanted to，he could have found a way to get out.
23. Carol Loomis，“The Inside Story of Warren Buffett，” Fortune ，April 11，1988. Buffett stated these rumors were false in the article.
24. Katharine Graham letter to the members of the Buffett Group，December 14，1987. She added a personal note to Warren’s copy: “Here is what I sent out. Hope it is ok and I don’t get lynched.”
25. Investors use different periods to estimate cash flows——from ten years to forever （“perpetuity”)——as well as different interest rates. Buffett’s margin of safety，however，was big enough to essentially eliminate the differences in methods; his view was that debating such precision mattered less than applying a big haircut. The key assumption is what growth rate the business is assumed to have——and for how long.
26. Robert L. Rose，“We Should All Have an Audience This Receptive Once in Our Lives，” Wall Street Journal ，May 25，1988.
27. Or 14, 172, 500 KO shares costing $593 million at an average price of $41.81 (or $5.23 split adjusted for the three 2-for-1 stock splits that occurred between 1988 and 2007). All shares and prices are adjusted for subsequent stock splits.
28. Interview with Walter Schloss.
29. At that point，KO’s market value represented 21% of the total market capitalization of Berkshire Hathaway——by far the biggest bet，in dollar terms，that Buffett had ever made on a single stock. Yet in percentage terms，this fit his past pattern.
30. Interview with Howie Buffett.
31. Michael Lewis，Liar’s Poker: Rising Through the Wreckage on Wall Street . New York: W. W. Norton，1989.
32. BRK received a 9.25% coupon from the Champion preferred，above the going rate of 7%，and raised debt at 5.5% to fund this $300 million purchase. Champion called the preferred early，but Berkshire was able to convert its shares prior to the call and sell them back to the company at a small discount. Berkshire booked a 19% after-tax capital gain over the six years it held Champion.
33. Linda Sandier，“Heard on the Street: Buffett’s Special Role Lands Him Deals Other Holders Can’t Get，” Wall Street Journal ，August 14，1989.
34. From an interview with a friend who said this to Munger.
35. Speech at Terry College of Business，the University of Georgia，July 2001.
36. Interview with John Macfarlane.
37. Interview with Paula Orlowski Blair; Michael Lewis，Liar’s Poker .
38. Many contracts required posting of collateral or margin，but this did not compensate for the risk of mismarking in the model.
39. Buffett and Munger，1999 Berkshire Hathaway annual shareholder meeting.
40. Salomon held on for eight years. Phibro sold its share in the JV in 1998. Alan A. Block，“Reflections on resource expropriation and capital flight in the Confederation，” Crime ，Law and Social Change ，October 2003.
41. Roger Lowenstein，When Genius Failed: The Rise and Fall of Long-Term Capital Management . New York: Random House，2000.
42. Interview with Eric Rosenfeld.
43. Meriwether characteristically exempted himself from this lucrative deal.
44. Report to the Salomon Inc. Compensation & Employee Benefits Committee，“Securities Segment Proposed 1990，Compensation for Current Managing Directors.”
45. This pay deal was still one-sided; the arbs could only break even or win. Buffett’s partnership had exposed him to unlimited liability to share in losses if he performed poorly——i.e.，his incentives were truly aligned with his partners.
46. Michael Siconolfi，“These Days，Biggest Paychecks on Wall Street Don’t Go to Chiefs，” Wall Street Journal ，March 26，1991.
47. Interview with Deryck Maughan.
48. Using different terms. The casino/restaurant analogy was Buffett’s. Even if the customer businesses had become profitable，they would have demanded even larger amounts of capital in later years，despite bigger scale and market share，and it is questionable whether their returns would ever have satisfied Buffett.
49. Interview with Eric Rosenfeld.
Chapter 48
1. Michael Lewis，Liar’s Poker: Rising Through the Wreckage on Wall Street . New York: W. W. Norton，1989.
2. Feuerstein had worked in several senior roles at the SEC，including acting as counsel on Texas Gulf Sulfur，a landmark insider-trading case.
3. Interview with Donald Feuerstein and many others，who confirmed his role and the POD nickname.
4. Interviews with Donald Feuerstein，Tom Strauss，Deryck Maughan，Bill McIntosh，John Macfarlane，Zach Snow，Eric Rosenfeld.
5. Interview with Bill McIntosh.
6. Interview with John Macfarlane.
7. Roger Lowenstein，Buffett: The Making of an American Capitalist . New York: Doubleday，1996，quoting Eric Rosenfeld.
8. Lowenstein，Buffett ，quoting John McDonough.
9. Interview with Eric Rosenfeld.
10. Interview with Donald Feuerstein.
11. Feuerstein went back into the conference room after talking to Munger and repeated the “thumb-sucking” comment to another lawyer，Zach Snow，without further context. He did not seem to have grasped its significance，according to Snow in an interview. Feuerstein says Munger said，“Warren and I do that all the time.” Whatever the wording，neither Feuerstein nor Buffett took alarm at Munger’s remark.
12. Interview with Gerald Corrigan.
13. Feuerstein had had breakfast with one director，Gedale Horowitz，and told him much the same story，slightly more informatively，on the morning of August 8. But Horowitz says he also felt misled.
14. Carol Loomis，“Warren Buffett’s Wild Ride at Salomon，” Fortune ，October 27，1997.
15. Munger’s later statement that he dragged this out of Feuerstein differs from Feuerstein’s recollection. Both agree that Munger was given a clear description. There is no question that Buffett and Munger’s overall interpretation of the actions of both Feuerstein and Gutfreund grew harsher as more information came to light.
16. Statement of Salomon Inc.，submitted in conjunction with the Testimony of Warren E. Buffett，Chairman and CEO of Salomon，before the Securities Subcommittee，Committee of Banking，Housing and Urban Affairs，U.S. Senate，September 10，1991.
17. Mercury Asset Management (an affiliate of S.G. Warburg) and the Quantum Fund. When the Federal Reserve contacted Salomon，it was initially because S.G. Warburg had bid in its own name as a primary dealer (Statement of Salomon Inc.，September 10，1991).
18. Charles T. Munger testimony before U.S. Securities & Exchange Commission，“In the Matter of Certain Treasury Notes and Other Government Securities，” File No. HO-2513，February 6，1992.
19. Ibid.
20. Michael Siconoffi，Constance Mitchell，Tom Herman，Michael R. Sesit，David Wessel，“The Big Squeeze: Salomon’s Admission of T-Note Infractions Gives Market a Jolt——Firm’s Share of One Auction May Have Reached 85%; Investigations Under Way——How Much Did Bosses Know?” Wall Street Journal ，August 12，1991.
21. Buffett later said Wachtell，Lipton shared some blame，noting that Wachtell declared effective on August 8 a shelf registration for $5 billion of medium-term notes using a prospectus that was “purporting to state all material facts about Salomon” as of that date but contained no reference to Mozer’s activities or management’s inaction.“If this relaxed position was one that Wachtelt ，Lipton was conveying to the government and the public through official filings ，it is not unlikely that they were conveying something similar to John ，although I don’t know what ，” Buffer said.
22. Interview with John Macfarlane.
23. Interview with Bob Denham，who discovered this when he moved into Feuerstein’s old office.
24. Charles T. Munger testimony before U.S. Securities & Exchange Commission，“In the Matter of Certain Treasury Notes and Other Government Securities，” File No. HO-2513，February 6，1992.
25. If its lenders failed to renew the firm’s loans，Salomon would be forced to liquidate its assets almost overnight. In such a fire sale，assets would sell for a fraction of their carrying value. The apparently invincible balance sheet of Salomon would melt into bankruptcy’s black hole immediately.
26. Interview with Bill McIntosh.
27. Interviews with Donald Feuerstein，John Macfarlane.
28. Mozer didn’t report an existing net“long，”“when-issued” position in Treasury bonds that put it over the limit，and he also submitted another false bid in the name of Tiger Management Company.
29. Mozer denied intentionally manipulating the market. He was suspected of“repo-ing out” the bonds by borrowing cash from customers with the bonds as collateral and making verbal side agreements with these customers that they would not relend the bonds to anyone. That froze the supply of bonds，squeezing the short-sellers. Suspicions of price-fixing dogged Salomon long afterward. There was little doubt that Mozer and his customers had cornered the bonds and created a squeeze. According to Eric Rosenfeld，Salomon’s own arb desk was short Treasuries and got burned.
30. Constance Mitchell，“Market Mayhem: Salomon’s ‘Squeeze’ in May Auction Left Many Players Reeling——In St. Louis，One Bond Arb Saw $400, 000 Vanish and His Job Go with It——From Confidence to Panic，” Wall Street Journal ，October 31，1991.
31. Feuerstein didn’t find this out right away，even though it was known internally. He blames this omission for his failure to press for a more thorough investigation of the squeeze. Several people，including Meriwether，apparently knew about the “Tiger dinner” (named after one of the hedge-fund customers). However，the “Tiger dinner” did not prove collusion.
32. Interview with John Guffreund.
33. Or whatever the price was; this is Buffett’s general recollection.
34. While this was taking place，Salomon filed a shelf registration statement in connection with a $5 billion senior debt offering，which the directors signed. The filing of a registration statement under these circumstances potentially put the firm in violation of securities laws.
35. Some thought the squeeze may have been simply a matter of timing to make a bet that the Fed was about to ease interest rates，according to Eric Rosenfeld，rather than defiance of the Treasury.
36. Various viewpoints within the firm are drawn from interviews with a number of the principals.
37. Interviews with Donald Feuerstein，Zachary Snow. Feuerstein says he happened to be taking his son on a college visit at Cornell University that day and was “furious” when he found out later what happened.
38. Interview with Donald Feuerstein. Feuerstein referred to his failure to influence Gutfreund as the result of Gutfreund’s yessing him to death，saying，“It is difficult to have an argument with someone who purports to agree with you” (Donald M. Feuerstein letter to William F. May，Charles T. Munger，Robert G. Zeller，and Simon M. Lorne，Munger，Toiles & Olson，January 31，1993).
39. Interview with Zach Snow. Snow says that the dream haunted him long afterward. Feuerstein does not recall this incident but says that if something like this happened it did not come across this way to him.
40. Philip Howard，Gutfreund’s lawyer，speaking to Ron Insana on CNBC Inside Opinion ，April 20，1995.
41. John Gutfrennd speaking to Ron Insana，CNBC Inside Opinion ，April 20，1995.
42. The auctions of December 27，1990 (4-year notes)，February 7，1991 (the so-called “billiondollar practical joke”)，and February 21，1991 (5-year notes) contained false bids. The April 25，1991，auction included a bid in excess of the amount authorized by a customer. In the May 22，1991 (2-year-notes) auction，Salomon (Mozer) failed to report a net“long” position to the government，as required，which fueled suspicions of a cover-up of market manipulation，but proof of market manipulation was never found.
43. Interview with Zach Snow，who also testified to this under oath in 1994.
44. Interview with Deryck Maughan.
45. Interview with Jerry Corrigan.
46. Even though he was Mozer’s boss，Meriwether did not have the authority to fire him; one managing director could not fire another. Only Gutfreund could do that.
47. Interview with Bill McIntosh.
48. Interviews with John Macfarlane，Deryck Maughan.
49. McIntosh，by his own admission，had been no fan of Gutfreund’s prior to this event.
50. Interview with Bill McIntosh.
51. Spread-widening of ten to twenty basis points only attracted more sellers. As the afternoon wore on，the traders widened the spread until finally they were offering only ninety cents on the dollar for the notes. The price implied a reasonably high probability of default.
52. The firm would still do business as an “agent，” which meant it would buy only if it had another buyer in hand to which it could resell the notes.
53. Kurt Eichenwald，“Wall Street Sees a Serious Threat to Salomon Bros.——ILLEGAL BIDDING FALLOUT——High-Level Resignations and Client Defections Feared——Firm’s Stock Drops，” New York Times ，August 16，1991.
54. Interview with Jerry Corrigan.
55. Strauss later related this to Buffett.
56. Interview with Jerry Corrigan.
57. Interview with Jerry Corrigan.
58. Interview with Jerry Corrigan. He says that Strauss and Guffreund had had more than one routine conversation with him between April and June without mentioning anything，and he no longer trusted them.
59. Buffett arrived in New York between 2∶30 and 3∶00 p.m.，during which time the press release would have been drafted and ready to go.
60. From Salomon press release dated August 16，1991: “In order to give the Salomon Inc.，board of directors maximum flexibility，they are prepared to submit their resignations at a special meeting of the board.”
61. Interview with Eric Rosenfeld.
62. Interview with Bill McIntosh，Tom Strauss，Deryck Maughan.
63. Interview with Tom Strauss.
64. Interview with Jerry Corrigan.
65. Interview with Ron Olson.
66. Warren Buffett testimony，“In the Matter of Arbitration Between John H. Guffreund against Salomon Inc.，and Salomon Brothers Inc.，” Sessions 13 & 14，November 29，1993.
67. This is Buffett’s recollection of Gutfreund’s remarks. (From Warren Buffett testimony，“In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc.，and Salomon Brothers Inc.” Sessions 13 & 14，November 29，1993.
68. Interview with Tom Strauss.
69. On October 8，1991，he was displaced when the Walton family，owners of Wal-Mart stock，took over spots 3–7; Buffett became number 8. Entertainment mogul John Kluge and Bill Gates occupied the top two spots.
70. Through a routine letter to Mercury Asset Management when the Treasury Department discovered that Mercury，together with its affiliate S. G. Warburg & Co.，had submitted bids for greater than the 35% limit rule for the auction. Mozer had submitted one of these bids without Mercury’s authority. Mozer was copied on this letter and covered it up by telling Mercury that Salomon had mistakenly submitted this bid in its name——and was going to correct it，so no need to bother responding to the Treasury. (Statement of Salomon Inc.，submitted in conjunction with the Testimony of Warren E. Buffett，Chairman and CEO of Salomon. Before the Securities Subcommittee，Committee of Banking，Housing and Urban Affairs，U.S. Senate，September 10，1991.)
71. Interview with Deryck Maughan.
72. Speech to students in 1994 at University of North Carolina Kenan-Flagler Business School.
73. The one exception was Stanley Shopkorn，who ran the equities division and，by others’ recollections，thought he should get the job.
74. Michael Lewis，Liar’s Poker .
75. Ibid.
76. Swope fired them all and turned the firm into a radical Black Power，“Truth & Soul” agency.
77. Interview with Deryck Maughan.
78. Interview with Eric Rosenfeld，who says no threats were made. But because Meriwether was not bound by a noncompete，it was obvious that the whole arb team would leave sooner or later.
79. Gutfreund told Buffett that Susan was telling him he was unemployable.
80. Interview with Philip Howard. Warren Buffett testimony，“In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc.，and Salomon Brothers Inc.，” Sessions 13 & 14，November 29，1993.
81. Interview with Warren Buffett; Warren Buffett testimony，“In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc.，and Salomon Brothers Inc.，” Sessions 13 & 14，November 29，1993，cited this remark as evidence that Gutfreund knew he did not have a deal. (Munger’s version of the quote was “I won’t let you guys screw me.”)
82. Interview with Philip Howard.
83. Warren Buffett testimony，“In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc.，and Salomon Brothers Inc.，” Sessions 13 & 14.
84. Warren Buffett，Charles T. Munger，testimonies，“In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc.，and Salomon Brothers Inc.” Sessions 13 & 14，33 & 34.
85. Charles T. Munger testimony，“In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc.，and Salomon Brothers Inc.，” Sessions 33 & 34，December 22，1993.
86. Interview with Gedale Horowitz.
87. The Japanese bond market would not open until 7:30 P.M. EST，but Japanese over-the-counter trading would begin as early as 5 P.M.，at which point lenders would start selling Salomon’s paper，effectively calling its loans.
88. Interview with John Macfarlane.
89. Warren Buffett testimony，“In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc.，and Salomon Brothers Inc.，” Sessions 13 & 14，November 29，1993.
90. Interview with Jerry Corrigan.
91. Jerry Corrigan and Paul Volcker contributed insight to this topic.
92. At the time，it was well understood that Buffett had “parlayed his considerable reputation into a partial rescission of the order，” although what that meant to him was not obvious. (Saul Hansell，Beth Selby，Henny Sender，“Who Should Run Salomon Brothers?” Institutional Investor ，Vol. 25，No. 10，September 1，1991.)
93. Interview with Deryck Maughan.
94. Interview with Charlie Munger.
95. Interview with Deryck Maughan.
96. Hansell，Selby，and Sender，“Who Should Run Salomon?”
97. Ibid.
Chapter 49
1. Interview with Paula Orlowski Blair.
2. Interview with Bill McLucas.
3. This is Buffett’s recollection of the quote，but Brady’s view that Buffett would not leave was corroborated by other regulators.
4. Interview with Paula Orliowski Blair. She thought it funny that her new boss wanted to turn her into a private eye.
5. Interviews with Donald Feuerstein，Bob Denham. Denham says only that they agreed a change was needed.
6. Warren Buffett testified to this in “In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc.，and Salomon Brothers Inc.，” Sessions 13 & 14，November 29，1993.
7. During John Gutfreund’s arbitration hearing.
8. A number of sources said this to the author but were afraid to be quoted.
9. The firm became Munger，Tolles & Olson in 1986.
10. Law-firm sources and former employees give Buffett all of the credit for this idea，despite the law firm’s putative role.
11. Drexel Burnham Lambert had failed after its indictment. Kidder，Peabody was sold to PaineWebber. Salomon’s highly leveraged balance sheet put the firm in even greater jeopardy.
12. Interview with Ron Olson.
13. Ibid.
14. Ibid.
15. interview with Frank Barron. Rudolph Giuliani，U.S. Attorney for the Southern District of New York，had pressed for Drexel Burnham Lambert to waive the privilege，but the firm did not.
16. Charlie Munger later acknowledged the morally fraught——at best，ambiguous——situation，saying he and Buffett had no choice but to assist in criminal investigation and prosecution of potentially innocent employees.“When the final Chapter is written，the behavior evinced by Salomon will be followed in other，similar cases，” be said.“People will be smart enough to realize this is the response we want——super-prompt——even if it means cashiering some people who may not deserve it.” Lawrie P. Cohen，“Buffett Shows Tough Side to Salomon and Gutfreund，” Wall Street Journal ，November 8，1991.
17. Warren Buffett letter to Norman Pearlstine，November 18，1991.
18. Buffett testified to this in “In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc.，and Salomon Brothers Inc.，” Sessions 13 and 14，November 29，1993.
19. “I didn’t fire them on the spot，” said Olson in an interview.“I was a little more subtle than that.”
20. Interviews with Carolyn Smith，Warren Buffett. He added Smith to his collection of people，writing to the head of the hotel about her，corresponding with her，and putting her on his Christmas list.
21. Interviews with Gladys Kaiser and Bob Denham.
22. House Committee on Energy and Commerce——Telecommunications & Finance Subcommittee，September 4，1991，regarding securities trading violations by Salomon Brothers and implications for government securities market reform legislation.
23. Maughan had to go back to Washington a few weeks later to testify by himself.“The sea did not part，” he says，“and I got thoroughly wet.”
24. “Our goal is going to be that stated many decades ago by J. P. Morgan，who wished to see his bank transact ‘first-class business in a first-class way.’” Warren Buffett，“SALOMON INC——A report by the Chairman on the Company’s Position and Outlook.” (This wording was also used in a letter to Salomon Inc.，shareholders as reprinted in the Wall Street Journal ，November 1，1991.)
25. Senate Subcommittee on Securities Committee on Banking，Housing，and Urban Affairs—— Hearing on the Activities of Salomon Brothers Inc.，in Treasury Bond Activities，Wednesday，September 11，1991.
26. At the time，sixty-five lenders had stopped entering into repurchase agreements with Salomon，and the firm’s commercial-paper balance was falling toward zero. One major counterparty，Security Pacific，was refusing to do daylight foreign-exchange trades without posting of collateral. Buffett says this was his absolute low point. The news media never picked up this story，which，if reported，could have kicked off a panic.
27. Interview with John Macfarlane. The cost of funds motivated traders to run off uneconomic trades. Ultimately the rate went to 400 basis points over Fed Funds rate. The short-term capital-intensive trades like the “carry-trade” (interest arbitrage) ran off.
28. Interview with John Macfarlane.
29. Senate Subcommittee on Securities Committee on Banking，Housing，and Urban Affairs—— Hearing on the Activities of Salomon Brothers，Inc.，in Treasury Bond Activities，Wednesday，September 11，1991.
30. By then，many other people，including Denham and Munger，had found out about the Sternlight letter，but they say everybody thought somebody else bad told Buffett or that he somehow knew. Buffett and Munger were also incensed to learn that at the June audit committee meeting，with Feuerstein present，Arthur Andersen represented that no events had taken place that were required to be reported to the SEC or the New York Stock Exchange. While Wachtell，Lipton had indeed taken that position，this statement，with hindsight，was manifestly untrue.
31. Employees asked how much Buffett and Munger understood about the workings of Salomon before August 1991，while serving on the board，uniformly said “not much，” or words to that effect，and that information was skillfully meted out to the board so that much of the firm’s messiness never surfaced.
32. Lawrie P. Cohen，“Buffett Shows Tough Side to Salomon.”
33. Interview with Gladys Kaiser.
34. Buffett cannot remember who did this——although it was neither Astrid，who retires early，nor someone from the office. He thinks it must have been some other local friend or neighbor.
35. Although securities underwriters sell service，price，and expertise，ultimately they are financial guarantors. Salomon’s financial-strength ratings had been downgraded. With a criminal indictment and its primary dealership threatened，that the firm managed to retain any banking clients remains one of Wall Street’s great survival stories. It did so by giving up lead positions and switching to co-lead，in effect taking on a supporting-cast-member role. Nevertheless，its market share fell from 8% to 2%.
36. Interview with Eric Rosenfeld.
37. Interview with Paula Orlowski Blair. Morse Shoe filed for bankruptcy in July 1991 just weeks after Berkshire agreed to buy H. H. Brown Shoes. Berkshire acquired Lowell Shoe，a subsidiary of Morse Shoe，at the end of 1992，and also bought Dexter Shoe in 1993.
38. Smith Barney，Shearson Lehman，and UBS Securities. The ensuing witch-hunt atmosphere also caused Morgan Stanley to put out a statement denying it was the subject of a government investigation.
39. The Treasury Department/Fed study also revealed that，over a period beginning in early 1986，Salomon had bought more than half the bonds issued in 30 out of 230 auctions (Louis Uchitelle，Stephen Labaton，“When the Regulators Stood Still，” New York Times ，September 22，1991).
40. Warren Buffett testimony，“In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc.，and Salomon Brothers Inc.” Session 13 & 14，November 29，1993.
41. Contracts differ by employee，by company，and by state，and the indemnification provisions use broad wording that is subject to interpretation，but in general，corporate officers accept the legal risk that goes with their position on the condition that their employers pay legal fees unless they are convicted of fraud or other criminal wrongdoing or have engaged in willful misconduct. Salomon’s action was highly unusual at the time and remains unusual. In 2005，KPMG’s refusal to pay its partners’ legal fees became the subject of lawsuits. In July 2007，a U.S. federal judge dismissed a case against thirteen KPMG employees for promoting aggressive tax shelters，because he determined that the government had strong-armed KPMG into denying them legal payments.
42. Transcript of Federal Open Market Committee meeting，October 1，1991.
43. Interview with Gary Naftalis.
44. Interview with Otto Obermaier.
45. Ibid.
46. Interview with Gary Naftalis.
47. Interview with Otto Obermaier.
48. Letter to Salomon Inc.，shareholders as reprinted in the Wall Street Journal ，November 1，1991.
49. Interview with Paula Orlowski Blair.
50. Ibid.
51. Salomon advertisement in the Wall Street Journal ，November 1，1991. All of Salomon’s growth in earnings for several years had been given back to employees. Salomon performed in the bottom third of stocks in its market-cap class. The third-quarter-income statement would have been drenched with red ink had not the lower bonus pool reversed it. The previous “share the wealth” approach subsidized money-losers so that everyone was richly paid. Buffett’s biggest change was to link bonuses to individual and division performance. For the five years ending December 31，1991，Salomon Inc.’s stock ranked 437th in performance among S&P’s top 500 stocks. (1991 Salomon Inc.，10K)
52. Interview with Deryck Maughan.
53. Interview with Jim Robinson.
54. For decades，as a partnership，it had——literally——been run for the employees. It was the inherent separation of capital and labor at a publicly owned investment bank that was the problem.
55. Otto Obermaier. He later wrote “Do the Right Thing: But if a Company Doesn’t It Can Limit the Damage，” Barron’s ，December 14，1992.
56. The same was not true of the May two-year note squeeze，in which several small firms were bankrupted. Had it ever been proven that Mozer colluded with the hedge funds to corner the market or submitted false bids in that auction，Salomon’s and the individuals’ penalties doubtless would have been more severe; the whole story might have ended differently.
57. Interviews with Frank Barron and Bill McLucas. McLucas confirms the gist but can’t recall the exact words.
58. Interview with Otto Obermaier.
59. Mozer served his four months after pleading guilty to lying to the Federal Reserve Bank of New York. The SEC and prosecutors took no action against Feuerstein.
60. Gutfreund was also barred from heading a firm without SEC approval.
61. Interview with Paula Orlowski Blair.
62. In fact，Jerry Corrigan did not lift the full ban on Salomon until August 1992.
63. CNBC Inside Opinion ，Ron Insana interview with Gutfreund，April 20，1995.
64. Interview with John Gutfreund.
65. Interview with Charlie Munger.
66. The arbitrators were John J. Curran，Harry Aronsohn，and Matthew J. Tolan.
67. Interview with Frank Barton.
68. Those who have spent any significant amount of time with Munger will instantly recognize the sensation of talking to him when his head is turned off，while something occasionally pierces his band of indifference.“It’s hard to pierce Charlie’s band of indifference ，” says Buffett.“I can tell you that.”
69. Charles T. Munger testimony，“In the Matter of Arbitration Between John H. Gutfreund against Salomon，Inc.，and Salomon Brothers，Inc.，” Sessions 33 & 34，December 22，1993.
70. Interview with Sam Butler，Frank Baron.
71. Interview with Frank Barron.
Chapter 50
1. Michael Lewis，“The Temptation of St. Warren，” New Republic ，February 17，1992.
2. Ron Suskind，“Legend Revisited: Warren Buffett’s Aura as Folksy Sage Masks Tough，Polished Man，” Wall Street Journal ，November 8，1991.
3. Patricia Matson letter to Peter Kann，Norman Pearlstine，Paul Steiger，James Stewart，and Lawrence Ingrassia of the Journal ，November 18，1991，and attached chronology of events，in which Tom Murphy recalls explaining to Suskind before publication that he was misquoting and misportraying the conversation; Bill Gates letter to Warren Buffett，November 13，1991，which says，“The quote is wrong. I never suggested anything of the kind to the reporter.” Gates said he called the Journal before publication to ensure the incorrect quote would not be published and was “shocked” to see the quote in the article. Memo from Patty Matson，official spokesperson of CapCities/ABC，to “Those possibly interested，” November 19，1991，cc: Buffett，Murphy，Gates，Tisch，which says Steiger of the Journal called and acknowledged a “puzzlement” in which someone might have been “gilding the lily.”
4. Bill Gates letter to Warren Buffett，November 13，1991.
5. Interviews with Warren Buffett，Bill Gates. The latter may have heard a version from someone else，which got exaggerated in the retelling. On the other hand，Buffett had to use the facilities somehow.
6. Interview with Bill Gates.
7. For four generations the Gateses named their sons William Henry Gates. Bill Jr.’s father，William Henry III，changed his name to Bill Jr. and his son，the new Bill III——who was actually Bill IV—— became known as Trey. Bill Jr. then stepped up to become Bill Sr. as the oldest living William Henry Gates，and his son is now known variously as Trey，Bill III，Bill，and The Bill Gates.
8. Interview with Arthur K. Langlie.
9. Interview with Bill Gates.
10. Noyce died June 3，1990.
11. Interview with Roxanne Brandt.
12. Interview with Bill Gates.
13. Interview with Bill Ruane.
14. Interview with Don Graham.
15. Gates was right; Kodak was toast. From January 1990 to December 2007，Kodak stock rose a measly 20%，barely more than 1% a year. The S&P over the same period rose 315%. Berkshire Hathaway rose 1, 627%. Microsoft rose 6, 853%.
16. Interview with Bill Gates.
17. Ibid.
18. Statistics courtesy of Berkshire Hathaway.
19. Interview with Louis Blumkin.
20. A Scott Fetzer product.
21. Based on various comments from Kelly Broz，Roberta Buffett Bialek，Peter Buffett，Doris Buffett，Susan Clampitt，Jeannie Lipsey，Stan Lipsey，Ron Parks，Marilyn Weisberg，and Racquel Newman.
22. Interviews with Kathleen Cole，Susie Buffett Jr.
23. Interview with Kathleen Cole.
24. Interviews with Susie Buffett Jr.，Howie Buffett. This took place at McMillan Junior High.
25. Which works out to $21, 000 per year.
26. Interview with Howie Buffett.
27. Interview with Susie Buffett Jr.
28. Kurt Eichenwald，The Informant . New York: Broadway Books，2000.
29. Interview with Susie Buffett Jr.
30. Interview with Bill Gates.
31. Interview with Sharon Osberg.
32. Each die bas an advantage over one other and a disadvantage to the third.
33. When Buffett pulled out the dice with the author，he kept insisting that she had to go first. She had no idea what the numbers meant. She figured that if Buffett wanted her to go first，there must be some disadvantage to going first. (Experience as an insurance analyst was helpful here.) She said that the dice must somehow work like rock，paper，scissors，and refused to play. Buffett counted this as “figuring out” the dice，but it wasn’t really.
34. The first week the author started working on this book，she came downstairs to the hotel lobby to find the same package.
35. Interviews with Sharon Osberg and Astrid Buffett，who recalls “Sharon was just beside herself.”
36. Interview with Sharon Osberg.
37. Interviews with Astrid Buffett，Dick and Mary Holland.
38. Interview with DodyWaugh-Booth.
39. Carol J. Loomis，“My 51 Years (and Counting) at Fortune ” Fortune ，September 19，2005.
40. Depending on how rich they had gotten and how long ago they had been sunburned. Bill Scott，whom Buffett had made breathtakingly rich，had acquired a deep tan and had begun to resemble Buffett himself.
41. Carnegie built 2, 509 libraries (costing $56 million) and established other public works using over 90% of his $480 million steel-made wealth.
42. Ruane’s first wife，Elizabeth，suffered from a mood disorder and committed suicide in 1988.
43. Bill Ruane and others recalled this speech.
44. Paul Ehrlich，The Population Bomb . NewYork: Ballantine Books，1968; Thomas Malthus，An Essay on the Principles of Population. The Population Bomb was based on the work of the nineteenthcentury demographer and statistician Thomas Malthus，who said that humans procreate in a geometric rather than arithmetic progression; thus the earth’s population would inevitably expand beyond the point at which its resources could support it. At some point，Malthus postulated，misery and vice (e.g.，war，pandemic，famine，infant mortality，political unrest) would reduce the population to a sustainable level. Malthus’s theory had enormous influence on many scientists，induding Charles Darwin. Because Malthus failed to take into account a number of factors for example，simplistically assuming that economic development stimulated population growth——his ideas were and continued to be ridiculed as predicted catastrophes failed to materialize within a decade or two after 1970. The basic concepts of Malthus and the idea of the Malthusian catastrophe are being taken more seriously in some quarters today，however.
45. Buffett，characteristically，uses both low and high numbers higher than the current population number (a margin of safety against looking like are alarmist) even though some experts argue that the “carrying capacity” has already been exceeded.
46. Organizations such as the International Humanist and Ethical Union and Planned Parenthood routinely took this position before 1974. See Paige Whaley Eager，Global Population Policy: From Population Control to Reproductive Rights . Burlington，Vt.: Ashgate Publishing Ltd.，2004.
47. This was the Belous case (People v. Belous ，71 Cal.2d 954，458 P.2d 194，80 Cal. Rptr. 354 [1969] )，which declared laws against abortion unconstitutional in California. Munger helped write the opinion. Buffer says he has never seen Munger “so fired up，” the most unconventional thing he has ever seen Munger do.
48. Buffett said Munger tempted him into running a church by offering him the job of sexton，until he found out the job description was not what he thought.“We held mock debates over who got to be the preacher.”
49. Garrett Hardin，“The Tragedy of the Commons，” Science ，Vol. 162，No. 3859，December 13，1968. Hardin’s theory was essentially a restatement of the “prisoner’s dilemma，” which also addresses cooperation and “cheating” as covered in references on that subject. In the 1970s it was assumed that economic progress would accelerate population growth，that population growth would prevent economic growth. The earth’s “carrying capacity” was assumed to be essentially fixed，rather than at least somewhat flexible through the use of technology and market forces，incorrect assumptions that caused such forecasts to peg the dates of critical population levels too early.
50. Garrett Hardin，“A Second Sermon on the Mount，” from Perspectives in Biology and Medicine ，1963.
51. Nevertheless，some remnants of the eugenics movement remained alive，and by the millennial era，developments in genetic，genomic，and reproductive science had raised complicated questions about the idea.
52. The historic linkage between “population control，” the eugenics movement，and racism is detailed by Allan Chase in The Legacy of Malthus: The Social Costs of the New Scientific Racism (New York: Alfred A. Knopf，1977). While a full treatment of these issues is beyond the scope of this book，what seems clear，from his change in terminology，steering of the Buffett Foundation，and gradual distancing from the Hardin camp，was Buffett’s disenchantment with the Malthusian views of Hardin because of their eugenics implications. (Hardin’s personal stationery featured a small U.S. map around the words“Quality of the Population.”)
53. In a highly controversial move，the Buffett Foundation had paid half the first-year costs to bring the RU-486 abortion pill to the United States.
54. From Eager’s Global Population Policy: From Population Control to Reproductive Rights ，which chronides the gradual rejection of neo-Malthusianism and coercive population control methods in favor of voluntary，evolutionary changes in birth rates through economic development，reproductive rights，and an emphasis on women’s health.
55. In “Foundation Grows: Buffetts Fund Efforts for Population Control” (Omaha World-Herald ，January 10，1988)，Bob Dorr quotes Susie as saying，“Warren likes numbers...he likes to see concrete results，and you can see them [numbers] change” to explain her husband’s interest in groups such as Planned Parenthood and the Population Institute.
56. A similar term，“Ovarian Roulette，” was apparently first used by Dr. Reginald Lourie of Children’s Hospital，Washington，D.C.，at a hearing of the Committee on Government Operations，United States，“Effect of Population Growth on Natural Resources and the Environment，” September 15-16，1969，in a discussion with Garrett Hardin，to describe a mother who takes the risk of an unwanted pregnancy by not using birth control (and the term has since been used by Responsible Wealth). However，it is the second word——“lottery” versus “roulette”——that changes a bad choice to bad luck: from a child who is born unwanted to a woman who trusts to random chance，to a child who is born in cruel circumstances because of random chance.
57. “I Didn’t Do It Alone，” a report by Chuck Collins’s organization，Responsible Wealth.
58. See John Rawls，A Theory of Justice ，Cambridge: The Belknap Press of Harvard University Press，1971. The Ovarian Lottery resembles Rawls’s view，which is a form of determinism——and assumes that much，though not necessarily all，of what happens to people is determined by the present and past，for example，through their genes，or the luck of where they are born and when. The opposite of determinism is free will. From the days of the earliest philosophers，mankind has been debating whether free will exists. Philosophers also debate whether it exists on a scale or is irreconcilable with determinism. Critic Robert Nozick，in Anarchy ，State ，and Utopia ，gives the case for irreconcilability in a critique of Rawls that more or less says that economist Adam Smith’s invisible hand gives people what they have earned and deserved (Anarchy ，State and Utopia . New York: Basic Books，1974). All true libertarians believe in free will and deny absolutely that determinism exists. Since economic policy is so influenced by these ideas，the topic is worth understanding; for example，it sheds light on the debate over how Alan Greenspan’s libertarian leanings influenced Federal Reserve policy that led to recent debt-fueled asset bubbles. Likewise，the debate over eugenics in genomism and reprogenetics resounds with issues of determinism and free will.
59. Interview with Bill Gates.
60. In 2005 Oxnam published A Fractured Mind ，his memoir of living with multiple personality disorder (New York: Hyperion).
61. Interview with Bill Gates.
Chapter 51
1. Anthony Bianco，“The Warren Buffett You Don’t Know，” BusinessWeek ，July 5，1999.
2. Interview with Tony Nicely.
3. This was a 40% premium to where GEICO was trading.
4. In 1993，707 new issues raised $41.4 billion. In 1994，608 IPOs raised $28.5 billion，the second-most-productive year in the past quarter century. The third-best year for IPOs had been 1992，when 517 issues raised $24.1 billion. (Securities Data Co. of Newark，N.J.)
5. Molly Baker，Joan Rigdon，“Netscape’s IPO Gets an Explosive Welcome，” Wall Street Journal ，August 9，1995.
6. Interview with Sharon Osberg.
7. The Buffetts made other philanthropic gifts using Susie’s stock，as well as funding the Buffett Foundation.
8. Carol Loomis，“The Inside Story of Warren Buffett，” Fortune ，April 11，1988.
9. Berkshire Hathaway press release，February 13，1996.
10. Interviews with Dana Neuman，Mark Millard.
11. The employees’ pay could not really be fully aligned with shareholders. Unlike at the Buffalo News ，for example，the employees’ base pay at a bank is too low to compensate for the labor value of their time that is owed by the shareholders. In effect，much of the bonus is really salary. The reason that a plan that requires employees to work almost for free in a bad year to compensate for “excessive” bonuses in other years cannot succeed is that it transfers some of the risk assumed by capital onto the backs of labor. The bonus structure of Wall Street——without the glue of partnership——is inherently problematic.
12. To be considered an arbitrage，two trades must take place simultaneously to eliminate market risk. Buying a stock and selling it later is not an arbitrage. Buying cocoa beans in Ecuador and selling them in San Diego is not an arbitrage.
13. Interview with Deryck Maughan.
14. Roger Lowenstein，When Genius Failed: The Rise and Fall of Long -Term Capital Management . New York: Random House，2000.
15. In July 1998，Weill shut down Salomon’s bond arbitrage unit. One could argue that it was Travelers’ subsequent merger with Citicorp——which provided cheap capital——that made the firm a serious competitor in those businesses. Looked at another way，Travelers paid a high price to enter a business with high barriers to entry，and subsequently exploited its capital and scale advantage. Citigroup dropped the Salomon name in 2001.
16. Carol Loomis，“A House Built on Sand，” Fortune ，October 26，1998.
17. Interview with Charlie Munger.
18. Lowenstein，in When Genius Failed ，estimated that these returns were achieved through leverage; Long-Term’s cash-on-cash return was only about 1%. This low return，multiplied fifty to a hundred times through borrowing，appeared extraordinarily profitable.
19. In When Genius Failed ，Lowenstein drew this conclusion after extensive interviews with Meriwether’s former team.
20. Roger Lowenstein，When Genius Failed . Shorting it as a collection of stocks would not work because of a basis mismatch between Berkshire and the offsetting hedgeable positions. Berkshire was a collection of wholly owned businesses fueled by an insurance company that also owned some stocks，not a quasi-mutual fund.
21. Roger Lowenstein，When Genius Failed.
22. Stock or merger arbitrage is a bet on whether a merger will close. Merger-arb specialists talk to lawyers and investment bankers and specialize in scuttlebutt. Their bets are based partly on knowledge about a deal，not just statistics about how typical deals have done.
23. Interview with Eric Rosenfeld; Lowenstein，When Genius Failed .
24. Michael Siconolfi，Anita Raghavan，and Mitchell Pacelle，“All Bets Are Off: How Salesmanship and Brainpower Failed at Long-Term Capital，” Wall Street Journal ，November 16，1998.
25. Interview with Eric Rosenfeld.
26. The Standard & Poor’s index was down 19% since July and the NASDAQ down by more than 25%.
27. John Meriwether letter to investors，September 2，1998.
28. Warren Buffett letter to Ron Ferguson，September 2，1998.
29. Hence，don’t try to make it back the way you lost it.
30. Interview with Joe Brandon.
31. Craig Torres and Katherine Burton，“Fed Battled ‘Financial Maelstrom，’ 1998 Records Show，” Bloomberg News ，April 22，2004.
32. Roger Lowenstein，in When Genius Failed ，includes，as do other accounts，an interesting sidebar about the role of Goldman Sachs，which，as capital-raiser for the firm，also sent in a mysterious “trader” who spent days downloading Long-Term’s positions into a laptop and making mysterious cell-phone calls. Afterward，Long-Term’s partners bitterly blamed their demise on predatory behavior by competitors.
33. According to one partner，the lawyer was dubious about the rushed process，saying maybe there was some trickery involved，and wanting to slow things down and take more time to look over the details.
34. Roger Lowenstein，When Genius Failed .
35. Michael Lewis，“How the Eggheads Cracked，” New York Times Magazine ，January 24，1999.
36. Interview with Fred Gitelman，Sharon Osberg.
37. After three 0.25% interest-rate cuts——September 29，October 15，and October 17——the market leapt 24% from its low on August 31 of 7,539 to an all-time high of 9,374 on October 23.
38. Michael Lewis，“How the Eggheads Cracked.”
39. Roger Lowenstein，When Genius Failed.
40. Interview with Eric Rosenfeld.
41. The Federal Reserve’s instant and dramatic cut of interest rates gave rise to a concept called the “Greenspan Put，” the idea that the Federal Reserve would swamp the market with liquidity to bail out investors in a crisis. The Greenspan Put theoretically encourages people to worry less about risk. Greenspan denied there was a Greenspan Put.“It takes a good deal longer for the cycle to expand than for it to contract，” he said.“Therefore we are innocent.” (Reuters，October 1,2007，quoting Greenspan speaking in London.)
Chapter 52
1. Kurt Eichenwald，The Informant . New York: Broadway，2000. Unbeknownst to Howie，Andreas reportedly made an illegal donation in response to at least one request that Howie had passed along，shrugging off the fine as the cost of doing business.
2. Interview with Howie Buffett.
3. Ibid.; Scott Kilman，Thomas M. Burton，and Richard Gibson，“Seeds of Doubt: An Executive Becomes Informant for the FBI，Stunning Giant ADM——Price Fixing in Agribusiness Is Focus of Major Probe; Other Firms Subpoenaed——A Microphone in the Briefcase，” Wall Street Journal ，July 11，1995; Sharon Walsh，“Tapes Aid U.S. in Archer Daniels Midland Probe; Recordings Made by Executive Acting as FBI Informant Lead to Seizure of Company Files，”Washington Post ，July 11，1995; Ronald Henkoff and Richard Behar，“Andreas’s Mole Problem Is Becoming a Mountain，” Fortune ，August 21，1995; Mark Whitacre，“My Life as a Corporate Mole for the FBI，” Fortune ，September 4，1995.
4. Interview with Kathleen Cole.
5. Astrid was going to be well taken care of by Warren，too，although，as he says about the apparent willingness of his fans to buy any article belonging to him——his wallet，his car; “She’s got one of my wisdom teeth. It’s the ugliest thing you’ve ever seen. That’s her ace in the hole .”
6. Interview with Bill Gates.
7. Every board member interviewed reached some variation of this conclusion，no matter where they stood on later events.
8. Mark Pendergast，For God ，Country ，and Coca-Cola . New York: Charles Scribner’s Sons，1993.
9. Speaking at the 1998 Berkshire Hathaway shareholder meeting.
10. At the time，NetJets marketed itself both as NetJets and by its legal name，Executive Jet，Inc. It was renamed NetJets in 2002.
11. Interviews with sources; Anthony Bianco，“The Warren Buffett You Don’t Know，” BusinessWeek ，July 5，1999.
12. The business requires a“core fleet” of redundant aircraft，so expensive that running a fractional jet company is by definition unprofitable unless done on a huge scale (or used as a loss-leader by an aircraft manufacturer or other company with a tie-in product).
13. It cost Berkshire over nine times what it paid for the remaining half of GEICO almost three years earlier. The GEICO purchase doubled Berkshire’s existing float (to $7.6 billion)，while Get Re tripled that (to $22.7 billion).
14. Interview with Tad Montross.
15. BRK paid approximately three times book value，a premium to prevailing prices at the time. The reinsurance business became more competitive after this acquisition，and multiples have since declined.
16. Berkshire Hathaway 1997 annual shareholders’ meeting，May 5，1997.
17. Shawn Tully，“Stock May Be Surging Toward an Earnings Chasm，” Fortune ，February 1，1999.
18. At the companies’ June 19，1998，press conference，as quoted in“Is There a Bear on Mr. Buffett’s Farm?” New York Times ，August 9，1998.
19. Buffett’s comments in Anthony Bianco’s July 5，1999，BusinessWeek cover story，“The Warren Buffett You Don’t Know”，“‘Charlie and I don’t talk a lot anymore，’ acknowledges Buffett，who says he did not even bother to consult his vice-chairman before making the epochal Gen Re acquisition.”
20. BRK dropped 4.2% on news of the deal. Over a month later，it was down 15% versus a flat market. Setting an exchange ratio implicitly required a view on equities and interest rates，as well as the underlying businesses’ prospects. What investors could not know was the relative weighting of these factors.
21. James P. Miller，in “Buffett Again Declines to Flinch at Market’s High-Wire Act，” Wall Street Journal ，May 5，1998，got it. He attended the shareholder meeting at which Buffett reiterated his views and commented that maintaining return on equity was a particularly vexing issue. On the other hand，Justin Martin and Amy Kover，in“How Scary is this Market，Really?” (Fortune ，April 27，1998)，wrote that “no less an authority than Warren Buffett” had endorsed the market bulls through his “not overvalued” statement.
22. On August 22，1997，Wells Fargo stock nosedived after Berkshire Hathaway reclassified it from the publicly filed form 13-F to the confidential disclosure to the SEC，creating the appearance that Buffett had sold his position in Wells Fargo. The SEC announced that it would consider tightening the confidentiality rules. In June 1998，the SEC announced it was tightening its “13F” rule that had allowed Buffett to file confidentially for a year while building large stock positions. Although the SEC did not absolutely rule out confidential filings，Buffett heard the footsteps. Berkshire Hathaway fought an aggressive battle with the SEC over this issue as its confidential filings were denied，and lost. In 1999，Berkshire filed confidentiality requests each quarter along with its regular 13-F forms containing positions that were not confidential. The SEC made a single announcement relating to these three filings that certain of the positions they contained must be publicly disclosed. Buffett’s right to make a profit presumably was not part of the SEC’s deliberations. The SEC’s interest is to protect investors. While the SEC staff had long held that it is desirable to prevent extraordinary fluctuations in stock prices unrelated to fundamental factors so that investors do not profit or suffer as a result，investors’ right to know the identity of a company’s largest shareholders outweighed that.
23. Interview with Herbert Allen.
24. Nikhil Deogun，James R. Hagerty，Steve Secldow，and Laura Johannes，“Coke Stains，Anatomy of a Recall: How Coke’s Controls Fizzled Out in Europe，” Wall Street Journal ，June 29，1999.
25. Interview with Herbert Allen.
26. Ibid.
27. Through Project Infinity，partly cloaked in Y2K spending，Coca-Cola turned the soft-drink business into a technology-fed numbers game. In 1999，the company hired 150 experts for worldwide implementation of SAP’s programs. SAP，an acronym for Systems，Applications，and Products in Data Processing，provided business software solutions for process redesign in supply-chain management，customer-relationship management，and resource planning.
28. Ivester did not respond to repeated requests for interviews.
29. Betsy Morris and Patricia Sellers，“What Really Happened at Coke，” Fortune ，January 10，2000.
30. Interview with Sharon Osberg.
31. Betsy Morris，“Doug is It，” Fortune ，May 25，1998，and Patricia Sellers，“Crunch Time for Coke，” Fortune ，July 19，1999.
32. This is Herbert Allen’s version of the conversation. Buffett doesn’t recall the exact details.
33. “They never sat down，never even removed their overcoats. In tones frostier than the air outside，they told him they had lost confdence in him.” Constance L. Hays，The Real Thing: Truth and Power at the Coca-Cola Company . New York: Random House，2004. Buffett and Allen dispute this version and say they sat down and removed their coats. But，they say，it was indeed a very short meeting，with no chitchat.
34. Had the board supported him，it would have left Nester a weakened CEO. He would also have been gambling that Allen and Buffett would not resign from the board，an instantly fatal blow. Allen and Buffett were also gambling that if Ivester threw himself on the board’s mercy and survived，it would not be for long.
35. Interview with James Robinson，former CEO of American Express and Coca-Cola board member.
36. KO stock dropped 14% in two days.
37. Betsy Morris and Patricia Sellers，“What Really Happened at Coke.”
38. Martin Sosnoff，“Buffett: What Went Wrong?” Forbes ，December 31，1999.
39. Andrew Barry，“What’s Wrong，Warren?” Barron’s ，December 27，1999.
40. Andy Serwer，“The Oracle of Everything，” Fortune ，November 11，2002.
41. Interview with Kathleen Cole.
42. Interview with Susie Buffett Jr.
43. Interview with Peter Buffett.
44. Interview with Howie Buffett.
45. Interviews with Howie Buffett，Peter Buffett，Susie Buffett Jr.
Chapter 54
1. Joe Lauria，“Buffett Bombs as High-Tech Funds Boom，” Sunday Times (London)，January 2，2000.
2. The expected profit on the deal was 90%; i.e.，the premium covered odds that the lottery would hit 1 out of 10 times whereas in fact it was expected to hit less than 1 out of 100 times.
3. Every 10% change in KO was equivalent to 2.5% of BRK (a percentage that is representative over time)，but the stocks often traded almost in tandem——especially when there was bad news at Coca-Cola——as if BRK and KO were one and the same.
4. Beth Kwon，“Buffett Health Scrape Illustrates Power——or Myth——of Message Boards，” TheStreet.com，February 11，2000. The story made the Financial Times say，“Warren Buffett may not be sick，but his share price is，” in the “Lex” column，February 12，2000. Financial Times described the rap on Buffett not buying tech stocks as a“serious charge.”
5. Berkshire Hathaway press release; also see “Berkshire Hathaway Denies Buffett Is Seriously Ill;” New York Times ，February 11 ，2000. The way that Buffett uses probabilities to describe things is one of his intriguing qualities; what if he had said that the rumors were 90% false?
6. Ed Anderson，“Thesis vs. Antithesis: Hegel，Bagels，and Market Theories，” Computer Reseller News ，March 13，2000.
7. Warren Buffett and Charlie Munger，“We Don’t Get Paid for Activity ，Just for Being Right . As to How Long We’ll Wait，We’ll Wait Indefinitel ，” Outstanding Investor Digest ，Vol. XIII，Nos. 3 & 4，September 24，1998，and “We Should All Have Lower Expectations——In Fact，Make That Dramatically Lower...，”Outstanding Investor Digest ，Vol. XIV，Nos. 2 & 3，December 10，1999.
8. “Focus: Warren Buffett，” Guardian ，March 15，2000 (emphasis added).
9. Some commentators understood that the bubble was bursting but since the averages continued to move higher，the general perception was slower to change. Federal Reserve Chairman Alan Greenspan’s comments were seized on as reason for concern or relief，depending on the listener’s perspective. See Matt Kranz and James Kim，“Bear Stages Sneak Attack on Net Stocks，” USA Today ，February 16，2000; Greg Ip，“Stalking a Bear Market，” Wall Street Journal ，February 28，2000; “Technology Stocks Continue to Dominate，” USA Today ，March 2，2000.
10. E.S. Browning and Aaron Lucchetti，“The New Chips: Conservative Investors Finally Are Saying: Maybe Tech Isn’t a Fad，” Wall Street Journal ，March 10，2000. The Journal cited another investor as saying，“It’s like when the railroads started up and were changing the whole face of the nation.” Yes，it was much like that. Speculation in railroad stocks led directly to the financial panics of 1869，1873，and 1901. The Erie railroad and Northern Pacific stock corners were only two episodes in the long history of colorful financial chicanery surrounding railroad stocks.
11. Gretchen Morgenson，“If You Think Last Week Was Wild，” New York Times ，March 19，2000. Another sign that the game was up: On March 20，Fortune ran a cover story by Jeremy Garcia and Feliciano Kahn，“Presto Chango: Sales Are HUGE！” accusing many dotcoms of using accounting legerdemain to inflate sales——counting marketing expenses as sales，treating barter revenues as sales，and booking revenues before contracts were signed.
12. Interview with Sue James Stewart.
13. Buffett，who usually dealt with uncomfortable issues by joking about them，ended the 1999 Berkshire annual report (written winter 2000) by saying that he loved running Berkshire，and “if enjoying life promotes longevity ，Methuselah’s record is in jeopardy .”
14. This is sort of an inside joke at Berkshire Hathaway.
15. David Henry，“Buffett Still Wary of Tech Stocks——Berkshire Hathaway Chief Happy to Skip ‘Manias，’” USA Today ，May 1，2000.
16. Buffett owned 14 million barrels of oil at the end of 1997，bought 111 million ounces of silver，and owned $4.6 billion of zero-coupon bonds as well as U.S. Treasuries. The silver represented 20% of the world’s annual mine output and 30% of the above-ground vault inventory (Andrew Kilpatrick，Of Permanent Value: The Story of Warren Buffett: More in ’04 ，California Edition. Alabama: AKPE，2004)，purchased on terms to avoid disrupting world supply.
17. Interview with Sharon Osberg. The silver was at JP Morgan in London.
18. Buffett measures his performance not by the company’s stock price，which he didn’t control，but by increase in net worth per share，which he did. There is a link between these two measures over long periods of time. In 1999，book value per share had grown only 1/2 of 1%. But for the acquisition of General Re，book value per share would have shrunk. Meanwhile，the stock market as a whole was up 21%. Buffett called it a fluke that book value had increased at all，pointing out that in some years it will inevitably decrease. Yet only 4 times in 35 years under Buffett，and not once since 1980，had Berkshire done worse than the market by this measure.
19. James P. MiHer，“Buffett Scoffs at Tech Sector’s High Valuation，” Wall Street Journal ，May 1，2000.
20. David Henry，“Buffett Still Wary of Tech Stocks.”
21. The Knight-Bagehot Fellows.
22. Interviews with Joseph Brandon，Tad Montross.
23. Interviews with Bill Gates，Sharon Osberg.
24. Amy Kover，“Warren Buffett: Revivalist，” Fortune ，May 29，2000.
25. Interview with Bill Gates.
26. Berkshire Hathaway press release，June 21，2000.
Chapter 55
1. Philip J. Kaplan，F ’d Companies: Spectacular Dot-com Flameouts . New York: Simon & Schuster，2002.
2. Purchase price not disclosed for these two acquisitions——but both were paid half in cash，half in BRK stock.
3. For $570 million.
4. For $2 billion; it became Berkshire’s largest business outside the insurance operations (2000 BRK annual report).
5. For $1 billion.
6. For $1.8 billion cash and $300 million in assumed debt.
7. For $378 million.
8. At the end of 2000，Berkshire had spent more than $8 billion buying companies and still had $5.2 billion in cash and cash equivalents，along with $33 billion in fixed maturity securities and $38 billion in stocks.
9. Berkshire Hathaway letter to shareholders，2000.
10. Kilts joined Gillette after successfully turning around Nabisco，as only the second outsider in 100 years to run the company.
11. Interview with Susie Buffett Jr.
12. Interviews with Barry Diller，Don Graham，Susie Buffett Jr.
13. “Disney Scrambling to Play Spoiler Role，” New York Post ，July 14，2001.
14. Marcia Vickers，Geoffrey Smith，Peter Coy，Mara Der Hovanseian，“When Wealth Is Blown Away，” BusinessWeek ，March 26，2001; Allan Sloan，“The Downside of Momentum，” Newsweek，March 19，2001.
15. As of June 2001. From the Industry Standard’s Layoff Tracker，along with the Dot-Com Flop Tracker and the Ex-Exec Tracker.
16. Buffett was not the only one concerned about the implication of this relationship. John Bogle，retired chairman of Vanguard，wrote of it in April 2001. However，he concluded that“some version of reality” had returned to the stock market. What made Buffett’s speech noteworthy was not use of this particular metric but rather his pessimistic projection of what it meant.
17. One of Buffett’s main points was that companies——many of which had been taking gains from surpluses out of their pension plans——were irresponsibly using unrealistic rates of return assumptions and would have to adjust these to reality，which would show the plans to be less well funded or even underfunded.
18. Herbert Stein was an American Enterprise Institute fellow and former chairman of the Council of Economic Advisors under Richard Nixon，a member of the board of contributors of the Wall Street Journal ，and an economics professor at University of Virginia. He is known for the quote “If something cannot go on forever，it will stop，” and was father to financial writer and actor Ben Stein.
19. As quoted in“Buffett Warns Sun Valley Against Internet Stocks，” Bloomberg ，July l3，2001.
20. Vicente Fox worked for Coca-Cola for fifteen years，starting as a route supervisor in 1964，then being promoted ten years later to president of its Mexican，and ultimately its Latin American，operations.
21. Interview with Midge Patzer.
22. Interview with Don Graham.
23. Dr. Griffith R. Harsh，IV，Director，Surgical Neuro-Oncology Program at Stanford University Medical School.
24. Interview with Kathleen Cole.
25. Interviews with Bill Gates，Peter Buffett，Howie Buffett.
26. Interview with Susie Buffett Jr.
27. Interviews with Susie Buffett Jr.，Don Graham.
28. Karlyn Barker，“Capacity Crowd Expected at Funeral; Schlesinger，Bradlee，Kissinger，Relatives Among Eulogists，” Washington Post ，July 22，2001.
29. Paul Farhi，“Close Enough to See: TV Coverage Captures Small，Telling Moments，” Washington Post ，July 24，2001; Steve Twomey，“A Celebrated Life: Thousands Honor Katharine Graham at the Cathedral，” Washington Post ，July 24，2001; Mary Leonard，“Thousands Pay Tribute to Washington Post’s Katharine Graham，” Boston Globe ，July 24，2001.
30. Karlyn Barker，“Capacity Crowd Expected at Funeral; Schlesinger，Bradlee，Kissinger，Relatives Among Eulogists.”
31. Libby Copeland，“Kay Graham’s Last Party: At Her Georgetown Home，A Diverse Group Gathers，” Washington Post ，July 24，2001.
32. The family sold the house shortly after Graham’s death.
Chapter 56
1. Interview with Herbert Allen.
2. “The Hut-Sut Song” by Horace Heidt. Words and music by Leo V. Killion，Ted McMichael，and Jack Owens.
3. The event benefited the Boys & Girls Clubs of Omaha，Omaha Children’s Museum，Girls Inc.，and the Omaha Theater Company for Young People. Over ten years it raised approximately $10 million.
4. Hamlisch was the first person to win three Academy Awards at once，in all three music categories，for the song “The Way We Were” (with co-writers Alan Bergman and Marilyn Bergman)，the score to the movie The Way We Were (1973)，and the adaptation of Scott Joplin’s ragtime music for The Sting (1973).
5. Interview with Devon Spurgeon.
6. Buffett does not recall the specifics of this call but thinks it probably occurred. The source is Joe Brandon at General Re.
7. Grace Shim，“Warren Buffett，Others Speak About Terrorism at Omaha，Neb.，Event，” Omaha World-Herald ，September 12，2001.
8. Buffett recalled this，and said，“I think somebody even may have bought a car just because they ran out of rental cars. ”
9. According to “Killtown’s: Where Was Warren Buffett on 9/11？” (www. killtown.911review. org/ buffett.html)，referencing rushlimbaugh.com from July 5，2005.
10. Interview with Bob Nardelli.
11. Interview with Tony Pesavento.
12. Buffett told the author this in 2001，shortly after the terrorist attack.
13. The term “unforeseeable” as an explanation for large losses was virtually universal after 9/11 in the insurance industry.
14. Grace Shim，“Warren Buffett，Others Speak About Terrorism at Omaha，Neb.，Event.”
15. Interview with Susie Buffett Jr.
16. This initial estimate was revised to $2.4 billion in the December 31 annual report.
17. Charles R. Morris，The Trillion Dollar Meltdown. New York: Public Affairs，2008.
18. Leading to reforms such as not allowing analysts to be compensated based on investment-banking work，and setting up “firewalls” between analysts and investment bankers.
19. For $835 million.
20. For just under $1 billion. Kern moved 850 million cubic feet of gas a day from the Rocky Mountains to Las Vegas and California.
21. This pipeline moved 4.3 billion cubic feet of gas per day. Berkshire bought it for $928 million，after Dynegy had gotten it for $1.5 billion when Enron went bankrupt and NNG was being held as collateral (both had assumed $950 million of NNG’s debt). After MidAmerican’s two pipeline deals in 2002，it transported 8% of the gas in the U.S.
22. Berkshire joined with Lehman and Citigroup to lend $2 billion to Williams at a 20% interest rate.
23. Pre-9/11，Munich Re and AXA struck a derivatives deal valued at $50 million with Berkshire Hathaway Group to reinsure against an earthquake canceling 2002’s FIFA World Cup in South Korea and Japan. BRK would pay regardless of the actual cost of the loss，if the tournament was postponed or canceled because of an earthquake of a certain magnitude. Separately，after 9/11，AXA pulled out of insuring the tournament，and on October 30 National Indemnity stepped in to insure it，allowing the World Cup to proceed.
24. Berkshire Hathaway letter to shareholders，2007.
25. Interview with Frank Rooney.
26. Gifts of more than $12, 000 are subject to this tax.
27. Source: IRS，Statistics of Income Division，March 2007; Joint Committee on Taxation，Description and Analysis of Present Law and Proposals Relating to Federal Estate and Girl Taxation ，Public Hearing Before the Subcommittee on Taxation and IRS Oversight of the Senate Committee on Finance，March 15，2001.
28. In 2007，over 8% of the federal budget，or $244 billion，was interest on federal debt. That is almost exactly ten times the amount collected through the estate tax.
29. “I Didn’t Do It Alone，” a report by Responsible Wealth，describes the role of public investment，family，colleagues，luck，and grace in creating wealth. Organizations like United for a Fair Economy publish research on tax fairness，as do organizations such as the libertarian Cato Institute.
30. “Defending the Estate Tax，” New York Times ，February 16，2001. In this article，Mr. Bush’s own director of Faith-Based and Community Initiatives，John DiIulio，told the Times that charitable contributions would likely decrease if the estate tax were repealed.“I don’t want to be the skunk at the picnic，” he said.“But no，I don’t think the estate tax should be eliminated——modified，maybe，but not eliminated.”
31. See，for example， Melik Kaylan，“In Warren Buffett’s America...” Wall Street Journal ，March 6，2001; John Conlin，“Only Individual Freedom Can Transform the World，” Wall Street Journal ，July 26，2001; Steve Hornig，“The Super-Wealthy Typically Do Not Pay Estate Taxes，” Financial Times ，June 15，2006; Holman W. lenkins Jr.，“Let’s Have More Heirs and Heiresses，” Wall Street Journal ，February 21，2001.
32. Warren Buffett letter to Senator Ken Salazar，June 8，2001.
33. William S. Broeksmit，“Begging to Differ with the Billionaire，” Washington Post ，May 24，2003.
34. Daft had options to buy 650,000 shares，initially estimated as worth $38.1 million to $112.3 million in 2015，depending on how much the stock appreciated. He also got $87.3 million in restricted stock awards，totaling 1.5 million shares. Henry Unger，“If Coca-Cola Chief Daft Fizzles，He’ll Lose Millions，” Atlanta Journal-Constitution ，March 3，2001.
35. The CEO-worker pay gap of 411-to-1 in 2001 was nearly ten times as high as the 1982 ratio of 42-to-1.“If the average annual pay for production workers had grown at the same rate since 1990 as it has for CEOs，their 2001 average annual earnings would have been $101，156 instead of $25,467. If the minimum wage，which stood at $3.80 an hour in 1990，had grown at the same rate as CEO pay，it would have been $21.41 an hour in 2001，rather than the current $5.15 an hour.” Scott Klinger，Chris Hartman，Sarah Anderson，and John Cavanagh，“Executive Excess 2002，CEOs Cook the Books，Skewer the Rest of Us，Ninth Annual CEO Compensation Survey.” Institute for Policy Studies，United for a Fair Economy，August 26，2002.
36. Geoffrey Colvin，“The Great CEO Pay Heist，” Fortune ，June 25，2001. A 2001 option grant later became the subject of controversy in the 2007 stock-option backdating scandal.
37. Warren Buffett，“Stock Options and Common Sense，” Washington Post ，April 9，2002.
38. Two other companies，Winn-Dixie and Boeing，had earlier started treating stock options as an expense. But they had nothing like Coca-Cola’s clout.
39. Warren Buffett，“Who Really Cooks the Books?” New York Times ，July 24，2002.
40. Warren Buffett，Securities and Exchange Commission’s Roundtable on Financial Disclosure and Auditor Oversight，New York，March 4，2002.
41. Berkshire Hathaway letter to shareholders，2002.
42. David Perry，“Buffett Rests Easy With Latest Investment，” Furniture Today May 6，2002.
43. He didn’t really want her to come back either，although he looked tempted a few times.
Chapter 57
1. This portrait of Susie in the late 1990s and early millennial era is based on comments from more than two dozen sources who knew her well but cannot be identifed by name.
2. Interview with Susan Thompson Buffett.
3. Interview with Howie Buffett.
4. Interest rates，which had been falling since 9/11，hit a low of 1% in June 2003 and remained there until June 2004.
5. This is a shorthand description for investors’ limited risk aversion during this period.
6. In “Mortgage Market Needs $1 Trillion，FBR Estimates，” Alistair Bart (MarketWatch ，March 7，2008) recaps a Friedman，Billings Ramsey research report that estimates that of the total $11 trillion U.S. mortgage market，only $587 billion was backed with equity——meaning that the average U.S. home had scarcely more than 5% equity. Before long，half of all CDOs would be backed by subprime mortgages (David Evans，“Subprime Infects $300 Billion of Money Market Funds，” Bloomberg，August 20，2007).
7. In The Trillion Dollar Meltdown (New York: Public Affairs，2008)，Charles Morris explains that because the typical credit hedge fund was leveraged 5:1，the 5% equity was reduced to l%——a 100:1 leverage ratio，or $1 of capital supporting $100 of debt.
8. He used derivatives himself，but as a borrower，not a lender. Therefore，if things went wrong，he did not have to collect from anyone else.
9. Part of Berkshire Re’s reported profits since 2002 are derived from General Re.
10. Alan Greenspan gave a speech on May 8 at the 2003 Conference on Bank Structure and Competition where he voiced his opinion on derivatives. Ari Weinberg，“The Great Derivatives Smackdown，” Forbes ，May 9，2003.
11. For example，he was called “The Alarmist of Omaha” by Rana Foroohar in Newsweek on May 12，2003.
12. Buffett lent $215 million to Oakwood in debtor-in-possession financing. Through Berkadia (see note 13)，he bid $960 million for Conseco Finance. Berkadia representatives left before the auction was over，and were outbid by a consortium that offered $1.01 billion. Berkadia objected to these proceedings and raised its offer to $1.15 billion after it was over，but this effort was rejected by the bankruptcy court judge.The credit bubble for manufactured housing and subprime lenders like Conseco deflated by 2004，more than a year before the broader housing bubble peaked.
13. This deal resembled in some ways another deal he had done two years earlier，partnering with Leucadia National to form Berkadia LLC，which provided a $6 billion secured five-year loan to the bankrupt FINOVA so it could pay down its debt.
14. In First a Dream，Jim Clayton recounts that Michael Daniels，an intern who had“tolerated” him through the six-month final edit of the book，got him to autograph a copy to give to Buffett. When he graduated and went to work for UBS，Daniels handed the book over to the next intern，Richard Wright，for delivery.“The Ballad of Clayton Homes” (Fast Company ，January 2004) claims that the Claytons used Wright to send a message to Buffett.
15. In his memoir，Jim Clayton says people find it hard to believe that he did not return Buffett’s call himself. He says it never occurred to him to do so，and he and Buffett have never called each other about business. During the months that the deal was in negotiation and litigation，the author observed that Buffett dealt only with Kevin Clayton.
16. Interview with Kevin Clayton.
17. Jim Clayton，Bill Retherford，First a Dream. (Tennessee: FSB Press，2002). The 2004 revised edition gives an account of Berkshire Hathaway’s fight for Clayton Homes.
18. Buffett had spent only $50 million in April to purchase PetroChina stock，but that brought Berkshire’s ownership to $488 million and over the limit that required disclosure to the Hong Kong Stock Exchange.
19. Buffett said he would buy foreign stocks under the right circumstances; e.g.，in the United Kingdom or a newspaper in Hong Kong. However，he did not spend time seriously studying foreign stocks until opportunities in the U.S. began to thin.
20. Warren Buffett，“Why I’m Down on the Dollar，” Fortune ，November 10，2003.
21. From unpublished coverage of the 2003 Berkshire Hathaway annual meeting，courtesy of Outstanding Investor Digest.
22. A major advantage of the deal was Berkshire’s access to and low cost of funds. With its AAA credit rating，it could borrow at a far lower rate than any other manufactured-home maker and thus not only survive credit droughts but make money under conditions where Clayton’s competitors could not survive.
23. Speaking at the New York Public Library，June 25，2006.
24. Andrew Ross Sorkin，“Buffett May Face a Competing Bid for Clayton Homes，” New York Times ，July 11，2003.
25. “Suit Over Sale of Clayton Homes to Buffett，”New York Times ，June 10，2003. Gray alleged that previous shareholder meetings electing directors had taken place without proper notice. In June the Delaware Chancery Court ruled that Clayton had technically not met the notice requirement，but since the meeting was so well attended by shareholders，the mistake was only technical and results of the meeting would not be overturned.
26. Jennifer Reingold，“The Ballad of Clayton Homes.”
27. At its peak before the death of Susan T. Buffett，the foundation spent $15 million-$30 million per year in total，mostly on reproductive rights.
28. If Buffett had paid dividends and used them for the donations，the whole point would have been moot.
29. Douglas R. Scott Jr.，president，Life Decisions International，letter to Warren Buffett，September 26，2002.
30. The number came from Cindy Coughlon，a Pampered Chef consultant who organized the boycott. Nicholas Varchaver，“Berkshire Gives Up On Giving: How a Pro-Life Housewife Took On Warren Buffett，” Fortune ，August 11，2003.
31. Compiled from various interviews.
32. Pro-life activists，according to the U.S. National Abortion Federation，have committed 7 murders，attempted 17 other murders，made 388 death threats，kidnapped 4 people，committed 41 bombings，174 instances of arson，and 128 burglaries，attempted 94 bombings or arsons，made 623 bomb threats，committed 1,306 instances of vandalism，made 656 bioterror threats，and committed 162 instances of assault and battery. These numbers exclude stalking，hoax device/suspect packages，hate mail，harassing phone calls，trespassing，invasion，Internet harassment，and other less serious incidents. The pro-life movement’s activities have resulted in 37,715 arrests as of 2007. Most mainstream pro-life organizations reject the terrorist wing of the movement，some vocally.
33. Berkshire Hathaway press release，July 15,2003.
34. Under Delaware law，only shareholders in attendance were eligible to vote on a recess.
35. Jim Clayton，Bill Retherford，First a Dream.
36. Interviews with Kevin Clayton and John Kalec，executive vice president and CFO of Clayton Homes.
37. The suit，filed on July 25 by Milberg Weiss Bershad Hynes & Lerach，LLP，initially claimed that Kevin Clayton had asked Janus Capital to continue to support the deal even though it had sold the stock. In court，no evidence of this was found and the case was dismissed.
38. Jennifer Reingold，“The Ballad of Clayton Homes.”
39. Jim Clayton cites these figures in First a Dream ，indicating he could not confirm them.
40. Cerberus memorandum，“For Discussion Purposes，” reprinted in Jim Clayton，First a Dream .
41. In a few instances，such as NetJets，private-company owners sold to him at lower prices than they could have obtained elsewhere because they wanted Berkshire as an owner.
42. Jim Clayton，Bill Retherford，First a Dream .
43. Interview with Kevin Clayton.
44. By 2006，manufactured-home shipments had fallen to 117,510 units and were still declining at an average rate of 32% in 2007 despite a temporary bump in 2005 from Hurricane Katrina. (Source: Manufactured Housing Institute.)
Chapter 58
1. Interview with the Reverend Cecil Williams. Buffett participated in two live auctions for Glide before the first eBay auction.
2. Interview with Kathleen Cole.
3. Interviews with Kathleen Cole，Susie Buffett Jr.
4. Interview with Howie Buffett.
5. Interviews with Howie Buffett，Susie Buffett Jr.
6. Interview with Kathleen Cole.
7. Ibid.
8. www. oralcancerfoundation.org.
9. Oral Cancer Foundation.
10. Interviews with Kathleen Cole，Ron Parks.
11. Interviews with Marshall Weinberg，Walter and Ruth Scott，Lou Simpson，George Gillespie.
12. Interview with Susie Buffett Jr.
13. Adapted from John Dunn，“Georgia Tech Students Quiz Warren Buffett，” Georgia Tech ，Winter 2003.
14. Bob Woodward，“Hands Off，Mind On，” Washington Post ，July 23，2001.
Chapter 59
1. Interview with Susie Buffett Jr.
2. Interview with Stan Lipsey; Jonathan D. Epstein，“GEICO Begins Hiring in Buffalo，” Buffalo News ，February 11，2004.
3. Interviews with Peter Buffett，Howie Buffett，Susie Buffett Jr.
4. Peter and Susie also gave substantial amounts to the Buffett Foundation in their first two years.
5. Generally speaking，federal law governing foundations requires that foundations distribute or use a minimum amount of their assets regularly for their charitable purposes (approximately 5% of the fair market value of the private foundation’s investment assets).
6. At the time，Susie had about 35,000 shares in her own name，worth about $2.8 billion，apart from what she might receive as part of Warren’s estate should he predecease her.
7. Chafies T. Munger，edited by Peter Kaufmann，Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger. New York: Donning Company Publishers，2005.
Chapter 60
1. Interview with Kathleen Cole.
2. Interviews with Jamie Dimon，Jeffrey Immelt.
3. Berkshire Hathaway 2004 chairman’s letter，annual report.
4. Berkshire Hathaway letter to shareholders，2006. Buffett had stated these criteria in private earlier.
5. Betsy Morris，“The Real Story，” Fortune ，May 31，2004.
6. Investors felt that Coke should move aggressively into noncarbonated drinks，but the company insisted that international growth in carbonated beverages——the highest-margin product——was the only way to go. At $50，the stock was also still expensive at 24x earnings and 8.6x book value.
7. Coca-Cola Enterprises took a $103 million charge for the European recall during Ivester’s reign. In 1999，Daft had to report the first loss in a decade and take a total of $1.6 billion of charges. Then，in lQ2000，Daft reported Coke’s second quarterly loss in a row——charges for massive restructuring/layoffs and a write-down of excess bottling capacity in India. In 2000，Coke took more charges and cut its projection for annual worldwide unit case volume growth to 5% to 6%，from 7% to 8%. Coke revised its targets again after 9/11.
8. Suppose Berkshire demanded a special deal. On $120 million of purchases，this might be worth，say，a dime a share，estimating liberally. Berkshire earned $5,309 per A equivalent share in 2003. (The company doesn’t present cents per share in its financial statements.) To a B shareholder，it would be 3/10 of a penny per share. It’s very hard to make a case that an amount so small would incent Buffett to do something so contrary to Coca-Cola’s interests as to force it to turn down a big contract with Burger King in order to keep selling Coca-Cola at Dairy Queen. That would be so even if Berkshire owned zero Coca-Cola stock. The problem with the ISS approach was its absolutist checklist approach that applies no reasoning and proportionality.
9. CaIPERS also opposed the election of Herbert Allen，former U.S. Senator Sam Nunn，and Don Keough because of their business relationships with the company.
10. Herbert Allen，“Conflict-Cola，” Wall Street Journal ，April 15，2004.
11. Excerpts from a survey of corporate board members conducted by PricewaterhouseCoopers，as reported in Corporate Board Member ，November/December 2004. PWC identified no comments or sentiment against Buffett.
12. Deborah Brewster，Simon London，“CalPERS Chief Relaxes in the Eye of the Storm，” Financial Times ，June 2，2004.
13. Interview with Don Graham.
14. “Coke Shareholders Urged to Withhold Votes for Buffett，” Atlanta Business Chronicle ，April 9，2004.
15. In “The Rise of Independent Directors in the U.S.，1950-2005: Of Shareholder Value and Stock Market Prices” (Stanford Law Review ，April 2007)，Jeffrey N. Gordon condudes，“One of the apparent puzzles in the empirical corporate governance literature is the lack of correlation between the presence of independent directors and the firm’s economic performance. Various studies have searched in vain for an economically significant effect on the overall performance of the firm.”
16. This issue was resolved through a consent decree on April 18，2005，in which the company did not pay a fine or admit wrongdoing but promised to clean up its internal audit，compliance，and disclosure systems.
17. The GMP International Union，which also spoke at the meeting.
18. Transcript，Coca-Cola shareholder meeting 2004，courtesy of the Coca-Cola Company; Adam Levy and Steve Matthews，“Coke’s World of Woes，” Bloomberg Markets ，July 2004; interviews with several directors and company employees.
19. Transcript，Coca-Cola shareholder meeting 2004，courtesy of the Coca-Cola Company.
20. Adam Levy and Steve Matthews，“Coke’s World of Woes.” The New York Times blasted Coke over severance payments to Heyer and other executives in “Another Coke Classic，” June 16，2004. The criticism was not universal; the Economist said Isdell was “welcomed by investors and analysts as a safe pair of hands” (“From Old Bottles，” May 8，2004).
21. For example，Constance L. Hays，in The Real Thing: Truth and Power at the Coca-Cola Company (New York: Random House，2004)，makes this inference.
Chapter 61
1. Interview with Tom Newman.
2. Interview with Kathleen Cole.
3. Ibid.
4. The author，too，has for some years sat in the managers’ section，although she is not a shareholder.
5. This dinner，which was hosted by Morgan Stanley at the time，subsequently became a private event hosted by the author.
6. Courtesy Paul Wachter，producer，Oak Productions.
7. Tom Strobhar，“Report on B-H Shareholder Meeting，”Human Life International ，May 2004; “Special Report，HLI Embarrasses Warren Buffett in Front of 14, 000 Stockholders，” July 2004. Mr. Strobhar has a curious history. After serving as a leader in the boycott against Berkshire that resulted in canceling the shareholder-contributions program，he wrote an editorial in the Wall Street Journal ，“Giving Until It Hurts” (August 1，2003)，criticizing the shareholder-contributions program for being a clandestine way of“paying” Buffett (Notwithstanding that Berkshire made no corporate charitable contributions nor paid a dividend). Strobhar identified himself only as the president of an investment firm in Dayton，Ohio，omitting his role in the boycott and the fact that he was chairman of Life Decisions International. Strobhar went on in 2005 to found Citizen Action Now，an organization designed to fight “the homosexual agenda” and for “an America free from the manipulation of homosexual groups.” On the website of his investment firm，he borrows Buffett’s reputation by advertising himself (as of November 2007) as “trained in the tradition of Ben Graham，the ‘father of security analysis，’ whose students include Warren Buffet [sic]，‘the world’s greatest investor.’... Like Graham and Buffett，Thomas Strobhar’s focus is on‘value investing.’”
8. Excerpts from 2004 Berkshire Hathaway annual meeting are from notes of the author.
9. The Omaha Housing Authority bought the house for $89,900.
10. Interview with Susie Buffett Jr.
11. Ibid.
12. Ibid.
13. Ibid.
14. Howard Buffett Jr. (Howie B.)，speaking at Susie’s funeral.
15. Interview with T. D. Kelsey.
16. Ibid.
17. Interviews with Al Oehrle，Barbara Oehrle.
18. Interview with T. D. Kelsey.
19. Interviews with Herbert Allen，Barbara Oehrle，T. D. Kelsey.
20. Interview with Susie Buffett Jr.
21. Interviews with Herbert Allen，T. D. Kelsey. According to the Oehrles，Herbert Allen，and Barry Diller，the rest of the guests remained in Cody for the weekend and turned the weekend，as best they could，into a sort of tribute to Susie.
22. Interview with Susie Buffett Jr.
23. Interview with Howie Buffett.
24. Interviews with T. D. Kelsey，Herbert Allen.
25. Interviews with Susie Buffett Jr.，Peter Buffett.
26. Interviews with Susie Buffett Jr. and Peter Buffett，who both said they found it comforting to have their mother with them in the plane.
27. Interview with Howie Buffett.
28. Interview with Sharon Osberg.
29. Interview with Susie Buffett Jr.
30. Interview with Devon Spurgeon，whom Susie Jr. called on her honeymoon in Italy. The author was also supposed to make this trip; Buffett’s wish for emotional support from women was probably at an all-time high during this period.
Chapter 62
1. She left significant amounts of money to Kathleen Cole and Ron Parks，her longtime trusted caretakers and friends. She left her grandchildren and other people modest amounts，from $10，000 to $100, 000.
2. Interview with Tom Newman.
3. Interview with Howie Buffett.
4. Interview with Peter Buffett.
5. A. D.Amorosi，“In‘Spirit,’ tadition Is Besieged by Modern Life，” Philadelphia Inquirer ，May 23，2005.
6. Interview with Susie Buffett Jr.
7. Interview with Peter Buffett.
8. Interview with Sharon Osberg.
9. Interview with Charlie Munger.
10. Berkshire Hathaway annual letter to shareholders，2005.
11. Charles R. Morris，The Trillion Dollar Meltdown . New York: Public Affairs，2008.
12. Carol Loomis，“Warren Buffett Gives It Away，” Fortune ， July 10，2006.
13. Ibid.
14. Buffett could not resist: The note that accompanied Bertie’s letter containing this comment said，“She’s still smarting about that a little bit. ”
15. Interview with Doris Buffett.
16. In installments beginning in 2006，as long as either Bill or Melinda Gates is active in the foundation.
17. The first installment of 602,500 shares declined 5% a year in terms of shares thereafter. Buffett expected，as was reasonable，that the price of Berkshire’s stock would increase by at least 5% a year (through modest growth and inflation). Thus，the dollar value of the gifts was likely to remain level or even increase from year to year. During the year between the first gift and the second，Berkshire’s stock price went up 17%. The first 602,500-B-share distribution was worth $1.8 billion，compared to the second 572, 375-B-share distribution worth $2 billion. In June 2006，BRK was trading at $91,500 (B shares at $3, 043).
18. As quoted in“The Life Well Spent: An Evening with Warren Buffett，” November 2007.
19. Bill Gates used the term “convenors.” This approach differs，for example，from annually funding a vaccine program，which requires a continuing investment without a permanent cure.
20. “The New Powers of Giving，” Economist ，July 6，2006; Karen DeYoung，“Gates，Rockefeller Charities Join to Fight African Hunger，” Washington Post ，September 13，2006; Han Wilhelm，“Big Changes at the Rockefeller Foundation，” Chronicle of Philanthropy ，September 8，2006; Andrew Jack，“Manna from Omaha: A Year of‘Giving While Living’ Transforms Philanthropy，” Financial Times ，December 27，2006.
21. Interview with Doris Buffett. See Sally Beaty，“The Wealth Report: The Other Buffett，” Wall Street lournal ，August 3，2007.
22. Former President Jimmy Carter letter to Warren Buffett，October 18，2006.
23. The guinea worm enters the body through the drinking of tainted water，then grows up to three feet long and the width of a paper clip. The worm burns its way out through the skin by emitting an excruciatingly painful acid，emerging a few inches a day as sufferers wind it around a twig. They often seek relief by plunging into water，where the erupting worm releases a cloud of larvae to begin the cycle anew. The Carter Center and other nongovernmental organizations are tantalizingly close to wiping out the guinea worm.
24. Interview with Astrid Buffett.
25. After Susie’s death，both of her apartments in San Francisco’s Pacific Heights were sold，as was the Buffetts’ second house，“the dormitory，” in Emerald Bay. Buffett kept the original house in Emerald Bay，which continues to be used by his children and grandchildren. He never goes there.
26. On December 12，2007，major central banks began to provide funding at terms longer than overnight，and began to auction funding against a broader range of collateral and with a broader set of counterparties. The Federal Reserve activated swap lines to help the other central banks provide liquidity in dollars to their markets.
27. Using the return on capital figure he achieved for shareholders through 2007 as a proxy，the author estimates that Buffett (not including Susie’s shares) would have been worth between $71 and $111 billion by the end of 2007 had he continued to charge his“partners” fees. Susie’s stake would have been worth another $3 million-$745 billion. The difference between the high and low range is the fee structure (Buffett’s former 25% plus 6% interest on capital to all partners——the high number——vs. the 2%/20% structure of most hedge funds today——the low number). The calculation assumes that Buffett took out the equivalent of his 6% a year for living expenses，as he typically did while running the partnership. That amounts to $1 million per year by 2007. His and Susie’s (really Susie’s) living expenses exceeded this by a wide margin; however，Buffett’s personal investments——not part of Berkshire——also compounded at an astonishing rate and could (and did) fund Susie’s lifestyle without further withdrawals from Berkshire.
28. Interview with Chafiie Munger.
Afterword
1. Michael Santoli，“They’ve Got Class，” Barron’s ，September 10，2007.
2. E.S. Browning，“Stocks Tarnished by‘Lost Decade，’” Wall Street Journal ，March 26，2008.
3. Warren Buffett letter to Nicole Buffett，August 10，2006.
4. Richard Johnson with Paula Froelich，Chris Wilson，and Bill Hoffmann，“Buffett to Kin: You’re Fired!，” New York Post ，September 7，2006.
5. This excludes approximately $180 million of imputed investment income on the $5.5 billion of General Re’s cash that Buffett had transferred to National Indemnity and Columbia Insurance through intercompany reinsurance agreements. General Re estimated the effect on its return on equity at 150 basis points in each of 2005，2006，and 2007.
6. The combination of underwriting profits and higher float produced a 20% return on average equity in 2006 compared to losses in earlier years. Gen Re grew its book value at an average of 12.8% since 2001，bringing its capital to more than $11 billion，compared to $8.6 billion when it was acquired. General Re made a $526 million profit from underwriting on premiums of about $6 billion——compared to earlier losses of between $1 and $3 billion (depending on the year) on premiums of just under $9 billion. Float had risen from about $15 billion to $23 billion on a 32% decline in premiums.
7. Joseph P. Brandon letter to Warren Buffett，January 25，2008.
8. Berkshire Hathway 2007 letter to shareholders.
9. HIH Royal Commission，The Failure of HIH Insurance . Australia: National Capital Printing，Canberra Publishing and Printing，April 2003.
10. Doug Simpson，“Search for Deep Pockets Widens in Reciprocal of America Case，” Unintended Consequences blog (dougsimpson.com/blog)，March 3，2005; Timothy L. O’Brien，“Investigation of Insurance Puts Buffett in Spotlight，” New York Times ，March 28，2005; Timothy L. O’Brien and Joseph B. Treaster，“The Insurance Scandal Shakes Main Street，” New York Times ，April 17，2005; Marisa Taylor，“U.S. Dropped Enron-Like Fraud Probe，” McClatchy Newspapers，July 23，2007; Scott Horton，“Corporate Corruption and the Bush Justice Department，” Harper’s Magazine ，July 24，2007.
