Warren Buffett

Warren Buffett's Wild Ride at Salomon (Fortune, 1997)

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How Warren Buffett got a role in The Office finale

This drama of sends a powerful message about the hazards lurking in a financial system that every day grows more complex. This tale should begin with the thought that the ten months Buffett spent at Salomon were a profound break in the rhythm of his life. Warren Buffett is an executive accustomed to making maybe one big investment decision a year, but Salomon left him dealing with 25 operating decisions a day. In the four hours of suspense between the two actions, Buffett struggled passionately to ward off a tragedy he saw threatening to unfold. That Sunday in August was a far cry from the commercialism of another Sunday, Sept.

The deal allowed Gutfreund to stave off takeover artist Ronald Perelman, who seemed poised to buy a large block of Salomon common stock from certain South African investors wanting to sell. Over the years, Buffett had derided investment bankers, deploring their enthusiasm for deals that provided huge fees but that were turkeys for their clients. He has also spoken often of wanting to work only with people he likes. Several reasons explain the move, none of them really good enough in the light of what followed.

One is that Buffett had been having trouble for a couple of years finding stocks he thought reasonably priced and was looking for fixed-income alternatives. Buffett liked Gutfreund—still does, in fact. A third explanation was simply that Buffett thought the terms of the deal worth accepting. In effect, convertible preferreds are fixed-income investments with lottery tickets attached. If Buffett did not convert the stock, it was to be redeemed over five years beginning in To Buffett, it looked like a decent proposition. To some of the brainy, mathematical types at Salomon, that appraisal would have qualified as the understatement of the year.

Over the next few years, this opinion did not die at Salomon, and more than once executives of the firm though never Gutfreund came to Buffett with propositions for deep-sixing the preferred. A little stage setting here: Before the crisis hit, Salomon was on its way to an excellent business year, marred only by a Treasury investigation into a May T-bill auction in which Salomon was thought perhaps to have engineered a short squeeze.

For the story of what then happened, we may begin with Buffett in Reno. Yes, Reno, which was the spot two executives of a Berkshire subsidiary had picked for an annual getaway with Buffett. Arriving in Reno on the afternoon of Thursday, Aug. Maybe, he thought, Gutfreund had made a deal to sell Salomon and needed a quick okay from the directors. At the appointed time, breaking from dinner, Buffett stood at a pay phone to make his call.

Mozer and his colleague, said Strauss and Feuerstein, had been suspended, and the firm was now moving to notify its regulators and put out a press release. Feuerstein then read a draft of the release to Buffett and added that earlier in the day he had talked at some length to Salomon director Charles T.

But a fuller account dribbled out over the next few days, depicting a man at war with the Treasury over bidding rules that he despised. So he went back to dinner. Only on Saturday, when he reached Munger, then vacationing on a northern Minnesota island, did Buffett get a sense of real trouble.

Munger bore down on that question and found out that Mozer, believing that he was about to be unmasked, had disclosed the February bidding infractions to his boss, John Meriwether, in late April.

But then no one did a thing about telling—neither in April nor in May, June, or July. Even so, that left them better off than the public, which in the Aug. In his phone conversation with Feuerstein, Munger sharply challenged the omission. When he and Buffett talked on Saturday, however—with the Salomon story played big on the front page of the New York Times—they resolved to insist on prompt disclosure of the full facts.

But a sentence that followed sent the directors into a telephonic uproar. The real offense of that Wednesday directors meeting, though, was not language but a flagrant omission: Corrigan by then knew enough to have become incensed by these doings on his watch. Buffett did not hear about any Fed letter until later in the week, when he spoke to Corrigan, and even then Buffett assumed the Fed had only sent a request for information.

Buffett did not actually see the letter until more than a month later, after he heard Corrigan refer pointedly to it in congressional hearings. But the stock was only the facade for a much graver matter, a corporate financial structure that by Thursday was beginning to crack because confidence inSalomon was eroding. Unfortunately, the erosion of confidence was occurring in a company grown enormous. Propping the company on the right-hand side of the balance sheet was—are you ready? The paramount fact about those liabilities is that short-term lenders have their track shoes on at all times: They have absolutely no enthusiasm for earning an extra fraction of a percentage point in interest if they perceive that their capital is even slightly at risk.

Just waving a premium rate in front of them is in fact counterproductive, since it makes them suspect there is hidden danger. So on that Thursday, Salomon began to experience a run. It materialized out of left field in the form of investors who wished to sell this big-league trader and market maker, Salomon, its own debt securities—specifically, the medium-term notes that the company had outstanding.

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How Warren Buffett got a role in The Office finale

Children of Warren Buffett Susan A. Allen Greenberg Howard G.

But the stock was only the facade for a much graver matter, a corporate financial structure that by Thursday was beginning to crack because confidence inSalomon was eroding. This act was a break from his past condemnation of extravagant purchases by other CEOs and his history of using more public transportation. Retrieved September 9, Retrieved August 2, By that time, Salomon had released the news that he was becoming interim chairman, and the New York Stock Exchange had opened up trading in the stock.

Children of Howard G. The World's Billionaires — Top ten richest people in the world as of 10 March Annual average compounded return: In and , Berkshire bought 1. Some questioned the investment. He solves problems like Edison and gets things done like Welch, Munger said. Shortly after making the investment, he talked it up in the pages of Fortune magazine. That spelled trouble to Buffett and, within a year, Berkshire had dumped its entire stake in the company.

Fortunes of Warren: A Play

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How Warren Buffett got a role in The Office finale