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Byrne’s first task when he took over as CEO was to run straight to the dusty Chinatown offices of the District of Columbia’s Insurance Superintendent Max Wallach. An old-school German who spoke with a thick accent, Wallach was “stubborn as hell, and he had this enormous interest in serving the public,” Byrne recalls. He was disgusted with GEICO’s former management and had refused to deal with them. Byrne perceived that Wallach was not wild about him either. Nevertheless, the two men began talking daily, sometimes hourly.42 Wallach insisted that the company put a deal in place by late June to raise money while simultaneously getting other insurance companies to take over some of its policies—that is, to “reinsure” GEICO.43 The idea was to increase the resources GEICO had available to pay claims and to cut the risk it was carrying so that they were more in balance. Thus, Byrne had to sell other insurers on the idea of putting up money to save a competitor.

Byrne’s prior experience was that he could sell anything. At first he was confident.

“My pitch was that insurance companies take care of themselves,” says Byrne. “We don’t want the regulators involved.” If GEICO failed, the regulators would just send the bill for GEICO’s unpaid claims to its competitors. So they would end up bailing it out anyway. But “Ed Rust, Senior, who ran State Farm,” says Byrne, “he was a cooney old bastard. He concluded—and he was probably pretty smart—‘I’ll pay a hundred million to cover any of their unpaid claims if it puts GEICO out of business. They have a better mousetrap, and killing GEICO will save us money in the long run.’” So State Farm backed out of the reinsurance deal.

“In the end,” says Byrne, “a couple of really good friends reneged. The Travelers just said, ‘We’re not going to help.’ They didn’t have any principled idea behind this. Travelers was just wussy about it.”

Three weeks after he joined GEICO, “I was racing around, thinking I had made the biggest mistake of my life. My wife, Dorothy, was up in Hartford, crying and crying and crying. We had just moved for the nineteenth time.” The market was suggesting GEICO might not survive; its stock, so recently trading for $61 a share, had crashed to $2 a share. Somebody who owned, say, twenty-five thousand shares, had just seen their fortune dwindle by almost ninety-seven percent—from more than $1.5 million to $50,000—from enough to live on for the rest of your life to enough to buy a very good sports car.

The reaction of the company’s investors and shareholders to the calamity would, in not a few cases, literally determine their fate.

Many longtime shareholders had panicked and talked themselves into selling, which is how the stock got to $2 in the first place. Whoever was buying from them took a gamble on GEICO’s fate.

Ben Graham, now age eighty-two, did nothing and kept his stock. Graham’s cousin Rhoda and her husband, Bernie Sarnat, talked to the dean of the University of Chicago business school. He told them to sell it, since stocks that cheap rarely recover. They decided—au contraire—that a stock that had sunk so low was too cheap to sell. What would they gain by selling? They had little to lose by keeping it. So they did nothing.44 Likewise, Lorimer Davidson never sold a share.45

Leo Goodwin Jr., the son of GEICO’s founder, sold and destituted himself. Shortly thereafter, his son, Leo Goodwin III, died of a drug overdose, a presumed suicide.46

Buffett did not own the stock, but with GEICO trading at $2 a share, he had sniffed out another situation like American Express. Here, however, the company didn’t have a franchise strong enough to pull it out of the ditch. GEICO needed a tow truck. Buffett felt that only a brilliant, energetic manager had any chance of turning the situation around. He wanted to meet Byrne and size him up before committing any money to the stock. He had Katharine Graham call Byrne; after overcoming Byrne’s initial resistance, she set