The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [321]
Buffett, of course, had his own views about pyramids and pharaohs, but he liked Annenberg and was happy to play golf with him. Though he would never spend his money that way, Buffett believed that people had the right to spend their own money any way they chose. Besides, he would never dream of criticizing the ambassador. Annenberg paired Buffett that weekend with Reagan as a golf partner, so Secret Service agents trailed them—but refused to fetch golf balls out of water traps as Buffett had hoped.
Buffett had a mixed view of Reagan as President. He admired Reagan’s handling of geopolitics. However, under Reagan the United States went from being the world’s largest lender to its largest borrower. Just as junk bonds and leverage were ballooning on Wall Street, the government had been running up mountains of debt—which Buffett considered the Wimpy style of economics: I will gladly pay you Tuesday for a hamburger today.60 Buffett’s style was to own the cattle ranch—and he had the balance sheet to prove it.
Armored by Berkshire Hathaway’s balance sheet—and a golf scorecard signed by the President of the United States—Buffett was now a fortress of power, a fount of widely acclaimed wisdom. After his role rescuing Scott Fetzer, people thought of him as a high-profile protector. Every financial statistic pertaining to him and his company rang with exclamation points. Berkshire Hathaway’s book value per share had grown by more than twenty-three percent a year for twenty-three years! Buffett’s first group of partners had reaped $1.1 million for each $1,000 put into the partnership! Berkshire was trading at the dizzying price of $2,950 per share! Buffett himself had a net worth of $2.1 billion! A Wall Street money manager—an investor—was the ninth-richest man in the U.S.! Never in history had anyone climbed from the ranks of those who managed other people’s wealth to join the celebrated few on top of the feeding chain of riches. For the first time, the money from a partnership of investors had been used to grow an enormous business enterprise through a chess-game series of decisions to buy whole businesses as well as stocks. Inevitably, more people were going to call him for help.
The next person to pick up the phone was John Gutfreund, the man who ran Salomon Brothers and had endeared himself to Buffett by helping to save GEICO in 1976.
That he had done so showed both the strength and weakness of Salomon. The GEICO stock underwriting had been based on the opinion of one equity research analyst. If the firm had any stature in the marketplace of selling stocks, it would have passed on the deal as far too small to be worth the legal liability if it failed—as all the other firms had done. But Salomon, bold and decisive rather than bureaucratic, dared the risk because it needed the business. Buffett had always taken a liking to people who extended themselves and helped him make money. And Gutfreund’s reserved, intellectual prep-school personality, coupled with a domineering brutality, seems to have added to Buffett’s trust in him as overseer of an unruly-by-nature investment bank.
Gutfreund had grown up the son of a well-to-do meat-truck company owner in Scarsdale, New York, a golf-course-ringed suburb of commuters close to New York City. He’d majored in literature at Oberlin College and considered teaching English, but was drawn to the trading floor by a golfing friend of his father’s, Billy Salomon, a descendant of one of the firm’s three founding brothers.
Salomon Brothers was born in 1910 when Arthur, Herbert, and Percy Salomon, carrying $5,000 of capital, knocked on Wall Street’s doors to broker short-term loans. Less than a decade later, the U.S. government became the tiny firm’s client by adding Salomon to its list of registered