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sense of proportion than most of his traders, opting to take a thirty-five percent pay cut, in line with the decline in earnings.46 This helped him with Buffett, who thought Gutfreund had more class than his employees. But Buffett’s sense of decency was so offended by the employees’ greed that he overcame his natural inertia and voted against the bonuses for the traders. He was overruled. When word of Buffett’s “no” vote raced through the hallways of Salomon, people were outraged. A billionaire who loved money had called them greedy.

Buffett considered Salomon a casino with a restaurant out front.47 The restaurant was a loss-leader. The traders—especially Meriwether’s people—were the casino: the purity of risk-taking done without conflicts of interest. That was the part of the business Buffett liked, and the new pay system was designed to keep the arbs from bolting.48 But by trying to operate the firm under two distinct pay systems, as if it really were a casino with a restaurant out front, Gutfreund had driven a rift through Salomon’s heart.

Now Meriwether and Hilibrand asked Gutfreund for permission to approach Buffett to buy back his convertible preferred stock. The terms were so rich that it was costing Salomon too much. They were no longer under threat of a takeover. Why pay for Buffett’s protection? Gutfreund said they could talk to Buffett and try to convince him he was better off without the preferred stock. When approached, Buffett said that he was amenable. But having Buffett as an investor must have made Gutfreund feel more secure, for in the end he got cold feet.49

Thus, Buffett was held to his original deal. Having invested both Berkshire’s $700 million and his own reputation in John Gutfreund, by 1991 it was too late to back out.

48

Thumb-Sucking, and Its Hollow-Cheeked Result

New York City • 1991

On Thursday afternoon, August 8, 1991, Buffett was driving to Reno, Nevada, from Lake Tahoe on his annual weekend with Astrid and the Blumkin boys. He always looked forward to this trip and was in a relaxed and jovial mood. John Gutfreund’s office had called him that morning. Where will you be tonight between nine p.m. E.S.T. and midnight? they asked. We want to talk to you.

Thinking this was really unusual, he said he was going to a show. They told him to call Wachtell, Lipton, Rosen & Katz, the law firm that represented Salomon, at seven-thirty p.m. Hmm, he thought. Maybe they’re going to sell the firm. It sounded like good news to him. The stock was trading around $37, close to $38, the price at which his preferred stock would convert to common, and he could take his profits and be done with Salomon. Gutfreund, who had a long-standing habit of calling him for advice, might need help in negotiating terms.

Buffett and company whiled away the afternoon in Reno. Buffett reminisced. In 1980 he had been offered the entire contents of a Reno landmark, the Harrah Collection from the National Automobile Museum: 1,400 cars covering acres and acres, a 1932 Rolls-Royce salamanca, a 1922 Mercedes Targa Florio Racer, a 1932 Bugatti coupe, a 1955 Ferrari, a 1913 Pierce-Arrow. It would have cost him less than a million dollars for the whole collection. He had wavered, then passed. A few years later, part of the collection—hundreds of cars—had been gradually auctioned for a total of $69 million. One car, the Bugatti Royale, had recently been sold to a Houston real estate developer for $6.5 million.

By seven-thirty p.m., they had returned to Lake Tahoe. “We got to the hotel and the rest of them went into the dining room of the steak house. I told them, ‘This may take a while.’ I found a pay phone outside on the wall and dialed in to the number they gave me.” Buffett expected to be connected with Gutfreund, but Gutfreund was on a plane from London, where he had been trying to save the firm’s mandate in an investment banking deal for British Telecom. His flight had been delayed, and Buffett sat on hold for quite a while as a conversation took place on the other end about whether to wait for him to arrive before continuing.