The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [340]
In response to grumbling, the Treasury lowered the limit and said no individual dealer could buy more than thirty-five percent, which made it harder to coup the auction. Smaller squeezes still occurred, but Salomon no longer owned the market unchallenged. Naturally, the new rule was unpopular at Salomon. Since the total of bids exceeded all the bonds on offer, the Treasury also prorated everyone, which meant a firm that wanted thirty-five percent had to bid more than thirty-five percent, a juggling act.
Thus in various ways the clampdown made it harder to profit at the government desk at Salomon. The mist of testosterone did not dissipate, however. Mozer tested the Treasury’s patience twice in 1990, bidding more than one hundred percent of all the bonds to be issued. Michael Basham, who ran the auctions, told him not to do it again. Mozer was sent to an “apology breakfast” with Bob Glauber, an undersecretary of the Treasury. He squeaked out some words but did not exactly apologize. He claimed that overbidding was in the government’s best interest because it increased demand for bonds.9 Not mollified, Basham changed the rules so that no individual firm could even bid more than thirty-five percent for its own account. The limit on bids meant Salomon might not even get its full thirty-five percent limit of bonds.
Now Feuerstein read Buffett a copy of a Salomon press release to be issued the next morning, which was being explained to all board members that night. It described how Mozer had responded to this stare-down with Basham. He had proceeded to submit unauthorized bids in excess of the government’s bidding limit in the December 1990 and February 1991 auctions.
Feuerstein gave Buffett a scripted version of events and told him that he had already spoken at length with Munger, who was at his cabin in Minnesota.10 Munger had said to him something about thumb-sucking and added, “People do that all the time.”11 Buffett recognized the term “thumb-sucking” as a Mungerism for procrastination but wasn’t terribly concerned. Feuerstein did not mention anything else discussed in the lengthy conversation with Munger, and Buffett did not ponder whose thumb was being sucked. Seven or eight minutes later he got off the phone, recognizing that this wasn’t the good news for which he had been hoping but not feeling alarmed enough to call Munger immediately. He’d check in with Munger over the weekend, he decided, but for now he was going to enjoy Lake Tahoe. Then he wandered back to join Astrid and the Blumkins in the dining room, where they were having a steak before seeing Joan Rivers and Neil Sedaka perform.
While Buffett was watching the show, John Gutfreund’s plane from London finally landed. Gutfreund, Strauss, and Feuerstein had a conversation late that evening with Richard Breeden and Bill McLucas, top officials at the SEC. The three of them also placed a call to Gerald Corrigan, the beefy six-foot-four president of the New York branch of the Federal Reserve.
Using a different set of talking papers, Gutfreund and Strauss told Breeden, McLucas, and Corrigan more of the story than Salomon’s board had just heard. Mozer had not just overbid. To get around the thirty-five percent limit, at the February 1991 Treasury auction he had entered a fake bid in the name of a customer and stashed the bonds he got in Salomon’s account. In fact, he had placed more than one false bid in that auction. As to why these had not been reported earlier, they explained the delay as an oversight. Yet the SEC and the Treasury were in the midst of investigating Mozer, for he had pulled a huge squeeze in the May two-year-note auction. His actions were under intense scrutiny by regulators. That should have been true at Salomon as well. How could the delay