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Munger told Buffett that he had challenged the press release: Shouldn’t management’s prior knowledge be disclosed? Feuerstein said that, yes, it should be, but the decision had been made not to because Salomon’s management thought that disclosure would threaten the company’s funding. Salomon had tens of billions of short-term commercial paper debt that rolled over day by day. If the word got out, lenders would refuse to renew. To Munger, “funding difficulties” was shorthand for “financial panic.”19 Lacking the leverage to insist, he had given in, but he and Buffett now agreed that more disclosure was required. They mentally braced themselves for what would follow.

Two days later, on Monday morning, August 12, the Wall Street Journal reported the alleged details, with a blaring headline: “The Big Squeeze: Salomon’s Admission of T-Note Infractions Gives Market a Jolt—Firm’s Share of One Auction May Have Reached 85%; Investigations Under Way—How Much Did Bosses Know?” It mentioned the possibility of “civil charges of market manipulation, violations of the antifraud provisions of securities law, misrepresentations to federal authorities,” “books and records violations,” and “criminal charges” for committing “both wire and mail fraud.”20

Gutfreund called Buffett, sounding calm. Buffett thought that he seemed to believe the whole situation meant “a few points on the stock.” In light of the disastrous article, Buffett thought this attitude was unrealistic, a sign that Gutfreund believed the whole affair could somehow be finessed.21 It seemed of a piece with Gutfreund’s unwarranted composure the previous week. Buffett pressed for more disclosure. Salomon’s treasury division was beginning to have trouble rolling over its commercial paper, meaning the firm’s lenders were starting to show signs of nervousness.22

Meanwhile, Munger was trying to get in touch with Wachtell, Lipton’s Marty Lipton, who was John Gutfreund’s indispensable best friend as well as Salomon’s outside counsel. So entwined with Salomon was Lipton that the speed-dial buttons on Donald Feuerstein’s phone rang his wife, the Sotheby’s and Christie’s auction houses, and Marty Lipton, not necessarily in that order.23 Munger knew that Lipton and his telephone were as inseparable as Buffett and his Wall Street Journal. Cell phones still being so rare, however, that even name partners of major law firms did not use them, Munger relied on Wachtell, Lipton’s office, which, he would later observe to the SEC, had the “finest phone system for reaching Marty Lipton at any hour of the day or night that I have ever seen in the history of the world…. I think even if he was engaged in sexual intercourse, you could get through to him.”24

Whether Lipton was horizontal when reached by Munger was never specified, but Munger badgered him for a follow-up press release, saying the first had been inadequate. Lipton agreed that the board would hold a telephone meeting to discuss it on Wednesday.

Not surprisingly, Jerry Corrigan at the Federal Reserve was even less satisfied than Munger with Salomon’s muted response. On Monday, August 12, he decided to have Peter Sternlight, one of his executive vice presidents, draft a letter to Salomon Inc. stating that the firm’s actions had called into question its “continuing business relationship” with the Fed, which was “deeply troubled” by the failure to make a timely disclosure of what the firm had learned. Salomon would have ten days to report on all “irregularities, violations, and oversights” that it had discovered.

In light of Corrigan’s earlier conversation with Strauss and Gutfreund, this letter would be a death threat. If the Fed cut off Salomon’s business relationship with the government, customers and lenders would desert in droves. The consequences would be huge and immediate.

Salomon had the United States’ second-largest balance sheet—larger than Merrill Lynch, Bank of America, or American Express. Nearly all of its loans consisted of short-term debt that