The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [356]
Nonetheless, Brady called Buffett back. He expressed empathy but made it clear that reversing the decision was an enormous problem.
“They were going to look silly. And I felt they looked silly too, but they would look a whole lot sillier a few days later when financial carnage was spread from this act.”89
Brady said he thought Buffett was overreacting but agreed to call back again. He needed to consult with SEC Chairman Breeden, with Corrigan, and with Federal Reserve Chairman Alan Greenspan.
Buffett sat and waited for Brady’s call. He couldn’t call Brady. He didn’t know that Brady was sitting on Ogden Phipps’s porch in Saratoga Springs, at the horse races. It was Brady’s prerogative to call him—or not.
The phone system on the conference floor didn’t ring on Sundays. To keep from missing an incoming call, someone had to stare continually at the phone to see whether a little green light lit up. For a while, Buffett stared at the phone, “as depressed as I have ever been.” Finally, someone enlisted a hastily-called-in secretary to stare at the light.
Behind the scenes, the regulators were talking. Corrigan had contacted Paul Volcker, former chairman of the Federal Reserve Board and now chairman at a prestigious investment-banking firm. Volcker, like Breeden, was incensed at Salomon. None of the regulators believed that Buffett would walk; they felt he had too much money and reputation at stake. They knew the decision would have an adverse impact on Salomon and they thought that was appropriate. They didn’t believe that Salomon would fail even if the Treasury pulled its imprimatur. The markets had so much confidence in Buffett that they assumed that simply by standing over Salomon holding his umbrella, he could save the firm. But they could not be certain of that. They considered whether the financial markets could survive a meltdown of one of its largest firms. The Federal Reserve would have to pump huge sums of money into the market to keep other banks afloat after Salomon failed to pay them. No rescue on this order of magnitude had ever been attempted. They were well aware of the likely second-order effects. The global financial market could potentially collapse. Did they think the Federal Reserve could handle it? “I was always an optimist,” Corrigan says. “I always said to myself, ‘You do what you have to do.’”90
Hours passed while Buffett waited for the phone to ring. Alan Greenspan called once, saying, no matter what, he wanted Buffett to stay. “It was a plea to just sort of stand there at the bridge regardless of what happened.”
Little by little, the trading floor began to fill with people, as if summoned by some invisible jungle drum. They lit their cigarettes and their cigars, sat around The Room, and waited. The arbs huddled, mourning Meriwether. Nobody knew what was going on upstairs. Slowly, the clock ticked toward the hour when trading would begin in Tokyo, sounding the firm’s death knell.
Upstairs, the board milled around uselessly, waiting while the regulators talked. Brady called Buffett back periodically but had nothing meaningful to say. Several times Buffett repeated his case in the gravelly voice that always betrayed him when under stress. He told Brady that Salomon’s attorneys were working on a bankruptcy filing. He invoked Salomon’s importance to the markets. He told Brady of the domino effect that the firm’s failure could cause.
“I said to Nick, I’d talked to Jerry Corrigan. This thing was going to implode. Tokyo was going to open, and we weren’t going to buy back our paper. It was over. Hour after hour, from ten o’clock, I kept telling the consequences of all these things, and it didn’t mean anything to him.”
Brady went back to his fellow regulators and talked. Most of them felt that this was special pleading. Buffett was asking for some kind of