The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [401]
The next morning he, Susie, the Gateses, and three other couples flew to Juneau to helicopter over the ice fields. They cruised up the fjords to view huge blue icebergs and waterfalls cascading over three-thousand-foot cliffs. But as Buffett sat politely through a slide presentation on glaciology on board the ship that evening, his mind wandered to whether Goldman Sachs would be able to put together a bid for Long-Term. Predatory sellers had pushed prices so far down that Long-Term was a cigar butt. An opportunity to buy such a large bundle of distressed assets had never arisen so quickly in his career.
The next day, the Gates party went ashore at low tide to view the hundreds of brown grizzly bears that frequented Pack Creek. Jon Corzine, the head of Goldman Sachs, called Buffett on his satellite phone but kept being cut off. “The phone didn’t work because of these half-mile-high rock walls on either side of the boat. The captain would point out, Look, there’s a bear. I was saying, To hell with the bear. Let’s get back where I can hear the satellite phone.”
Two or three hours went by with Buffett held incommunicado as the party spent the afternoon crossing Frederick Sound so they could view the humpback whales. Corzine stewed in New York before he regained brief—and final—contact with Buffett. By the time Buffett resignedly trudged off to view a slide show on Alaskan marine wildlife that evening, Corzine had gathered that he could make a bid, as long as the investment had nothing to do with, and was not managed by, John Meriwether.
On Monday, Buffett remained out of touch and Corzine grew pessimistic about working out a bid. He had begun to talk with Peter Fisher, who ran trading activities at the Federal Reserve, and was drawing together Long-Term’s creditors to negotiate a joint bailout. The Federal Reserve had held a conference call at which its chairman, Alan Greenspan, spoke of an “international financial maelstrom” that must be causing “considerable breakage to crockery somewhere.”31 Hope began to stir that the Fed would cut interest rates.
Meanwhile, Long-Term lost another half billion dollars; the banks picking over its books were using what they learned against it.32 The fund now had less than a billion dollars of capital left. The irony was the $2.3 billion it had paid out to its own investors a year before in order to increase the share of the fund owned by its partners. If it had that money now, Long-Term might have been in a position to survive on its own. Instead, it had a hundred dollars of debt for every dollar of capital—a ratio no sane lender would ever entertain.
Buffett was en route to Bozeman, Montana, with the Gates party, but Corzine had reached him earlier that morning and gained permission to enlist a large insurer, AIG, which owned a derivatives business, to join the bid. Its chairman, Hank Greenberg, was on friendly terms with Buffett. AIG had the experience and the team to replace Meriwether as manager, and Greenberg’s powerful presence would balance out Buffett’s—and it might make Buffett’s bid more palatable to Meriwether.
The next morning, forty-five bankers arrived at the Fed, as summoned, to discuss a bailout of the customer that had bullied them so relentlessly for the past four years. Long-Term had them over a figurative barrel once again, for if it went down, other hedge funds would go down with it. As one domino fell after another, a global financial meltdown was a real possibility—a repeat of Salomon. This was