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By Root 3346 0

the warning that Buffett and Munger had been repeating at their shareholder meetings since 1993. Some of the banks now feared for their survival unless they helped save the fund. They were reluctantly contemplating putting more money into Long-Term—money that would only go to pay Long-Term’s debts—on top of money they had already invested in the fund and lost. When Corzine told them Buffett was also bidding, the idea that he was going to come in and buy it to make a killing went down poorly, even though he would be bailing everybody out. Somehow, Buffett always won. People found it irksome. New York Federal Reserve Bank President William McDonough called Buffett to find out if he was serious. About to board a bus for Yellowstone National Park, Buffett told McDonough that, yes, indeed, he was ready to make a bid and could do so on short notice. He couldn’t see why the Federal Reserve would be orchestrating a bailout when Berkshire, AIG, and Goldman Sachs, a group of private buyers, stood ready to solve the whole problem without government assistance. He called Long-Term around eleven o’clock New York time on a crackly satellite phone and said, “I want you to know, I’m going to bid for the entire portfolio. You’ll hear from my representatives, but I want you to know it’s coming from me, and I hope you’ll take it seriously.”

“I didn’t want to hold the bus up, so I went along. It was killing me. And Charlie was in Hawaii. I still knew the basic positions that were involved, and I knew these spreads were really getting more and more extreme. On that Wednesday morning, it was changing by the hour.”

An hour later, Goldman faxed a single page to Meriwether offering to buy the fund for $250 million. As part of the deal, Meriwether and his partners would be fired. If Meriwether accepted, AIG, Berkshire, and Goldman would put another $3.75 billion into Long-Term, with Berkshire funding most of that. To minimize the chance of Long-Term shopping the bid to gin up a higher offer, Buffett had given them only an hour to decide.

By then, Long-Term had just over $500 million left, and Buffett was bidding just under half that. After paying off debt and losses, Meriwether and his partners would be wiped out, their nearly $2 billion of capital gone. But the document had been drafted by Goldman with a mistake in it. It offered to buy LTCM, the management company, instead of its assets, which Meriwether knew was what Buffett wanted. Meriwether’s lawyer said he needed his partners’ consent to sell the entire portfolio rather than the management company.33 Long-Term asked for a temporary emergency investment pending receipt of the approvals. But they couldn’t reach Buffett on his phone. If they’d reached him, he said later, he would have taken that deal. While everybody else on the Gold Rush trip was looking at hot springs, Buffett was dialing and redialing the satellite phone in Yellowstone, trying to call Corzine at Goldman and Hank Greenberg at AIG. The phone didn’t work. He had no idea what was going on back in New York.

The people at Long-Term did not know what was going on in the room with the bankers, where McDonough was in a quandary. He had an offer from the Berkshire-Goldman-AIG consortium but no deal. It was hard to justify government involvement in orchestrating a bailout when there was a viable private bid on the table. Finally, he told the assembled bankers that the other bid had failed for “structural reasons.” Buffett was not there to make a counterargument. The Federal Reserve brokered a deal in which fourteen banks put up a total of $3.6 billion. Only one bank, Bear Stearns, refused to participate, earning the long-lasting enmity of the rest. Meriwether’s crew negotiated an arrangement for themselves that they considered slightly better than “indentured servitude.”34

That night at the Lake Hotel, Buffett found out what had happened. He felt that Meriwether didn’t want to sell to him. If he had wanted to, he would have found a way. Perhaps it had weighed on Meriwether’s mind that, as one of the fund’s partners said, “Buffett