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By 2008, Coca-Cola’s stock was up forty-five percent from its low, to $58. Profits had risen steadily under CEO Neville Isdell. He had settled the Department of Justice investigation and closed a $200 million discrimination lawsuit over racial bias. Buffett left the board in February 2006. His last Coca-Cola shareholder meeting had been another carnival of activists, but nobody had to be wrestled to the floor, and the tension was set to a lower thermostat. In 2007, Isdell had announced that he was retiring. The new CEO, Muhtar Kent, was responsible for the company’s successful push into non-cola drinks, where Coca-Cola had been lagging and was strategically off course.

“I always used to tell Gates that a ham sandwich could run Coca-Cola. And it was a damn good thing, too, because we had a period there a couple of years ago where, if it hadn’t been that great of a business, it might not have survived.”

General Re, Berkshire’s other problem-child investment, had benefited from favorable insurance markets after September 11. It reported the most profitable results in its history in 2007, with $2.2 billion of pretax operating earnings.5 By then Gen Re had earned back the losses and restored its balance sheet to a better condition than when Buffett bought it. From $14 billion of float at the end of 1998, a decade later General Re had $23 billion of float and $12.5 billion of capital. It was operating with nearly one-third fewer employees and the company had been transformed.6 Since 2001, General Re had produced a 13.4 percent annualized return on capital; a number that would be higher, CEO Joe Brandon noted in a letter to Buffett, were it not for “a number of infamous legacy issues.”7 These included $2.3 billion of losses related to insurance and reinsurance sold in prior years, and $412 million of charges for the run-off of Gen Re Securities, the company’s derivatives unit. Nevertheless, General Re had escaped the fate of Salomon and overcome the stigma of its Scarlet Letter. Buffett was finally able to praise it and its senior managers in some depth in his 2007 shareholder letter, saying “the luster of the company has been restored” by “doing first-class business in a first-class way.”8

One large and lingering trace of General Re’s former problems remained. Its last act of ignominy before the change of management in 2001 had been to create a Salomon-type scandal of its own in which it broke Buffett’s rule of not “losing reputation for the firm.” This was the event that would, as it unfolded, adjust Buffett’s perception to the new legal enforcement environment, in which showing extreme contrition and cooperation produced no advantage in how a company was treated by prosecutors. Extreme contrition and cooperation were now the expected minimum standard—in part because of Salomon. Anything short of that—for a company to defend itself or its employees, for example—could be considered grounds for indictment.

General Re had become entangled in legal and regulatory problems when New York Attorney General Eliot Spitzer started investigating the insurance industry over “finite” reinsurance in 2004. “Finite” reinsurance has been defined in many ways, but, put simply, it is a type of reinsurance used by the client mainly for financial or accounting reasons—either to bolster its capital or to improve the amount or timing of its earnings. While usually legal and sometimes legitimate, finite reinsurance had been subject to such widespread abuse that accounting rulemakers have spent decades trying to rein it in.

Before working on Wall Street, I was one of those trying to rein it in, as a project manager at the Financial Accounting Standards Board, the primary accounting rulemaker. I helped to draft rules that specify how to account for finite reinsurance. After leaving the FASB, I became a financial analyst. While working at PaineWebber, I covered the stock of General Re at the time it was acquired by Berkshire Hathaway. I first met Warren in connection