The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [572]
29. Mozer denied intentionally manipulating the market. He was suspected of “repo-ing out” the bonds by borrowing cash from customers with the bonds as collateral and making verbal side agreements with these customers that they would not relend the bonds to anyone. That froze the supply of bonds, squeezing the short-sellers. Suspicions of price-fixing dogged Salomon long afterward. There was little doubt that Mozer and his customers had cornered the bonds and created a squeeze. According to Eric Rosenfeld, Salomon’s own arb desk was short Treasuries and got burned.
30. Constance Mitchell, “Market Mayhem: Salomon’s ‘Squeeze’ in May Auction Left Many Players Reeling—In St. Louis, One Bond Arb Saw $400,000 Vanish and His Job Go with It—From Confidence to Panic,” Wall Street Journal, October 31, 1991.
31. Feuerstein didn’t find this out right away, even though it was known internally. He blames this omission for his failure to press for a more thorough investigation of the squeeze. Several people, including Meriwether, apparently knew about the “Tiger dinner” (named after one of the hedge-fund customers). However, the “Tiger dinner” did not prove collusion.
32. Interview with John Gutfreund.
33. Or whatever the price was; this is Buffett’s general recollection.
34. While this was taking place, Salomon filed a shelf registration statement in connection with a $5 billion senior debt offering, which the directors signed. The filing of a registration statement under these circumstances potentially put the firm in violation of securities laws.
35. Some thought the squeeze may have been simply a matter of timing to make a bet that the Fed was about to ease interest rates, according to Eric Rosenfeld, rather than defiance of the Treasury.
36. Various viewpoints within the firm are drawn from interviews with a number of the principals.
37. Interviews with Donald Feuerstein, Zachary Snow. Feuerstein says he happened to be taking his son on a college visit at Cornell University that day and was “furious” when he found out later what happened.
38. Interview with Donald Feuerstein. Feuerstein referred to his failure to influence Gutfreund as the result of Gutfreund’s yessing him to death, saying, “It is difficult to have an argument with someone who purports to agree with you” (Donald M. Feuerstein letter to William F. May, Charles T. Munger, Robert G. Zeller, and Simon M. Lorne, Munger, Tolles & Olson, January 31, 1993).
39. Interview with Zach Snow. Snow says that the dream haunted him long afterward. Feuerstein does not recall this incident but says that if something like this happened it did not come across this way to him.
40. Philip Howard, Gutfreund’s lawyer, speaking to Ron Insana on CNBC Inside Opinion, April 20, 1995.
41. John Gutfreund speaking to Ron Insana, CNBC Inside Opinion, April 20, 1995.
42. The auctions of December 27, 1990 (4-year notes), February 7, 1991 (the so-called “billion-dollar practical joke”), and February 21, 1991 (5-year notes) contained false bids. The April 25, 1991, auction included a bid in excess of the amount authorized by a customer. In the May 22, 1991 (2-year-notes) auction, Salomon (Mozer) failed to report a net “long” position to the government, as required, which fueled suspicions of a cover-up of market manipulation, but proof of market manipulation was never found.
43. Interview with Zach Snow, who also testified to this under oath in 1994.
44. Interview with Deryck Maughan.
45. Interview with Jerry Corrigan.
46. Even though he was Mozer’s boss, Meriwether did not have the authority to fire him; one managing director could not fire another. Only Gutfreund could do that.
47. Interview with Bill McIntosh.
48. Interviews with John Macfarlane, Deryck Maughan.
49. McIntosh, by his own admission, had been no fan of Gutfreund’s prior to this event.
50. Interview with Bill McIntosh.
51. Spread-widening of ten to twenty basis