The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [575]
21. Interviews with Gladys Kaiser and Bob Denham.
22. House Committee on Energy and Commerce—Telecommunications & Finance Subcommittee, September 4, 1991, regarding securities trading violations by Salomon Brothers and implications for government securities market reform legislation.
23. Maughan had to go back to Washington a few weeks later to testify by himself. “The sea did not part,” he says, “and I got thoroughly wet.”
24. “Our goal is going to be that stated many decades ago by J. P. Morgan, who wished to see his bank transact ‘first-class business in a first-class way.’” Warren Buffett, “SALOMON INC—A report by the Chairman on the Company’s Position and Outlook.”(This wording was also used in a letter to Salomon Inc., shareholders as reprinted in the Wall Street Journal, November 1, 1991.)
25. Senate Subcommittee on Securities Committee on Banking, Housing, and Urban Affairs—Hearing on the Activities of Salomon Brothers Inc., in Treasury Bond Activities, Wednesday, September 11, 1991.
26. At the time, sixty-five lenders had stopped entering into repurchase agreements with Salomon, and the firm’s commercial-paper balance was falling toward zero. One major counterparty, Security Pacific, was refusing to do daylight foreign-exchange trades without posting of collateral. Buffett says this was his absolute low point. The news media never picked up this story, which, if reported, could have kicked off a panic.
27. Interview with John Macfarlane. The cost of funds motivated traders to run off uneconomic trades. Ultimately the rate went to 400 basis points over Fed Funds rate. The short-term capital-intensive trades like the “carry-trade” (interest arbitrage) ran off.
28. Interview with John Macfarlane.
29. Senate Subcommittee on Securities Committee on Banking, Housing, and Urban Affairs—Hearing on the Activities of Salomon Brothers, Inc., in Treasury Bond Activities, Wednesday, September 11, 1991.
30. By then, many other people, including Denham and Munger, had found out about the Sternlight letter, but they say everybody thought somebody else had told Buffett or that he somehow knew. Buffett and Munger were also incensed to learn that at the June audit committee meeting, with Feuerstein present, Arthur Andersen represented that no events had taken place that were required to be reported to the SEC or the New York Stock Exchange. While Wachtell, Lipton had indeed taken that position, this statement, with hindsight, was manifestly untrue.
31. Employees asked how much Buffett and Munger understood about the workings of Salomon before August 1991, while serving on the board, uniformly said “not much,” or words to that effect, and that information was skillfully meted out to the board so that much of the firm’s messiness never surfaced.
32. Lawrie P. Cohen, “Buffett Shows Tough Side to Salomon.”
33. Interview with Gladys Kaiser.
34. Buffett cannot remember who did this—although it was neither Astrid, who retires early, nor someone from the office. He thinks it must have been some other local friend or neighbor.
35. Although securities underwriters sell service, price, and expertise, ultimately they are financial guarantors. Salomon’s financial-strength ratings had been downgraded. With a criminal indictment and its primary dealership threatened, that the firm managed to retain any banking clients remains one of Wall Street’s great survival stories. It did so by giving up lead positions and switching to co-lead, in effect taking on a supporting-cast-member role. Nevertheless, its market share fell from 8% to 2%.
36. Interview with Eric Rosenfeld.
37. Interview with Paula Orlowski Blair. Morse Shoe filed for bankruptcy in July 1991 just weeks after Berkshire agreed to buy H. H. Brown Shoes. Berkshire acquired Lowell Shoe, a subsidiary of Morse Shoe, at the end of 1992, and also bought Dexter Shoe in 1993.
38. Smith Barney, Shearson Lehman, and UBS Securities. The ensuing witch-hunt atmosphere also caused