The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [587]
36. Geoffrey Colvin, “The Great CEO Pay Heist,” Fortune, June 25, 2001. A 2001 option grant later became the subject of controversy in the 2007 stock-option backdating scandal.
37. Warren Buffett, “Stock Options and Common Sense,” Washington Post, April 9, 2002.
38. Two other companies, Winn-Dixie and Boeing, had earlier started treating stock options as an expense. But they had nothing like Coca-Cola’s clout.
39. Warren Buffett, “Who Really Cooks the Books?” New York Times, July 24, 2002.
40. Warren Buffett, Securities and Exchange Commission’s Roundtable on Financial Disclosure and Auditor Oversight, New York, March 4, 2002.
41. Berkshire Hathaway letter to shareholders, 2002.
42. David Perry, “Buffett Rests Easy With Latest Investment,” Furniture Today, May 6, 2002.
43. He didn’t really want her to come back either, although he looked tempted a few times.
Chapter 57
1. This portrait of Susie in the late 1990s and early millennial era is based on comments from more than two dozen sources who knew her well but cannot be identified by name.
2. Interview with Susan Thompson Buffett.
3. Interview with Howie Buffett.
4. Interest rates, which had been falling since 9/11, hit a low of 1% in June 2003 and remained there until June 2004.
5. This is a shorthand description for investors’ limited risk aversion during this period.
6. In “Mortgage Market Needs $1 Trillion, FBR Estimates,” Alistair Barr (MarketWatch, March 7, 2008) recaps a Friedman, Billings Ramsey research report that estimates that of the total $11 trillion U.S. mortgage market, only $587 billion was backed with equity—meaning that the average U.S. home had scarcely more than 5% equity. Before long, half of all CDOs would be backed by subprime mortgages (David Evans, “Subprime Infects $300 Billion of Money Market Funds,” Bloomberg, August 20, 2007).
7. In The Trillion Dollar Meltdown (New York: Public Affairs, 2008), Charles Morris explains that because the typical credit hedge fund was leveraged 5:1, the 5% equity was reduced to 1%—a 100:1 leverage ratio, or $1 of capital supporting $100 of debt.
8. He used derivatives himself, but as a borrower, not a lender. Therefore, if things went wrong, he did not have to collect from anyone else.
9. Part of Berkshire Re’s reported profits since 2002 are derived from General Re.
10. Alan Greenspan gave a speech on May 8 at the 2003 Conference on Bank Structure and Competition where he voiced his opinion on derivatives. Ari Weinberg, “The Great Derivatives Smackdown,” Forbes, May 9, 2003.
11. For example, he was called “The Alarmist of Omaha” by Rana Foroohar in Newsweek on May 12, 2003.
12. Buffett lent $215 million to Oakwood in debtor-in-possession financing. Through Berkadia (see note 13), he bid $960 million for Conseco Finance. Berkadia representatives left before the auction was over, and were outbid by a consortium that offered $1.01 billion. Berkadia objected to these proceedings and raised its offer to $1.15 billion after it was over, but this effort was rejected by the bankruptcy court judge. The credit bubble for manufactured housing and subprime lenders like Conseco deflated by 2004, more than a year before the broader housing bubble peaked.
13. This deal resembled in some ways another deal he had done two years earlier, partnering with Leucadia National to form Berkadia LLC, which provided a $6 billion secured five-year loan to the bankrupt FINOVA so it could pay down its debt.
14. In First a Dream, Jim Clayton recounts that Michael Daniels, an intern who had “tolerated” him through the six-month final edit of the book, got him to autograph a copy to give to Buffett. When he graduated and went to work for UBS, Daniels handed the book over to the next intern, Richard Wright, for delivery. “The Ballad of Clayton Homes” (Fast Company, January 2004) claims that the Claytons used Wright to send a message to Buffett.
15. In his memoir, Jim Clayton says