1. Michael Lewis, Liar’s Poker: Rising Through the Wreckage on Wall Street. New York: W. W. Norton, 1989.
2. Feuerstein had worked in several senior roles at the SEC, including acting as counsel on Texas Gulf Sulfur, a landmark insider-trading case.
3. Interview with Donald Feuerstein and many others, who confirmed his role and the POD nickname.
4. Interviews with Donald Feuerstein, Tom Strauss, Deryck Maughan, Bill McIntosh, John Macfarlane, Zach Snow, Eric Rosenfeld.
5. Interview with Bill McIntosh.
6. Interview with John Macfarlane.
7. Roger Lowenstein, Buffett: The Making of an American Capitalist. New York: Doubleday, 1996, quoting Eric Rosenfeld.
8. Lowenstein, Buffett, quoting John McDonough.
9. Interview with Eric Rosenfeld.
10. Interview with Donald Feuerstein.
11. Feuerstein went back into the conference room after talking to Munger and repeated the “thumb-sucking” comment to another lawyer, Zach Snow, without further context. He did not seem to have grasped its significance, according to Snow in an interview. Feuerstein says Munger said, “Warren and I do that all the time.” Whatever the wording, neither Feuerstein nor Buffett took alarm at Munger’s remark.
12. Interview with Gerald Corrigan.
13. Feuerstein had had breakfast with one director, Gedale Horowitz, and told him much the same story, slightly more informatively, on the morning of August 8. But Horowitz says he also felt misled.
14. Carol Loomis, “Warren Buffett’s Wild Ride at Salomon,” Fortune, October 27, 1997.
15. Munger’s later statement that he dragged this out of Feuerstein differs from Feuerstein’s recollection. Both agree that Munger was given a clear description. There is no question that Buffett and Munger’s overall interpretation of the actions of both Feuerstein and Gutfreund grew harsher as more information came to light.
16. Statement of Salomon Inc., submitted in conjunction with the Testimony of Warren E. Buffett, Chairman and CEO of Salomon, before the Securities Subcommittee, Committee of Banking, Housing and Urban Affairs, U.S. Senate, September 10, 1991.
17. Mercury Asset Management (an affiliate of S.G. Warburg) and the Quantum Fund. When the Federal Reserve contacted Salomon, it was initially because S.G. Warburg had bid in its own name as a primary dealer (Statement of Salomon Inc., September 10, 1991).
18. Charles T. Munger testimony before U.S. Securities & Exchange Commission, “In the Matter of Certain Treasury Notes and Other Government Securities,” File No. HO-2513, February 6, 1992.
19. Ibid.
20. Michael Siconolfi, Constance Mitchell, Tom Herman, Michael R. Sesit, David Wessel, “The Big Squeeze: Salomon’s Admission of T-Note Infractions Gives Market a Jolt—Firm’s Share of One Auction May Have Reached 85%; Investigations Under Way—How Much Did Bosses Know?” Wall Street Journal, August 12, 1991.
21. Buffett later said Wachtell, Lipton shared some blame, noting that Wachtell declared effective on August 8 a shelf registration for $5 billion of medium-term notes using a prospectus that was “purporting to state all material facts about Salomon” as of that date but contained no reference to Mozer’s activities or management’s inaction. “If this relaxed position was one that Wachtell, Lipton was conveying to the government and the public through official filings, it is not unlikely that they were conveying something similar to John, although I don’t know what,” Buffett said.
22. Interview with John Macfarlane.
23. Interview with Bob Denham, who discovered this when he moved into Feuerstein’s old office.
24. Charles T. Munger testimony before U.S. Securities & Exchange Commission, “In the Matter of Certain Treasury Notes, and Other Government Securities,” File No. HO-2513, February 6, 1992.
25. If its lenders failed to renew the firm’s loans, Salomon would be forced to liquidate its assets almost overnight. In such a fire sale, assets would sell for a fraction of their carrying value. The apparently invincible balance sheet of Salomon would melt into bankruptcy’s black hole immediately.
26. Interview with Bill McIntosh.
27. Interviews with Donald Feuerstein, John Macfarlane.
28. Mozer didn’t report an existing net “long,” “when-issued” position in Treasury bonds that put it over the limit, and he also submitted another false bid in the name of Tiger Management Company.
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. Philip Howard, Gutfreund’s lawyer, speaking to Ron Insana on CNBC Inside Opinion, April 20, 1995.
38. John Gutfreund speaking to Ron Insana, CNBC Inside Opinion, April 20, 1995.
39. 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.
40. Interview with Zach Snow, who also testified to this under oath in 1994.
41. Interview with Deryck Maughan.
42. Interview with Jerry Corrigan.
43. 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.
44. Interview with Bill McIntosh.
45. Interviews with John Macfarlane, Deryck Maughan.
46. Spread-widening of ten to twenty basis points only attracted more sellers. As the afternoon wore on, the traders widened the spread until finally they were offering only ninety cents on the dollar for the notes. The price implied a reasonably high probability of default.
47. The firm would still do business as an “agent,” which meant it would buy only if it had another buyer in hand to which it could resell the notes.
48. Kurt Eichenwald, “Wall Street Sees a Serious Threat to Salomon Bros.—ILLEGAL BIDDING FALLOUT—High-Level Resignations and Client Defections Feared—Firm’s Stock Drops,” New York Times, August 16, 1991.
49. Interview with Jerry Corrigan.
50. Interview with Jerry Corrigan.
51. Interview with Jerry Corrigan.
52. Interview with Jerry Corrigan. He says that Strauss and Gutfreund had had more than one routine conversation with him between April and June without mentioning anything, and he no longer trusted them.
53. Buffett arrived in New York between 2:30 and 3:00 p.m., during which time the press release would have been drafted and ready to go.
54. From Salomon press release dated August 16, 1991: “In order to give the Salomon Inc., board of directors maximum flexibility, they are prepared to submit their resignations at a special meeting of the board.”
55. Interview with Eric Rosenfeld.
56. Interviews with Bill McIntosh, Tom Strauss, Deryck Maughan.
57. Interview with Tom Strauss.
58. Interview with Jerry Corrigan.
59. Interview with Ron Olson.
60. Warren Buffett testimony, “In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc., and Salomon Brothers Inc.” Sessions 13 & 14, November 29, 1993.
61. This is Buffett’s recollection of Gutfreund’s remarks. (From Warren Buffett testimony, “In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc., and Salomon Brothers Inc.,” Sessions 13 & 14, November 29, 1993.
62. Interview with Tom Strauss.
63. Carol Loomis, “Warren Buffett’s Wild Ride at Salomon.”
64. On October 8, 1991, he was displaced when the Walton family, owners of Wal-Mart stock, took over spots 3-7; Buffett became number 8. Entertainment mogul John Kluge and Bill Gates occupied the top two spots.
65. Through a routine letter to Mercury Asset Management when the Treasury Department discovered that Mercury, together with its affiliate S. G. Warburg & Co., had submitted bids for greater than the 35% limit rule for the auction. Mozer had submitted one of these bids without Mercury’s authority. Mozer was copied on this letter and covered it up by telling Mercury that Salomon had mistakenly submitted this bid in its name—and was going to correct it, so no need to bother responding to the Treasury. (Statement of Salomon Inc., submitted in conjunction with the Testimony of Warren E. Buffett, Chairman and CEO of Salomon. Before the Securities Subcommittee, Committee of Banking, Housing and Urban Affairs, U.S. Senate, September 10, 1991.)
66. Interview with Deryck Maughan.
67. Speech to students in 1994 at University of North Carolina Kenan-Flagler Business School.
68. The one exception was Stanley Shopkorn, who ran the equities division and, by others’ recollections, thought he should get the job.
69. Michael Lewis, Liar’s Poker.
71. Swope fired them all and turned the firm into a radical Black Power, “Truth & Soul” agency.
72. Interview with Deryck Maughan.
73. Interview with Eric Rosenfeld, who says no threats were made. But because Meriwether was not bound by a noncompete, it was obvious that the whole arb team would leave sooner or later.
74. Gutfreund told Buffett that Susan was telling him he was unemployable.
75. Interview with Philip Howard. Warren Buffett testimony, “In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc., and Salomon Brothers Inc.,” Sessions 13 & 14, November 29, 1993.
76. Interview with Warren Buffett; Warren Buffett testimony, “In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc., and Salomon Brothers Inc.,” Sessions 13 & 14, November 29, 1993, cited this remark as evidence that Gutfreund knew he did not have a deal. (Munger’s version of the quote was “I won’t let you guys screw me.”)
77. Interview with Philip Howard.
78. Warren Buffett testimony, “In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc., and Salomon Brothers Inc.,” Sessions 13 & 14.
79. Warren Buffett, Charles T. Munger, testimonies, “In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc., and Salomon Brothers Inc.,” Sessions 13 & 14, 33 & 34.
80. Charles T. Munger testimony, “In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc., and Salomon Brothers Inc.,” Sessions 33 & 34, December 22, 1993.
81. The Japanese bond market would not open until 7:30 P.M. EST, but Japanese over-the-counter trading would begin as early as 5 P.M., at which point lenders would start selling Salomon’s paper, effectively calling its loans.
82. Interview with John Macfarlane.
83. Warren Buffett testimony, “In the Matter of Arbitration Between John H. Gutfreund against Salomon Inc., and Salomon Brothers Inc.,” Sessions 13 & 14, November 29, 1993.
84. Interview with Jerry Corrigan.
85. Jerry Corrigan and Paul Volcker contributed insight to this topic.
86. At the time, it was well understood that Buffett had “parlayed his considerable reputation into a partial rescission of the order,” although what that meant to him was not obvious. (Saul Hansell, Beth Selby, Henny Sender, “Who Should Run Salomon Brothers?” Institutional Investor, Vol. 25, No. 10, September 1, 1991.)
87. Interview with Deryck Maughan.
88. Interview with Charlie Munger.
89. Interview with Deryck Maughan.
90. Hansell, Selby, and Sender, “Who Should Run Salomon?”
91. Ibid.