Becoming Warren Buffett Page #8

Gottesman:

Warren and Charlie were on the board,

and Charlie couldn't stand

what was going on there

and didn't like

the culture at all.

And shortly after they got involved,

the thing exploded.

Warren:

In 1991 on a terrible day in August,

I got a call,

and the two top officers of Salomon

were on the other end,

and they said that...

that... "We have problem."

Announcer:

This is "NBC Nightly News."

Good evening.

It is the kind of scandal

that rocks Wall Street

and raises questions,

questions about the integrity

of our financial institutions.

Man:
The giant securities firm of

Salomon Brothers under investigation

for improper trading

of treasury bonds.

Man 2:

Salomon admitted it exceeded the limit

of trading

in government bonds,

once by buying bonds

in the name of a customer

who didn't even know

about the deal.

Salomon Brothers is under investigation

by the Treasury Department,

the Federal Reserve, the SEC,

and the Justice Department.

But more important than

the fate of the firm itself

is the impact

their actions could have

on the public trust

and on the credibility

of the American

market worldwide.

Warren:

The company owed $150 billion.

It owed more money

than any other private company

in the United States

at the time.

And that night I met with the man that

ran the Federal Reserve of New York,

who was the sheriff

in effect, and I said, you know,

"I've never really owed

very much money before."

I said,

"I've got a little mortgage on a house,

but 150 billion is

a little staggering."

And I was hoping he would say,

"Well, don't worry, Warren.

We'll give you

a few weeks to breathe."

And he... he said to me,

"Prepare for any eventuality."

Woman:
Earlier today,

the US Treasury Department

announced it had suspended

Salomon Brothers

from participating

in the auction of new issues.

Man:

It was one more jolt

for a scandal-scarred

Wall Street.

Loomis:

The Fed was in effect saying,

"You're an evil force,

and we don't want you trading our bonds."

It was a huge turning point

for Warren.

And he believed that,

at that particular point,

his reputation

was on the line.

Gottesman:

Warren had 24 hours to make up his mind

as to whether he was going

to go forward or just bow out.

And I think at that point, Salomon

Brothers could have gone into bankruptcy.

And Warren stepped up

and took responsibility.

Okay. I'm Warren Buffett.

I was... elected...

Interim Chairman

of Salomon, Inc.

a few hours ago at a board

of directors meeting.

Man:

Why was it necessary for you to step in

and what is your mandate

of leadership?

I think that

it was necessary to step in

because I would do

whatever was needed,

dig out any bit of information

about what's happened in the past,

and I would do everything

I could to make sure

that things

exactly right in the future.

Man 2:
Mr. Buffett,

are you satisfied that...

I had to convince the Treasury

that what was done in the past

was awful and stupid,

and they had every right to be furious at us,

but this firm

employed 8,000 people,

and it was going

to go out of business

unless they let us

continue, basically.

Warren believed that there was

a too-big-to-fail scenario.

The term was not used then,

but he believed that Salomon

was too big to fail.

And if Salomon went down,

it would take other important

parts of Wall Street with it.

Warren:

We had this death knell from the Treasury,

so I called the Treasury.

Nick Brady was

the Secretary.

I'm pleading for my life.

And I'm sure my voice was

cracking and everything else,

and I said, "Nick,

this is the most important day of my life."

And I really did feel that it was

going to be a colossal disaster.

He wasn't sure

I was right at all...

in fact,

he probably thought I was wrong...

but he knew that I felt

what I was saying.

So, the Treasury

modified its order,

and in effect, of course,

it was quite an endorsement.

It was huge.

Munger:

It saved Salomon.

Nick Brady went with Warren,

because he trusted him.

It shows how having a good reputation

is really helpful in life.

Warren:

I thank you for the opportunity

to appear

before this subcommittee.

I would like to start

by apologizing

for the acts that

have brought us here.

A nation has a right to expect

its rules and laws to be obeyed,

but I also have asked

every Salomon employee

to be his or her

own compliance officer.

After they first obey all rules,

I then want employees

to ask themselves

whether they are willing

to have any contemplated act

appear the next day

on the front page

of their local paper

to be read by their spouses,

children, and friends.

If they follow this test,

they need not fear

my other message to them:

Lose money for the firm,

and I will be understanding.

Lose a shred of reputation

for the firm,

and I will be ruthless.

I welcome your questions.

Warren:

It's been 50 years

since I formally took control

of Berkshire Hathaway,

and, step by step,

we've created something

that is kind of what I dreamt

we might create over time,

but it took a lot

of time to do it.

Never seemed like we were making

that much progress on any one day,

but compound interest works.

Woman:

When you think back 50 years ago

when you founded

this company,

did you ever imagine it would be the

fifth-largest company in the world?

No, I...

I didn't, but if I was thinking about it,

I wouldn't have thought

in terms of being the fifth,

or the fourth,

or the third.

You would've wanted

number one.

Oh! I mean, if you're gonna dream,

you might as well dream.

...two, three.

Bill Gates wins.

Bill Gates wins.

Warren:
Well,

a Berkshire Hathaway shareholders meeting is

partly a fun festival.

It's sort of a Mardi Gras

for people

to come every year.

It's a chance for us

to have a lot of fun

and meet the people that have

entrusted us with their money.

Munger:
Well, we used to have

just 30 people in a cafeteria,

and now we have

this huge public spectacle.

Munger:

Celebration is part of making

a group of people

work well together.

It's a celebration.

Warren:

We are glad

You're here

at our meeting

Be sure to check out

our wares

We'll sell you See's Candy

and Dilly Bars

And insurance

for all of your cars

For its buy, buy,

buy all you see

At the Berkshire show!

Man:

All right! Woo!

He truly loves

to do what he does.

Love you, Warren!

Aw, yeah.

Loomis:

I think investors who own Berkshire Hathaway,

they see themselves

as a part of a community.

Woman:

One, two, three.

There are more long-term holders

of Berkshire than any company.

People consider it a religion.

Man:

Okay, right here.

Warren:

They don't buy it with the idea

they're gonna sell it

next week.

I think most of them buying it with the

intent of holding it for their lifetime,

just like they'd buy a farm

or buy an apartment house.

At Berkshire, everybody gets

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