David Rosenthal: belief

Transcript context

…That's a really short-term paper. If there's a problem, it's going to be instantaneous and the firm is dead. Also on that same day on that Monday, this is probably the worst thing that happens. The Federal Reserve sends a letter to Gutfreund and Salomon—I think only Gutfreund and the general counsel see this—saying that it is "deeply troubled by both the firm's actions and lack of actions. " And it is questioning whether it can continue to have a business relationship with Salomon Brothers—this is the Federal Reserve—unless the firm responds to this letter and significantly changes its business practices within the next 10 days. If the Fed ends its business relationship with Salomon, game over. It's dead. All the counterparties are going to stop trading with Salomon. It's literally game over instantaneously. Gutfreund and the GC just sit on the letter. They don't tell the board. They don't tell anyone else. Nobody knows about the letter except the two of them. The Feds assumed that the board knew about the letter, that Salomon is doing something, but Gutfreund and the GC covered it up. Buffett, by this point in time, gets in touch with Charlie, and Charlie's like yeah, you should be concerned about this. The board convenes, they issue a press release saying that they're looking into this and figuring out what happened. The firm's stock dropped 30% that day. The Fed meanwhile is like you guys aren't responding to our letter. They're just getting angrier and angrier every day that goes by. On Friday of that week, The New York Times ran a headline, Wall Street sees a serious threat to Salomon Brothers, and the Fed finally had enough. The lead investigator running the case at their Federal Reserve calls Gutfreund and says, you need to resign like today, and you need to install new management or else. When Gutfreund gets that call, he calls Buffett who’s still in Omaha, and he essentially just tosses him the keys to the firm. He's like, I'm going to resign. Somebody has to step in and run the place and deal with this. It's probably going to be you. So good luck with that. Not quite in that language, but that's essentially how it goes down. Pretty intense stuff. Warren and Charlie are legitimately frightened at this point The argument there is like, hey, I have to be out. We don't have any ideas for who's next.…

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