When Genius Failed: The Rise and Fall of Long-Term Capital Management

by Roger Lowenstein

But to whom? Maughan sounded out Chase, but the bank rebuffed him. Then he had lunch with Sanford I. Weill, chairman of Travelers, the insurer and parent of broker Smith Barney. Weill was one of the great second acts in American business. The son of a Brooklyn dress manufacturer, Weill had founded a humble four-man brokerage firm and, via mergers, stitched together the giant Shearson Lehman. Eventually, he had sold to American Express, lost out in a power struggle and resigned. Then, in the late 1980s and early ’90s, he had done it again, getting control of a small credit company and using it to take over Smith Barney and also Travelers. He disliked arbitrage, which he considered too volatile, but he had dreams of building a premier investment bank, a rung above the ragtag brokerage business in Wall Street’s social hierarchy. Perhaps Smith Barney and Salomon could put their two second-class banks together, Weill proposed. After the lunch with Maughan, Weill called back to insist that he would have to be in charge if Travelers and Salomon merged. Buffett didn’t care who ran the new company, he just wanted to sell the old one—at a good price, naturally. Weill offered $9 billion in stock, bailing the Omaha sage out of one of his most troubled investments. Ever diplomatic, Buffett praised Weill as a “genius” at building shareholder value.25 Weill’s underlings were aghast that he had paid so much for a second-rate firm, particularly one in which the primary source of profits wa...