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

by Roger Lowenstein

Finally, at 11:40, Meriwether pulled a one-page fax from the machine. It said that Berkshire Hathaway, AIG, and Goldman Sachs would be willing to buy the fund for $250 million. If accepted, they would immediately invest $3.75 billion more to stabilize the operation, with $3 billion of the total coming from Berkshire. Buffett was proposing to pay $250 million for a fund that had been worth $4.7 billion at the start of the year. By day’s end, Long-Term, which was suffering yet another down day in markets, would be worth only $555 million. But even next to this startlingly reduced net worth, Buffett’s offer was decidedly cheap. The partners—worth hundreds of millions apiece only weeks earlier—would be wiped out. What’s more, they would be fired. Also, just to make sure that Meriwether would not shop his offer around, Buffett issued a deadline of 12:30 P.M., not quite an hour away. Meriwether handed the fax to Rickards. “What do we do with it?” J.M. asked. To Meriwether, the proposal must have been an especially bitter pill. J.M. was furious at Goldman and AIG for trading against the fund—indeed, for helping to knock it down before trying to buy it on the cheap. Moreover, the proposal would reenact the central trauma of J.M.’s career: losing his company, and his job, to Warren Buffett.