Dear Mr. Buffett_ What an Investor Learns 1,269 Miles From Wall Street Part 13

6 Karen Freifield and Michael McDonald, "Morgan, JPMorgan Settle Auction-Rate Probe, Pay Fines," Karen Freifield and Michael McDonald, "Morgan, JPMorgan Settle Auction-Rate Probe, Pay Fines," Bloomberg News, Bloomberg News, 14 August 2008. 14 August 2008.

7 David Scheer and Karen Freifeld, "Citigroup to Unfreeze $19.5 Billion of Auction Debt," David Scheer and Karen Freifeld, "Citigroup to Unfreeze $19.5 Billion of Auction Debt," Bloomberg News, Bloomberg News, 7 August 2008. Closed end funds issued preferred auction-rate securities which were not included in these buy-back settlements. 7 August 2008. Closed end funds issued preferred auction-rate securities which were not included in these buy-back settlements.

8 Robert Frank and Liz Rappaport, "Big Boys Face 'Auction' Monster Alone," Robert Frank and Liz Rappaport, "Big Boys Face 'Auction' Monster Alone," Wall Street Journal, Wall Street Journal, 29 August 2008. 29 August 2008.

9 Moody's Investors Service, Global Credit Research Announcement:, Moody's Announces Rating Actions on Financial Guarantors, 14 December 2007. Moody's had a stable outlook when it affirmed the ratings of Ambac (Aaa). Fitch placed the AAA ratings of Ambac, MBIA, and FGIC on review for possible downgrade. XL Capital a.s.surance was put under review, and Fitch said it needed to raise $2 billion. Fitch indicated Ambac and MBIA would be cut to AA+. Moody's Investors Service, Global Credit Research Announcement:, Moody's Announces Rating Actions on Financial Guarantors, 14 December 2007. Moody's had a stable outlook when it affirmed the ratings of Ambac (Aaa). Fitch placed the AAA ratings of Ambac, MBIA, and FGIC on review for possible downgrade. XL Capital a.s.surance was put under review, and Fitch said it needed to raise $2 billion. Fitch indicated Ambac and MBIA would be cut to AA+.

10 Aaron Lucchetti, "CDO Battles: Royal Pain Over Who Gets What," Aaron Lucchetti, "CDO Battles: Royal Pain Over Who Gets What," Wall Street Journal, Wall Street Journal, 17 December 2007. a.n.a.lysts seemed to have just noticed details like unwind triggers, including market value triggers for shaky 17 December 2007. a.n.a.lysts seemed to have just noticed details like unwind triggers, including market value triggers for shaky structured investment vehicles structured investment vehicles (SIVs) that issued short-term debt to fund risky longer-term higher yielding a.s.sets-similar to Countrywide's problem in August, but the Fed was not bailing out the structured investment vehicles. For example, in November 2007, MBIA Inc., the largest bond insurer, sold a.s.sets to bond-holders of its Hudson Thames Capital SIV. It wound down from $2 billion to $400 million after announcing that it had failed to find investors since August in the a.s.set-backed commercial debt issued by this vehicle. MBIA waged a legal battle with Deutsche Bank, Wachovia Corp., and UBS over the cash flows of Sagittarius CDO I, a constellation CDO. In November 2007, it triggered an event of default leading to an unwind. MBIA seemed to think it had a traditional deal ent.i.tling it to the remaining cash flows- (SIVs) that issued short-term debt to fund risky longer-term higher yielding a.s.sets-similar to Countrywide's problem in August, but the Fed was not bailing out the structured investment vehicles. For example, in November 2007, MBIA Inc., the largest bond insurer, sold a.s.sets to bond-holders of its Hudson Thames Capital SIV. It wound down from $2 billion to $400 million after announcing that it had failed to find investors since August in the a.s.set-backed commercial debt issued by this vehicle. MBIA waged a legal battle with Deutsche Bank, Wachovia Corp., and UBS over the cash flows of Sagittarius CDO I, a constellation CDO. In November 2007, it triggered an event of default leading to an unwind. MBIA seemed to think it had a traditional deal ent.i.tling it to the remaining cash flows-did it ever read a prospectus? LaCrosse Financial Products LLC, an MBIA affiliate, had done a credit derivatives transaction on the seniormost tranche. The unnecessarily complicated prospectus language made it difficult for the trustee to determine which investor had payment priority. As was typical of these deals, there is an interest-only cla.s.s. If the deal went into liquidation as other CDOs had done, the fight could be over less cash. On December 17, 2007, I told the LaCrosse Financial Products LLC, an MBIA affiliate, had done a credit derivatives transaction on the seniormost tranche. The unnecessarily complicated prospectus language made it difficult for the trustee to determine which investor had payment priority. As was typical of these deals, there is an interest-only cla.s.s. If the deal went into liquidation as other CDOs had done, the fight could be over less cash. On December 17, 2007, I told the Wall Street Journal Wall Street Journal:"If you liquidate a lot of a.s.sets at once, you don't always get the best price." More than that, the structure disadvantaged naive senior note-holders. The equity holder seemed to benefit at their expense. The equity is like the blow and burn in the arms trade, the detonator of whatever you are pedaling. It marks you as a pro, since you can profit even when a deal goes bad, and this CDO was scheduled for a meltdown the day it closed. I pitied any investor in the AAA or AA rated tranches of the CDO.

11 "Shorting Bond Insurers for Charity," "Shorting Bond Insurers for Charity," New York Times DealBook, dealbook.blogs . New York Times DealBook, dealbook.blogs .nytimes.com, 28 November 2007. 28 November 2007.

12 Janet Tavakoli, "Dicey Deals Done Dirt Cheap," Tavakoli Structured Finance, Inc., 3 January 2008. No model is required to grasp the problem. In December 2007, Standard & Poor's stress test estimated that monoline financial guarantors have $10.7 billion in potential aggregate losses, but S&P's Janet Tavakoli, "Dicey Deals Done Dirt Cheap," Tavakoli Structured Finance, Inc., 3 January 2008. No model is required to grasp the problem. In December 2007, Standard & Poor's stress test estimated that monoline financial guarantors have $10.7 billion in potential aggregate losses, but S&P's stress stress case for losses was below my case for losses was below my base base case. S&P a.s.sumed stress case losses of only 15.5 percent. For 2006 vintage first lien subprime loans, I used a 30 percent default rate and a 70 percent loss rate. case. S&P a.s.sumed stress case losses of only 15.5 percent. For 2006 vintage first lien subprime loans, I used a 30 percent default rate and a 70 percent loss rate. My net base case losses were 21 percent. My net base case losses were 21 percent. Moody's base case used an 11 percent loss a.s.sumption for 2006 vintage first lien subprime loans. Moody's stress case loss of 19 percent for subprime loans was near my base case of 21 percent and well below my stress case of 30 percent for 2006 originated subprime loans. To achieve the triple-A (Aaa) rating, Moody's looks for an insurer with capital equal to 130 percent times base case losses and 100 percent times stress case losses. Using my base case a.s.sumptions for subprime losses and Moody's base case capital criteria, Moody's base case used an 11 percent loss a.s.sumption for 2006 vintage first lien subprime loans. Moody's stress case loss of 19 percent for subprime loans was near my base case of 21 percent and well below my stress case of 30 percent for 2006 originated subprime loans. To achieve the triple-A (Aaa) rating, Moody's looks for an insurer with capital equal to 130 percent times base case losses and 100 percent times stress case losses. Using my base case a.s.sumptions for subprime losses and Moody's base case capital criteria, five of the seven triple-A-rated financial guarantors did not merit their high ratings. five of the seven triple-A-rated financial guarantors did not merit their high ratings. In the late 1990s, when CapMAC Holdings Inc., was in trouble (CapMAC merged with MBIA in 1998), it was given a minimal grace period to raise capital before losing its top rating; there was no kidding around. But now the rating agencies reeked of desperation. Several bond insurers were given more than a month to raise more money. Moody's had nearly 90,000 politically charged public finance deals on negative watch for downgrades-due to the potential downgrades of two of the smaller bond insurers (FGIC and XL) alone. In the late 1990s, when CapMAC Holdings Inc., was in trouble (CapMAC merged with MBIA in 1998), it was given a minimal grace period to raise capital before losing its top rating; there was no kidding around. But now the rating agencies reeked of desperation. Several bond insurers were given more than a month to raise more money. Moody's had nearly 90,000 politically charged public finance deals on negative watch for downgrades-due to the potential downgrades of two of the smaller bond insurers (FGIC and XL) alone.

13 Ibid. In December 2007, Standard & Poor's affirmed the ratings for Ambac a.s.surance Corp, CFIG's ent.i.ties, MBIA Insurance Corp., and Security Capital a.s.surance (XL Capital a.s.surance Inc. and XL Financial a.s.surance Ltd. (XL)) with a negative outlook. Financial Guaranty Insurance Corporation (FGIC) was rated AAA but was on negative watch. ACA Financial Guaranty Corp. had been recently downgraded from A to CCC with Credit.w.a.tch Developing, but the downgrade was long overdue. Moody's put the triple-A ratings of FGIC and XL on review for possible downgrade. It affirmed the triple-A ratings of MBIA and CIFG, but with a negative outlook. Financial Guaranty Insurance Corporation (FGIC), MBIA Inc. (MBIA) and Security Capital a.s.surance (XL Capital a.s.surance Inc. and XL Financial a.s.surance Ltd. (XL) merited immediate multi-notch-in some cases multigrade-downgrades. Ambac Financial Group Inc. (Ambac) and CIFG were stronger yet not sufficiently strong to merit the triple-A rating, and only Financial Security a.s.surance Inc. (FSA), and a.s.sured Guaranty Corp. (AGC) seemed eligible to retain a "triple-A" rating (based on subprime exposure). Unfortunately, the latter two were relatively small (with FSA being the larger) so the problems of the larger players had a huge market impact. Stress test scenarios were even worse. If one considered that an increase in capital cus.h.i.+on might also be required to support other business lines, the situation was desperate. Canadian Imperial Bank of Commerce (CIBC) had already announced $2 billion in write-downs, and Merrill had billions more related to ACA. Ibid. In December 2007, Standard & Poor's affirmed the ratings for Ambac a.s.surance Corp, CFIG's ent.i.ties, MBIA Insurance Corp., and Security Capital a.s.surance (XL Capital a.s.surance Inc. and XL Financial a.s.surance Ltd. (XL)) with a negative outlook. Financial Guaranty Insurance Corporation (FGIC) was rated AAA but was on negative watch. ACA Financial Guaranty Corp. had been recently downgraded from A to CCC with Credit.w.a.tch Developing, but the downgrade was long overdue. Moody's put the triple-A ratings of FGIC and XL on review for possible downgrade. It affirmed the triple-A ratings of MBIA and CIFG, but with a negative outlook. Financial Guaranty Insurance Corporation (FGIC), MBIA Inc. (MBIA) and Security Capital a.s.surance (XL Capital a.s.surance Inc. and XL Financial a.s.surance Ltd. (XL) merited immediate multi-notch-in some cases multigrade-downgrades. Ambac Financial Group Inc. (Ambac) and CIFG were stronger yet not sufficiently strong to merit the triple-A rating, and only Financial Security a.s.surance Inc. (FSA), and a.s.sured Guaranty Corp. (AGC) seemed eligible to retain a "triple-A" rating (based on subprime exposure). Unfortunately, the latter two were relatively small (with FSA being the larger) so the problems of the larger players had a huge market impact. Stress test scenarios were even worse. If one considered that an increase in capital cus.h.i.+on might also be required to support other business lines, the situation was desperate. Canadian Imperial Bank of Commerce (CIBC) had already announced $2 billion in write-downs, and Merrill had billions more related to ACA.

14 Becky Quick, Janet Tavakoli, David Kotok, "Backing up the Bond," CNBC, January 7, 2008 (video segment). Becky Quick, Janet Tavakoli, David Kotok, "Backing up the Bond," CNBC, January 7, 2008 (video segment).

15 Ibid. Ibid.

16 Ibid. Ibid.

17 Saskia Scholtes, "MBIA in $1bn Deal to Retain Rating" Saskia Scholtes, "MBIA in $1bn Deal to Retain Rating" Financial Times, Financial Times, 11 January 2008. 11 January 2008.

18 Janet Tavakoli, Matthew Fabian, Charles Gasparino, "Bond Insurance: The Bigger Problem," Janet Tavakoli, Matthew Fabian, Charles Gasparino, "Bond Insurance: The Bigger Problem," Squawk Box, Squawk Box, CNBC, 25 January 2008. CNBC, 25 January 2008.

19 Ibid. Ibid.

20 Ibid. Ibid.

21 Liz Rappaport and Serena Ng, "Bond Insurers Inflict Further Pain on Market," Liz Rappaport and Serena Ng, "Bond Insurers Inflict Further Pain on Market," Wall Street Journal, Wall Street Journal, 21 June 2008. By the end of June 2008, formerly triple-A bond insurers FGIC, CFIG and XL were all below investment grade, and MBIA and Ambac lost their triple-A ratings. They were already downgraded two notches to AA by S&P and were under review for a further downgrade. Bond insurers had several lawsuits or other investigations underway challenging the validity of the credit derivatives contracts related to subprime backed securitizations with their investment banking counterparties. 21 June 2008. By the end of June 2008, formerly triple-A bond insurers FGIC, CFIG and XL were all below investment grade, and MBIA and Ambac lost their triple-A ratings. They were already downgraded two notches to AA by S&P and were under review for a further downgrade. Bond insurers had several lawsuits or other investigations underway challenging the validity of the credit derivatives contracts related to subprime backed securitizations with their investment banking counterparties.

22 Jeremy R. Cooke and Darrell Preston, "Moody's Loses Credibility; Muni Ranks Mean No Savings," Jeremy R. Cooke and Darrell Preston, "Moody's Loses Credibility; Muni Ranks Mean No Savings," Bloomberg News, Bloomberg News, 11 September 2008. 11 September 2008.

23 Benjamin Franklin, Benjamin Franklin, The Autobiography of Benjamin Franklin The Autobiography of Benjamin Franklin (1868; reprint, Mineola, N.Y.: Dover, 1996), 75, 81, 82. (1868; reprint, Mineola, N.Y.: Dover, 1996), 75, 81, 82.

24 "The Quotable Franklin," "The Quotable Franklin," The Electric Ben Franklin, The Electric Ben Franklin, http://www.us.h.i.+story.org/franklin/quotable/index.htm.

25 Andrew Tobias, Andrew Tobias, The Invisible Bankers The Invisible Bankers (New York: Was.h.i.+ngton Square Press, 1982), 15, 94. (New York: Was.h.i.+ngton Square Press, 1982), 15, 94.

26 Berks.h.i.+re Hathaway 1987 Annual Report. Berks.h.i.+re Hathaway 1987 Annual Report. The chairman's letter containing this quote is posted on the Berks.h.i.+re Hathaway Web site ( The chairman's letter containing this quote is posted on the Berks.h.i.+re Hathaway Web site (www.berks.h.i.+rehathaway.com/letters) without page numbers.

27 Jonathan Stempel, "Buffett Poised to Cash in on Bond Insurer Woes," Jonathan Stempel, "Buffett Poised to Cash in on Bond Insurer Woes," Reuters .com, Reuters .com, 30 January 2008. 30 January 2008.

28 Ibid. Ibid.

29 Martin Z. Braun, "Auction-Bond Failures Roil Munis, Pus.h.i.+ng Bond Rates Up," Martin Z. Braun, "Auction-Bond Failures Roil Munis, Pus.h.i.+ng Bond Rates Up," Bloomberg News, Bloomberg News, 13 February 2008. The tender option bond market, which relies on periodic auctions to set the reinvestment yield, failed the second week in February. Bonds sold by the Port Authority of New York and New Jersey could not attract bidders at reasonable rates, and yields popped up to 20 percent from 4.3 percent the previous week.The U.S.Treasury's 10-year bond yields traded at less than 3.7 percent, yet the supposedly triple-A-rated tender option bonds traded at a yield of 20 percent. 13 February 2008. The tender option bond market, which relies on periodic auctions to set the reinvestment yield, failed the second week in February. Bonds sold by the Port Authority of New York and New Jersey could not attract bidders at reasonable rates, and yields popped up to 20 percent from 4.3 percent the previous week.The U.S.Treasury's 10-year bond yields traded at less than 3.7 percent, yet the supposedly triple-A-rated tender option bonds traded at a yield of 20 percent.

30 John Glover, "Auction-Rate Bonds Lure Investors with 20% Interest," John Glover, "Auction-Rate Bonds Lure Investors with 20% Interest," Bloomberg News, Bloomberg News, 18 February 2008. 18 February 2008.

31 Vikas Bajaj, "Buffett Offers to Reinsure Bonds," Vikas Bajaj, "Buffett Offers to Reinsure Bonds," New York Times, New York Times, 12 February 2008. On February 6, 2008, Mr. Buffett offered a better deal, but it was a package deal for around $800 billion in munic.i.p.al bonds. The bond insurers had to first accept the offer.Then they would have 30 days to shop the offer. If they found a better deal, they would pay a 1.5 percent kill fee to Berks.h.i.+re Hathaway a.s.surance. He proposed to reinsure the bonds for a premium equal to 1.5 times the remaining premium left over the life of the bond, which is the original premium less the amount proportionally earned up until then. This solution would allow $800 billion of munic.i.p.al bonds to keep a solid and dependable AAA rating. The solution was elegant. Even if the monolines lost their AAA ratings, the munic.i.p.al bond markets would maintain AAA ratings with the a.s.surance of Berks.h.i.+re Hathaway a.s.surance's AAA backstop. The financial guarantors would release regulatory capital equal to the premium they would pay Berks.h.i.+re Hathaway a.s.surance, so they could continue doing business.The monolines turned him down. 12 February 2008. On February 6, 2008, Mr. Buffett offered a better deal, but it was a package deal for around $800 billion in munic.i.p.al bonds. The bond insurers had to first accept the offer.Then they would have 30 days to shop the offer. If they found a better deal, they would pay a 1.5 percent kill fee to Berks.h.i.+re Hathaway a.s.surance. He proposed to reinsure the bonds for a premium equal to 1.5 times the remaining premium left over the life of the bond, which is the original premium less the amount proportionally earned up until then. This solution would allow $800 billion of munic.i.p.al bonds to keep a solid and dependable AAA rating. The solution was elegant. Even if the monolines lost their AAA ratings, the munic.i.p.al bond markets would maintain AAA ratings with the a.s.surance of Berks.h.i.+re Hathaway a.s.surance's AAA backstop. The financial guarantors would release regulatory capital equal to the premium they would pay Berks.h.i.+re Hathaway a.s.surance, so they could continue doing business.The monolines turned him down.

32 Warren Buffett made this comment about the 206 transactions during a March 3, 2008, interview on CNBC. Warren Buffett made this comment about the 206 transactions during a March 3, 2008, interview on CNBC.

Chapter 12: Money, Money, Money (Warren and Was.h.i.+ngton).

1 Erik Kirschbaum, "Buffett Sees 'Long, Deep' U.S. Recession," Erik Kirschbaum, "Buffett Sees 'Long, Deep' U.S. Recession," Reuters.com, 24 May 2008. 24 May 2008.

2 Benjamin Graham, Benjamin Graham, The Intelligent Investor The Intelligent Investor (New York: Harper & Row, 1973), 101. (New York: Harper & Row, 1973), 101.

3 Eliot Spitzer, "Predatory Lenders' Partner in Crime," Eliot Spitzer, "Predatory Lenders' Partner in Crime," Was.h.i.+ngton Post, Was.h.i.+ngton Post, 14 February 2008. 14 February 2008.

4 Alan Feuer and Ian Urbina, "Affidavit: Client 9 and Room 871," Alan Feuer and Ian Urbina, "Affidavit: Client 9 and Room 871," New York Times, New York Times, 11 March 2008. 11 March 2008.

5 Eliot Spitzer, "Full Text of Spitzer Resignation," Eliot Spitzer, "Full Text of Spitzer Resignation," New York Times, New York Times, 12 March 2008. 12 March 2008.

6 David Koceiniewski and Danny Hakim, "Felled by Scandal, Spitzer Says Focus Is on His Family," David Koceiniewski and Danny Hakim, "Felled by Scandal, Spitzer Says Focus Is on His Family," NewYork Times, NewYork Times, 13 March 2008. 13 March 2008.

7 "Testimony, Ben S. Bernanke, "Testimony, Ben S. Bernanke, Developments in the financial markets: Developments in the financial markets: Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, April 3, 2008, Federal Reserve press release. See Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, April 3, 2008, Federal Reserve press release. See http://www.federalreserve.gov/newsevents/testimony/bernanke20080403a.htm.

8 Alistair Barr, "Bear Portfolio Worth $28.9 Billion, Fed Says," Alistair Barr, "Bear Portfolio Worth $28.9 Billion, Fed Says," Market Watch, Market Watch, 3 July 2008. 3 July 2008.

9 Jim Rogers has made these comments on Bloomberg TV and CNBC several times in the past several months. Rogers made these particular comments from Singapore during a segment that aired on Bloomberg Television June 5, 2008. Jim Rogers has made these comments on Bloomberg TV and CNBC several times in the past several months. Rogers made these particular comments from Singapore during a segment that aired on Bloomberg Television June 5, 2008.

10 Josh P. Hamilton and Erik Holm, "Buffett Castigates Wall Street, Bankers on Blunders," Josh P. Hamilton and Erik Holm, "Buffett Castigates Wall Street, Bankers on Blunders," Bloomberg News, Bloomberg News, 5 May 2008. 5 May 2008.

11 Kara Scannell, "SEC Role Is Scrutinized in Light of Bear Woes" Kara Scannell, "SEC Role Is Scrutinized in Light of Bear Woes" Wall Street Journal, Wall Street Journal, 27 March 2008. 27 March 2008.

12 Jonathan Stempel, Buffett Backs Fed Over Bear Stearns," Jonathan Stempel, Buffett Backs Fed Over Bear Stearns," Reuters.com, 4 May 2008. 4 May 2008.

13 "Testimony, Ben S. Bernanke, "Testimony, Ben S. Bernanke, Developments in the financial markets, Developments in the financial markets, before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, April 3, 2008. before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, April 3, 2008.

14 Jeremy Grantham, "Immoral Hazard," Jeremy Grantham, "Immoral Hazard," GMO Quarterly Letter, GMO Quarterly Letter, April 2008. April 2008.

15 Bloomberg News, "Two Fed Bank Presidents Warn About Lending to Securities Firms," Bloomberg News, "Two Fed Bank Presidents Warn About Lending to Securities Firms," NewYork Times, NewYork Times, 6 June, 2008. 6 June, 2008.

16 Jeffrey M. Lacker "Financial Stability and Central Banks," speech presented by the president of the Federal Reserve Bank of Richmond, London, June 5, 2008. Jeffrey M. Lacker "Financial Stability and Central Banks," speech presented by the president of the Federal Reserve Bank of Richmond, London, June 5, 2008.

17 Craig Torres, "Fed 'Rogue Operation' Spurs Further Bailout Calls," Craig Torres, "Fed 'Rogue Operation' Spurs Further Bailout Calls," Bloomberg News, Bloomberg News, 2 May 2008. 2 May 2008.

18 Krishna Guha, Saskia Scholtes and James Politi, "Saviours of the Suburbs," Krishna Guha, Saskia Scholtes and James Politi, "Saviours of the Suburbs," Financial Times, Financial Times, 4 June 2008. 4 June 2008.

19 Warren Buffett during a televised CNBC interview with Becky Quick, Warren Buffett during a televised CNBC interview with Becky Quick, Squawk Box, Squawk Box, 22 August, 2008. 22 August, 2008.

20 Dawn Kopecki, "Fannie, Freddie 'Insolvent' After Losses, Poole Says," Dawn Kopecki, "Fannie, Freddie 'Insolvent' After Losses, Poole Says," Bloomberg News, Bloomberg News, 10 July 2008. 10 July 2008.

21 Jody Shenn and James Tyson, "Fannie Mae, Freddie Mac Portfolio Caps Will Be Lifted," Jody Shenn and James Tyson, "Fannie Mae, Freddie Mac Portfolio Caps Will Be Lifted," Bloomberg News, Bloomberg News, 27 February 2008. 27 February 2008.

22 Nick Timiraos, "U.S.-Backed Mortgage Program Fuels Risks: FHA Struggles to Eliminate Loans for Zero Down," Nick Timiraos, "U.S.-Backed Mortgage Program Fuels Risks: FHA Struggles to Eliminate Loans for Zero Down," Wall Street Journal, Wall Street Journal, 24 June 2008. 24 June 2008.

23 Sannon D. Harrinton and Abigail Moses, "Company Bond Risk Rises as Bank Concerns Offset Fannie Rally," Sannon D. Harrinton and Abigail Moses, "Company Bond Risk Rises as Bank Concerns Offset Fannie Rally," Bloomberg News, Bloomberg News, 14 July 2008. 14 July 2008.

24 David M. Walker, David M. Walker, Saving Our Future Requires Tough Choices Today, Saving Our Future Requires Tough Choices Today, a presentation given by the former Comptroller General as part of the Fiscal Wake-Up Tour at Haas School of Business, University of California-Berkeley, Berkeley, California, March 5, 2008, U.S. Government Accountability Office doc.u.ment GAO-08-583CG. a presentation given by the former Comptroller General as part of the Fiscal Wake-Up Tour at Haas School of Business, University of California-Berkeley, Berkeley, California, March 5, 2008, U.S. Government Accountability Office doc.u.ment GAO-08-583CG.

25 Creadon, Patrick, dir. Creadon, Patrick, dir. I.O.U.S.A. I.O.U.S.A. Doc.u.mentary. Agora Entertainment, 2008. After the August 21, 2008 debut, Warren Buffett, CEO of Berks.h.i.+re Hathaway; William Niskanen, Chairman of the CATO Inst.i.tute; Bill Novelli, CEO of AARP; Pete Peterson, Senior Chairman of The Blackstone Group and Chairman of the Peter G. Peterson Foundation; and Dave Walker, President & CEO of the Peter G. Peterson Foundation and former U.S. Comptroller General partic.i.p.ated in a live discussion broadcast to the movie viewers. Doc.u.mentary. Agora Entertainment, 2008. After the August 21, 2008 debut, Warren Buffett, CEO of Berks.h.i.+re Hathaway; William Niskanen, Chairman of the CATO Inst.i.tute; Bill Novelli, CEO of AARP; Pete Peterson, Senior Chairman of The Blackstone Group and Chairman of the Peter G. Peterson Foundation; and Dave Walker, President & CEO of the Peter G. Peterson Foundation and former U.S. Comptroller General partic.i.p.ated in a live discussion broadcast to the movie viewers.

26 Stephen Labaton, "Paulson, at Talks on Regulation, Suggests Pendulum Has Swung Too Far," Stephen Labaton, "Paulson, at Talks on Regulation, Suggests Pendulum Has Swung Too Far," NewYork Times, NewYork Times, 13 March 2007. 13 March 2007.

27 Laurel Brubaker Calkins, "Enron's Skilling Asks Appeals Court for Reversals," Laurel Brubaker Calkins, "Enron's Skilling Asks Appeals Court for Reversals," Bloomberg News, Bloomberg News, April 2, 2008. April 2, 2008.

28 Bob Ivy, "John Rigas's 'Taj Mahal' Sold to Illinois Firm for $3.5 Million," Bob Ivy, "John Rigas's 'Taj Mahal' Sold to Illinois Firm for $3.5 Million," Bloomberg News, Bloomberg News, 7 April 2008. 7 April 2008.

29 Christopher Bowe,"Kozlowski's Wife Begins Divorce Action," Christopher Bowe,"Kozlowski's Wife Begins Divorce Action," Financial Times, Financial Times, 16 August 2006. 16 August 2006.

30 Warren Buffett to Liz Clayman, CNBC interview at Georgetown, March 13, 2007. Warren Buffett to Liz Clayman, CNBC interview at Georgetown, March 13, 2007.

31 Lucian Kim, "Rosneft Profit Rises Fivefold on Yukos Acquisitions," Lucian Kim, "Rosneft Profit Rises Fivefold on Yukos Acquisitions," Blomberg .com, Blomberg .com, 8 April 2008. 8 April 2008.

32 Deborah Solomon, "A Summit on U.S. Rules: 'Too Gosh-Darn Complex,'" Deborah Solomon, "A Summit on U.S. Rules: 'Too Gosh-Darn Complex,'" Wall Street Journal, Wall Street Journal, 14 March 2007. 14 March 2007.

33 Wall Street Journal Research, "Subpar Earnings: Companies Blame Housing, Credit Problems for Weakness," Wall Street Journal Research, "Subpar Earnings: Companies Blame Housing, Credit Problems for Weakness," Wall Street Journal, Wall Street Journal, 5 October 2007. 5 October 2007.

34 Warren Buffett to Liz Clayman. Warren Buffett to Liz Clayman.

35 Janet Tavakoli, "Subprime Lending Excesses Have Damaged US's Standing as Global Leader in Finance," Janet Tavakoli, "Subprime Lending Excesses Have Damaged US's Standing as Global Leader in Finance," Financial Times, Financial Times, 19 March 2007. 19 March 2007.

36 Francesco Guerrera, "Citigroup Takes $9bn a.s.sets in Old Lane Move," Francesco Guerrera, "Citigroup Takes $9bn a.s.sets in Old Lane Move," Financial Times, Financial Times, 13 June 2008. 13 June 2008.

37 Paul J. Davies and Jennifer Hughes, "US Banks Fear Being Forced to Take $5,000bn Back on Balance Sheets," Paul J. Davies and Jennifer Hughes, "US Banks Fear Being Forced to Take $5,000bn Back on Balance Sheets," Financial Times, Financial Times, 4 June 2008. 4 June 2008.

38 U.S. Department of Treasury, U.S. Department of Treasury, The Department of the Treasury Blueprint for a Modernized Financial Regulatory Structure, The Department of the Treasury Blueprint for a Modernized Financial Regulatory Structure, March 2008, March 2008, http://treas.gov/press/releases/reports/Blueprint.pdf.

39 Benjamin Graham, Benjamin Graham, The Intelligent Investor The Intelligent Investor (New York: Harper & Row, 1973), 101. (New York: Harper & Row, 1973), 101.

40 Benjamin Graham. 100. Benjamin Graham. 100.

Chapter 13: The Fogs of War, Religion and Politics.

1 Berks.h.i.+re Hathaway Inc.,"Berks.h.i.+re Hathaway to Acquire Iscar Metalworking Companies," Berks.h.i.+re Hathaway Inc.,"Berks.h.i.+re Hathaway to Acquire Iscar Metalworking Companies," Business Wire, Business Wire, 5 May 2006. Text of ISCAR Ltd. Joint News Release. 5 May 2006. Text of ISCAR Ltd. Joint News Release.

2 Berks.h.i.+re Hathaway 2006 Annual Report, Berks.h.i.+re Hathaway 2006 Annual Report, 5. 5.

3 Amy Teibel, "Buffett's Israeli Acquisition Born in Shed," Amy Teibel, "Buffett's Israeli Acquisition Born in Shed," Was.h.i.+ngton Post, Was.h.i.+ngton Post, 8 May 2008. 8 May 2008.

4 Steven F. Hayward, Steven F. Hayward, Churchill on Leaders.h.i.+p, Churchill on Leaders.h.i.+p, Forum (an imprint of Prima Publis.h.i.+ng, Rocklin, CA 1997, 1998. 129. Forum (an imprint of Prima Publis.h.i.+ng, Rocklin, CA 1997, 1998. 129.

5 Neil Sandler, "Buffett Tours Plant in War-scarred Tefen," Neil Sandler, "Buffett Tours Plant in War-scarred Tefen," BusinessWeek, BusinessWeek, 18 September 2006. 18 September 2006.

6 "Oklahoma Mourns Those Lost in Bombing," "Oklahoma Mourns Those Lost in Bombing," United Press International, United Press International, 20 April 2008. McVeigh was executed in 2001. 20 April 2008. McVeigh was executed in 2001.

7 Gideon Rachman, "Death, Double Standards and the Battle for the Moral High Ground," Gideon Rachman, "Death, Double Standards and the Battle for the Moral High Ground," Financial Times, Financial Times, 8 August 2008. 8 August 2008.

8 The Iraq Study Group, James A. Baker III and Lee H. Hamilton co-chairs, The Iraq Study Group, James A. Baker III and Lee H. Hamilton co-chairs, The Iraq Study Group Report: The Way Forward-A New Approach, The Iraq Study Group Report: The Way Forward-A New Approach, Was.h.i.+ngton D.C., December 6, 2006. Was.h.i.+ngton D.C., December 6, 2006.

9 Jay Newton-Small, "Waxman Probes Iraq Contracting, Missing $12 Billion," Jay Newton-Small, "Waxman Probes Iraq Contracting, Missing $12 Billion," Bloomberg News, Bloomberg News, 6 February 2007. 6 February 2007.

10 John J. Sheehan,'Why I Declined to Serve," John J. Sheehan,'Why I Declined to Serve," Was.h.i.+ngtonpost.com, 16 April 2007. 16 April 2007.

11 Ibid. Ibid.

Chapter 14: Finding Value.

1 Warren Buffett to Janet Tavakoli, inscription note, 18 February 2006. Warren Buffett to Janet Tavakoli, inscription note, 18 February 2006.

2 Janet Tavakoli to Warren Buffett, e-mail correspondence, 16 August 2007. Janet Tavakoli to Warren Buffett, e-mail correspondence, 16 August 2007.

3 Warren Buffett to Janet Tavakoli, handwritten note, 30 May 2006. Warren Buffett to Janet Tavakoli, handwritten note, 30 May 2006.

4 Warren Buffett to Janet Tavakoli, telephone conversation, mid June 2006. Warren Buffett to Janet Tavakoli, telephone conversation, mid June 2006.

5 Janet Tavakoli to Warren Buffett, letter, 20 June 2006. Janet Tavakoli to Warren Buffett, letter, 20 June 2006.

6 Warren Buffett to Janet Tavakoli, letter, 22 June 2006. Warren Buffett to Janet Tavakoli, letter, 22 June 2006.

7 Janet Tavakoli to Warren Buffett, letter, 26 June 2006. Janet Tavakoli to Warren Buffett, letter, 26 June 2006.

8 Benjamin Graham, Benjamin Graham, The Intelligent Investor The Intelligent Investor (New York: Harper & Row, 1973), 96. (New York: Harper & Row, 1973), 96.

9 Warren Buffett to Janet Tavakoli, letter, 22 June 2006. Warren Buffett to Janet Tavakoli, letter, 22 June 2006.

10 Chris Isidore, "Buffett: My Fix for the Economy," Chris Isidore, "Buffett: My Fix for the Economy," CNNMoney.com, 2 October 2008. Warren proposed private investors put up 20 percent cash for a.s.set purchases. The Treasury would finance the other 80 percent in exchange for getting paid princ.i.p.al back first, interest payments, and a share of the upside.This would force the use of market prices.