“I have never known much good done by those who affected to trade for the public good.” —Adam Smith

I Still remember the marvelous frisson on the Salomon Brothers trading floor in the summer of 1987 when Warren Buffett came riding in from Omaha to rescue our chairman, John Gutfreund, from his past. In an era in which money men found a seemingly unlimited number of financial temptations to succumb to, Warren Buffett was the sort of ascetic rarely seen on Wall Street. He had made his name and his money the old-fashioned way, as a long-term investor in wealth-creating American enterprise. His angry sermons aimed at modern financial techniques had established him as one of the more acceptable faces of American capitalism. In his two toned world there were good people who were useful to society, bad people who weren’t, and not much room in between for the sort of charming rogues he was about to embrace. “If you want to make money,” he was fond of telling business school students, “hold your nose and goto Wall Street.”

Suddenly there was a delicious gap between what the moralist said and what he did. The annual reports of Warren Buffett’s investment firm Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) had treated leveraged buyouts to a long critique as harshly skeptical as any ever published; Salomon Brothers masterminded several of the more sensational leveraged buyout disasters of the time, including those of Revco and the Southland Corporation. Salomon Brothers also peddled billions of dollars of ill-fated junk bonds; of the junk bond market Warren Buffett wrote in an annual report that “as usual, the Street’s enthusiasm for an idea was proportional not to its merit, but rather to the revenue it would produce. Mountains of junk bonds were sold by those who didn’t care to those who didn’t think.”

The Salomon Brothers trading floor throbbed with speculation; Warren Buffett often lamented the cost to the U.S. economy of “casino-type markets.” “To many on Wall Street,” he wrote, “both companies and stocks are seen only as raw materials for trades.” His pet solution to the problem—a 100 percent tax on short-term capital gains—^would have closed overnight half an acre of the Salomon trading floor. Not that the prospect would have troubled Warren Buffett, who was contemptuous of even the more legitimate activity of brokerage houses.

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The Temptation Of St Warren