1999: What are your thoughts on the collapse and bailout of Long Term Capital Management?

AUDIENCE MEMBER: Good morning, Mr. Buffett and Mr. Munger. Thank you for hosting another wonderful weekend. My name is Che Wai Woo (PH). I’m a proud shareholder from right here in Omaha.

One of the most interesting financial news developments this previous year was the near collapse of the hedge fund Long-Term Capital.

I’d like to get your thoughts and Mr. Munger’s thoughts about how these private partnerships operate, what your thoughts about the Long-Term Capital deal, and also the Fed’s intervention to save it.

WARREN BUFFETT: Yeah, in that movie you saw, the time when Yellowstone was — when Old Faithful was performing in the background and Bill was trying to get me to watch that while I was on the phone —

A lot of that trip was spent talking to New York about making a bid for, what we’ll call LTCM, Long-Term Capital Management.

And the caption on that photo, incidentally, is known as the geezer and the geyser. (Laughter)

And we were up in — we started in Alaska. And we were going down these canyons in a boat.

And the captain saying, you know, “Let’s go over there and look at the sea lions.” And I say, “Let’s stay right where we are, where we got a satellite channel,” because I was trying to talk on the phone all the time.

Charlie was in Hawaii. And we never did get a chance to talk during that whole period. I didn’t want to bother him with a little thing like a bid for 100 billion-plus of securities, and I couldn’t find him.

So it was — we were in an awkward place to pursue that. I think it’s possible that if I’d been in New York or Charlie had been in New York during that period, that our bid might have been accepted.

There was just a report published within the last three or four days by a special committee representing the SEC, the Fed, I think, the Treasury and the CFTC — I think I’m right on those four. And it describes just a tiny bit of the events leading to the bid.

It referred, on page 14, I remember, it talked about our transaction unraveling. It didn’t unravel from our side. I mean, we made a firm bid for 100 billion-plus of balance sheet assets and many hundreds of billions, in fact, over a trillion, of derivative contracts.

And, you know, this was in a market where prices were moving around very dramatically. And with that bulk of assets there, we thought we made a fairly good bid for a 45-minute or hour period. I don’t think anybody else would’ve made the bid.

But in any event, the people at LTCM took the position that they could not accept that bid.

And therefore, the New York Fed in — had a group, largely investment banks there at the Fed. And that afternoon, faced with the prospect that LTCM could not or would not accept our bid, they arranged another takeover arrangement where additional money was put in.