But Buffett would shake her off with a chuckle.
Buffett’s skepticism of philanthropy was shaped in part by an experience in the 1970s with Grinnell College. His friend Joe Rosenfield had persuaded him to join the board, and Buffett turned this small Iowa liberal arts college into a financial powerhouse. Under Buffett’s direction, the Grinnell endowment bought a television station in Dayton for $13.6 million and sold it four years later for $48 million. But Buffett was horrified that Grinnell actually spent some of this windfall—far too much, to his liking. As he saw it, the money was being spent in ways that did not enhance the students’ educations, and the professors had it rather easy.23
This soured him on higher education. He did give scholarships to numerous individual students. But, as Greenberg said, “Warren would rather choke to death than write a check to a university.” When a fundraiser from his own University of Nebraska stopped by the office, Buffett—despite being a diehard Nebraska football fan—wouldn’t even open the door for him.24
In fact, Buffett approached philanthropy more or less as he did investing. He refused to “diversify,” preferring that his foundation give to a few “high-leverage” causes that he hoped would reap the biggest social bang for the buck. Sensibly, he wanted to focus his giving, and he recognized that in the case of many charities, too much may be spent on administrator lunches and so forth. Once, hosting a crowd of friends at Laguna Beach, Buffett asked in none too casual a way: “If you had to give money to one charity to do the most good, which would it be?”25
He seemed to be searching for the Coca-Cola of charities—a home run that would take society’s investment off the charts. This worked for him in stocks, but was less suited to philanthropy. Many of the types of projects that seek funding—in medical research, for example—are apt to make gains in fits and starts. A benefactor must be willing to take some losses. In other areas, such as the fine arts, doing “the most good,” as Buffett put it, may not even be a meaningful concept. (But doing “some good” is meaningful. Society would certainly be the poorer if no one endowed museums.) Put differently, social progress cannot be measured as easily as the profits of Coca-Cola. But Buffett wanted to see “concrete results.”26
Given these constraints, he found it hard to find suitable charities.27 The Buffett Foundation, which was managed by Greenberg but jointly steered by Warren and his wife,28 salted away much of its revenue for future giving. In 1990, the foundation’s receipts from Berkshire and from income on its portfolio totaled $3.8 million. But it donated just $2.3 million to charities. Meanwhile, its assets were ballooning to $18 million. It resembled nothing so much as a miniature Berkshire—its outlays kept to a carefully chosen few while its assets were “piling and heaping.”
Buffett had two pet causes. The danger of nuclear war had bothered him since Hiroshima, but disarmament did not seem a goal that private citizens could further in any substantial way. Buffett briefly underwrote the research of George F. Kennan, the famed ambassador to the Soviet Union who, while at Princeton, was an advocate of drastic nuclear arms reductions. Then, in 1984, Buffett learned that William Ury, an expert on negotiation at Harvard Law School, was working on ways to prevent accidental war. Buffett invited Ury to meet him for breakfast at the Boston Ritz-Carlton and described to him, in very human terms, his fear of Armageddon. Peering over the china, Buffett asked Ury to envision that thousands of white marbles were lying on the table, with one black marble lying among them. Suppose, he added, somebody picked up a marble every day. Sooner or later—maybe a century later—they would reach for the black one. That would be nuclear war.
Ury had proposed setting up “risk reduction centers” in Moscow and Washington. These would be equipped with faxes and phones and would be able to provide a communications channel during a crisis. However, Ury noted that the United States, in those early Reagan years, was hostile to working with the Soviets.
Buffett said, “Look, these are human beings on the other side, and we’ve set up these systems which could set the world aflame.” Almost instantly, he added, “I’m going to fund you. I’m going to give you a hundred grand.” (The foundation ultimately gave $200,000.) Risk reduction centers were approved about a year later, at the Reagan-Gorbachev summit in Geneva, and are still in place.29 But with the end of the Cold War, there was less that Buffett could do about disarmament.
The mother of all Buffett causes was population control. In 1990, for example, about $1.7 million, or 75 percent of that year’s gifts, was devoted to family planning, sex education, birth control, abortion rights, and so on. Susie and Warren were both firm believers, but their emphases differed. While Susie was largely inspired by the poor living conditions of people, and particularly women, that she had seen in the Third World,30 Warren conceptualized in macroeconomic terms. He had a Malthusian dread that overpopulation would aggravate problems in all other areas—such as food, housing, even human survival.31
As pragmatic as this view was, it is striking that both of Buffett’s “causes” were aimed at alleviating or preventing future sources of grief, such as a future war or a future oversupply of people. Virtually none of his immense resources went to help people who were already born-people who were here and now poor, sick, living in urban blight, illiterate; or people raising money for here-and-now concert halls, museums, universities, and hospitals (save for endowments of abortion or family planning programs).* Buffett’s almost exclusive focus on such macroeconomic, futuristic issues gave his philanthropy a detached—almost a dehumanized—quality.
Traditional charities would have “spent” his money. On the other hand, giving to population control could be construed as “investing”—sort of a global share buyback—because it would reduce the number of future divisors clamoring for the social pie. Charlie Munger, who was equally Malthusian, articulated this mind-set at a party for Keith Russell, a doctor who had been a Munger-Buffett ally in the Belous abortion rights case in California. After some of Russell’s patients presented a toast to the many babies he had delivered, Munger rose, glass held high, and solemnly declared, “I want to toast Dr. Russell for the thousands of babies he didn’t deliver.”32
The strangest aspect of Buffett’s focusing on population control was that he did not get the pleasure of seeing his money help people. He often asked people if they had any good ideas for philanthropy—as if the world had a shortage of such—but it didn’t lead anywhere. He was hung up on the notion that the recipients might be unworthy—that charity was a “food stamp” that would likely corrupt both donor and donee. Interestingly, Buffett was equally uneasy receiving a handout. He once ordered a chocolate malt at the Goodrich Dairy in Omaha and discovered—too late—that he had nothing smaller than $100 bills, which the Goodrich couldn’t change. An older woman who knew Buffett happened to be at the dairy, and she graciously paid for his malt, which cost all of $1.50. Buffett insisted that he would reimburse her for the malt. But, to Buffett’s supreme agony, he couldn’t remember the woman’s name. It must have weighed on his conscience, because he eventually found out and did repay her.33
The one philanthropic stroke that seemed to give Buffett real pleasure was an annual $10,000 award to each of fifteen Omaha public school teachers. The award was named for Buffett’s Aunt Alice, the teacher who had cared for him when he lived with his grandfather, and the winners were chosen on the basis of merit, which appealed to him. Buffett liked to point out that rich people threw money at their colleges in return for getting their names on buildings, but did nothing for their elementary schools, which were trusted with more formative years. He thought of the award as a thank-you to Omaha.
However, his nonparticipation in the standard Omaha charity drives was a sore spot among the city fathers. Robert Daugherty, a local manufacturer, said, “Warren is renowned for not giving money away.” Omaha had no tangible evidence that it was home to one of the country’s richest men. There was no Buffett wing in the Joslyn museum, nor was there a Buffett park in Omaha,
nor a Buffett chair at the local college.
In 1990, after years of seeming indifference, Buffett did endow a second trust, the Sherwood Foundation, solely for charities in Omaha. It was much smaller than the Buffett Foundation, but it suggested that Buffett—now sixty—was becoming aware that for all that Omaha had done to shape him, he had given virtually nothing back.
What confounded the pillars of Omaha was that in spite of Buffett’s parsimony, he obviously had a strong sense of community. Politically, his disdain for handouts did not result in the expected conservatism, but in a strong belief that government should work on behalf of society as a whole, rather than hand out goodies to its individual members. In 1977, long before it was common to attack “special interests,” Buffett pointedly criticized the “propensity of major groups in our society to utilize their electoral muscle to shift, rather than solve, economic problems.”34
Thereafter, he wrote occasional quite creative proposals for dealing with economic issues, which were published in the Washington Post. The general theme was to promote “pie enlarging,” rather than “pie rearranging” (just as he was scornful of “pie-rearranging” takeovers on Wall Street). One of his ideas would have wiped out the trade deficit in a single stroke, without resorting to quotas, tariffs, or red tape. Under this elegant scheme, the free market would have sorted out how many Nissan trucks to import and how many Adidas running shoes, but all within a framework that (with one, simple governmental edict) would have limited the total of such imports to the total of exports.35 Buffett’s premise was that society had a stake in an overall trade balance, but not in playing referee between various industries—a job that it does rather poorly.
Though he did not oppose actual “food stamps,” he was generally skeptical of government transfers. One of his most piercing essays was an allegorical warning set in “Static Island”—a fictional society with a static population in which the members grew ample amounts of rice and wine for all. Since it was “an island with a heart,” the workers guaranteed fixed rations for their nonworking elders. Alas, as the number of retirees grew, Buffett showed, by simple math, that the workers would have to toil backbreaking hours and give up wine for themselves to meet the generous quotas legislated by their forebears.36
Most of his proposals followed the neoconservative tactic of trying to harness people’s selfishness, rather than relying on their “goodness.” Unlike his wife, Warren was wary of do-gooders. In the seventies, Susie had befriended Larry King, an Omahan who ran a credit union with the ostensible aim of providing credit to blacks. King, who drove a white Mercedes, threw lavish parties, and swaddled himself in gold watches, zebra skins, and a leopard muumuu (all on a $16,200 salary), managed to con half of Omaha, including Susie.37 But he did not fool Warren, who immodestly remarked, “I knew that King was a phony and I think that he knew I knew. I’m probably the only person in Omaha he never asked for money.”38 By then, King was in prison for looting millions.
Another time, Susie asked Warren to help Charles Washington, an Omaha civil rights activist. Warren was dubious but lent him $24,900. Washington defaulted in six months. Warren felt so bad about being suckered out of this trifling sum that he took Washington to court—the only time he had ever sued anyone.
On a national level, Buffett was friendly with quite a few politicians, such as Daniel Patrick Moynihan, Bill Bradley, and Bob Kerrey. But, like few other executives, Buffett did not try to curry favor with them.39 The textile trade group repeatedly asked Buffett to help it lobby for import protection, but Buffett never did, even though his mill could have used the help.40
In a more dramatic case, Berkshire’s savings and loan was a member of the United States League of Savings Institutions. The league, like all such groups, viewed its mission as grabbing for its members the biggest possible share of the government pie. It even had the effrontery to lobby against requirements for stronger levels of capital just as the S&L scandal was coming to light—that is, just as its members were running up a $100 billion bill to the taxpayers.
Buffett and Munger, having the quaint view that even lobbyists should have social consciences, quit the league in protest. Munger, who had been warning of danger signs on the S&L front for years,† to the press an acid letter accusing the league of “furnish[ing] self-serving nonsense.” If …
Because the League has clearly misled its government for a long time, to the taxpayers’ great detriment, a public apology is in order, not redoubled efforts to mislead further.41
Though skeptical of government bailouts, Buffett definitely did not share the neoconservative faith that marketplace judgments were inherently correct. He did not subscribe to the now fashionable view of the free market as the ultimate arbiter of individual worth. People who did not have powerful jobs, women in particular, noticed that Buffett treated them without any hubris or air of self-importance. Once, likening himself to his secretary, Buffett allowed that she
raises children just as well and contributes just as much to her community. Her talents—and they are many—in a market society just are not bid up in the same way. Take me and stick me in Afghanistan or someplace and we’ll find out how talented I am.42
For a billionaire, he was quite radical. His politician friends were Democrats, of course, but some of his ideas were far, far to the left of theirs. Once, at a Q&A at Cap Cities, Buffett was asked how he would rewrite the tax code. “If I really could do it, it would shock you,” he said. He’d tax the hell out of personal consumption—at progressively higher rates—and impose an “enormous” inheritance tax.
If I want to run around in a jet, which I do, fine, I have the claim checks to pay for it, but that should be taxed heavily, because I am withdrawing people, fuel and so on—resources—from society.43
Given such a liberal outlook, people could not understand why Buffett didn’t do more. Munger, who shared his skepticism of philanthropies, was a generous giver and got heavily involved in his hospital as well as in a private school. But Buffett refused to be enlisted. Norman Lear once asked Buffett to make a brief introduction at an award ceremony for a group called Business Enterprise Trust. Buffett contributed to the group, which honors socially responsible businesspeople, and he was planning to be there in any case. But he flatly refused to make a presentation, saying he got fifty such requests a month. Lear was dismayed. He added, disbelievingly, “It’s twelve steps to the podium for a thirty-second introduction.”
From Buffett’s viewpoint, everybody wanted a piece of him, like camera-toting tourists pursuing a colorful native. His defense, as Kay Graham recognized, was to set his own agenda, in philanthrophy as in so much else. Holding on to his money was a way of keeping control. Even as a boy, when he hadn’t owned a part of Kay Graham’s newspaper but had merely delivered it, he wouldn’t let his mother touch the money.
The adult Buffett felt the same way about his 474,998 shares of Berkshire.44 Bill Gates occasionally sold some of his Microsoft stock, Lee Iacocca some Chrysler, and so on. But Buffett would not parcel off even a sliver of his brilliant canvas. Over a quarter century, he had not sold a single share. The ironic result is that Berkshire’s extraordinary growth did not put so much as a dime in Buffett’s pocket.
From society’s point of view, he argued that it was a good thing. The dimes that he could give now were not merely dimes—to Buffett, they represented the quarters and the half-dollars that a dime could become down the road. “When I am dead,” he observed, “I assume there’ll still be serious problems of a social nature as there are now.”45 He planned to leave his stock to Susie; whichever one died last would bequeath it to the foundation. Society would get a greater benefit from his money then, after he was done heaping and piling. This was irrefutably logical, but obsessive. By the late eighties and early nineties, Buffett could have been peeling off tens of millions for society’s “serious problems” every year and still would not have diminished his pile of chips by even 1 percent.
One wonders if his desire to
control those chips related, at least in part, to his desire to control not only his life, but also his death. It is only human to hope, and perhaps to believe, that one will not die in the midst of a great journey. In Buffett’s “unfathomable human mind,” his command of Berkshire may have provided a sense of protection from that lifelong fear. Perhaps, like Lincoln, he would not be called while the battle was still joined. And as long as he continued to heap and pile the job would not be done.
* An exception: in 1982, Buffett gave $100,000 to a library in West Point, Nebraska, named for his maternal grandfather. More typical was a $400,000 gift in 1993 to the Columbia University School of Public Health, which was earmarked for a family planning clinic.
† In a remarkably prescient forecast, six years before the scandal broke, Munger observed in the Wesco letter for 1983 that “an agency of the U.S. government (F.S.L.I.C.) continues to insure savings accounts in the savings and loan industry, just as it did before. The result may well be bolder and bolder conduct by many savings and loan associations. A sort of Gresham’s law (‘bad loan practice drives out good’) may take effect for fully competitive but deposit-insured institutions. ‘bold conduct drives out conservative conduct,’ there eventually could be widespread insolvencies caused by bold credit extensions come to grief.”
Chapter 20
RHINOPHOBIA
As the memory of Black Monday faded, Wall Street basked in an Indian summer. Stocks surged to new highs and deal-makers hatched a fresh wave of LBOs, compared to which the earlier waves had been no more than innocent ripples. The math of the late 1980s was simple. Any company that exchanged its equity for debt was immediately worth more, courtesy of the U.S. tax code. And every company was thought to be ripe for such a maneuver.
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