“At the end of May 1971, we had this meeting in a hotel in Washington. They were ready to go ahead on a big scale, although it was one of those meetings where it’s already predetermined what you’re going to do, but you have to hold it to get organized and feel good, rally the troops.
“About a month before this meeting, Hughes had been on Meet the Press. At the very end of the show Larry Spivak said, ‘Senator, there has been some talk about your interest in extrasensory perception and the occult. Would you clarify your beliefs on this?’ Hughes had just started to answer, and then the program got cut off.5
“So when the Washington meeting was just about done I said, ‘Senator, I watched that program about a week ago. If you ever get asked a question like that again, I would suggest that initially, before you even answer, point out to the questioner that there’s a significant difference between ESP and the occult. Don’t let the questioner, by linking those two things, nail you, so that by answering, six months from now they’ll say you talked about the occult when you were really talking about ESP.’
“The floodgates opened. Hughes said, ‘Ten years ago, I woke up in a bathtub in a fine hotel. I didn’t know where I was. Didn’t know where my family was. I didn’t know how I’d gotten there, and I was of no use to anybody. Then on this earth, at that moment, I became aware, and that’s what made me want to feed the hungry.’ Then he said, ‘That experience came from visions that I have.’
“He went on, ‘I believe in precognition. My daughter had a vision of the spots on these kittens before they were born, and she described them to me. And they were born that way. And somebody else had seen a remote vision of a fire that was happening.’
“I said, ‘Now, Senator, if I’m Larry Spivak, the next question I’m going to ask you is this. If your daughter tells you she has a vision of Soviets preparing to launch ICBM missiles at the United States, are you going to order a preemptive strike against the Soviet Union?’
“And he said, ‘I would have to give that serious consideration.’
“I said, ‘Now, Senator, I’m Larry Spivak, and you’re sitting there at that table, and you’ve got that glass of water in front of you, and I say, “Do you believe somebody can make that glass of water move across the desk through the powers of their mind standing some feet away?”’ And he said, ‘Yes, I believe that can be done.’
“There were these people around the room—some of them who had their whole careers invested in the guy, like his chief of staff—and they saw themselves in the White House. And they started denying what they were hearing. They were waving their hands and saying it didn’t mean what it meant. As I kept going, they were just dying. They were bursting in and saying, ‘That isn’t what he’s saying,’ and, ‘Don’t worry about this; it can be taken care of,’ and that Abraham Lincoln had believed some of the same things. Obviously they knew some of this already. The whole thing was going down the tubes. I have never seen anything like it. It was just fascinating because of the years of preparation and these guys who had been dreaming of working for a U.S. President.
“Finally, at one point, Joe said, ‘Senator, tell Warren if he asks another question like that, you’re going to make him disappear.’
“So, I said, ‘Senator, lookit. There are all kinds of phonies in American politics. You know, they profess to believe in God, and they say they go to church every Sunday and everything. They don’t believe a damn word of it, you know. But it works. You, on the other hand, believe something very sincerely, and you’ve got your reasons for it, you know, but I will promise you that there’s ten percent of the normal Democratic vote or some significant percentage of the votes that you can’t have, just because of something you honestly believe, whereas the other guy is getting the vote because of something he doesn’t believe. That’s just a reality.’ Meanwhile, all these guys are saying ‘Don’t pay any attention. What does he know?’ But Hughes said that he would go away and when he came back, he would do something that would end his candidacy.”6
And so it came to pass that ten days later Hughes gave an interview to the Des Moines Register in which he said that he had recently spent an hour talking to his dead brother through a medium.7 Thus ended the presidential ambitions of Senator Harold Hughes.8
The episode with Harold Hughes would prove to be the peak, the nadir, and—thanks in part to Richard Nixon’s eventual reelection—for many years the end of Buffett as would-be kingmaker. But throughout it, Buffett paid careful attention to the overwhelming influence of media in politics; he wanted some of that. A childhood throwing newspapers, his friendship with Fortune reporter Carol Loomis, the purchase of the Sun, a search for other newspapers to buy, and his investment in the Washington Monthly—Buffett’s interest in publishing had grown and compounded. He had seen the overwhelming power of television to capture attention throughout the tumultuous 1960s, from the JFK assassination to the Vietnam War to the civil-rights movement. Now, as the profitability of television became apparent, he wanted a piece of that business too.
Then Bill Ruane set him up at a dinner in New York with an acquaintance, Tom Murphy, who ran Capital Cities Communications, a company that owned broadcasting stations.
Murphy, the son of a Brooklyn judge, had grown up in the spicy chowder of New York politics before joining the Harvard Business School class of ’49. Jowly, balding, easygoing, Murphy had started by managing a bankrupt TV station in Albany so frugally that he painted only the sides of the building that faced the road. Then he started to buy broadcasters, cable companies, and publishers, creating a media empire. Before long he moved to New York and recruited another HBS classmate, Dan Burke, brother of Johnson & Johnson CEO Jim Burke.
After their dinner, Murphy strategized with Ruane about how to get Buffett on his board of directors. Ruane said the way to Buffett’s heart was to visit him in Omaha. Murphy promptly made the pilgrimage. Buffett plied him with a steak dinner, then drove him home to meet Susie. She must have known by now what to expect: Her husband had met another new object of infatuation. Buffett liked to show new people his totems: the office, Susie, and sometimes the train set. After the tour he and Murphy played a couple of games of racquetball in the Buffetts’ basement court, Murphy running around in his oxford dress shoes. Buffett saw where he was headed before Murphy could pop the question. “You know, Tom,” he said, “I couldn’t become a director because I’d have to have a major position in your company, and your stock is too high.”9 Even though the rest of the market was stumbling downhill, investors were excited about television stocks. Cable television was new, and local franchises were consolidating into newly visible public companies, whipping up investors’ excitement about the medium. “Lookit,” he said, “you can have me for nothing, you don’t need me on the board.”10
So Murphy started calling Buffett every time he made a deal. Buffett, just over forty, was flattered and made unlimited time for Murphy, then in his mid-to late forties, even though he thought, “This guy is old.” But “he understands the whole world,” and “I was in awe of Murph,” Buffett says. “I thought he was the ultimate businessman.” One evening, Murphy phoned him at home and offered him first shot at a Fort Worth TV station that was for sale.11 Buffett was interested but, for reasons he doesn’t recall, turned Murphy down—which he later called one of his greater business mistakes.12
What Buffett really wanted was to be a publisher. In fact, he thought he had a hot scoop, but when he gave the editors at the Washington Monthly the idea, they pooh-poohed it. “I’m just sure in my heart,” says Charles Peters, the Monthly’s publisher, “that the editors were offended at the idea of having an investor call them up and tell them to do a story.” They told Peters it was “no real story for the Monthly” and Peters did not push back. Then Buffett turned to the Omaha Sun, which might not have a national platform but was better than no newspaper at all. As matters turned out, says Peters, “I could have shot everybody on my staff.”
What Buffett had heard was that Bo
ys Town, one of Omaha’s sacred cows, had turned into a hog. A refuge for homeless boys, Boys Town was founded in an old mansion near downtown in 1917 by Father Edward Flanagan, an Irish priest who wanted to save orphans and rejected children from wasted lives as drifters, criminals, or addicts. “Father Flanagan was famous around town for getting five bucks at a time,” says Buffett, “and as soon as he got it, he spent it on a kid. Then he got ninety dollars and he put twenty-five kids in a house.”13 In its early years, Boys Town had always struggled financially, but it grew nonetheless. By 1934 it occupied a 160-acre campus ten miles west of Omaha complete with a school, dormitories, a chapel, a dining hall, and athletic facilities. With help from Howard Buffett, Boys Town set up its own post office in 1934 to assist in fund-raising.14 It became an incorporated village in 1936. Then a 1938 Oscar-winning film starring Spencer Tracy and Mickey Rooney brought it national fame.
When Ted Miller, a professional fund-raiser, saw the movie, he recognized how to transform Boys Town’s fund-raising appeals into a huge national campaign. Every year at Christmas time, Boys Town, which now called itself “The City of Little Men,” sent out millions of letters that began, “There will be no joyous Christmas season this year for many homeless and forgotten boys….” and bore the picture the movie made famous of a street urchin carrying a tot with the legend “He ain’t heavy, Father…He’s m’brother.”
People sent in as little as a dollar, but even small amounts coming from a tiny percentage of the tens of millions of letters that had been sent out added up to a lot of money.15 Boys Town, then awash in contributions, expanded to a 1,300-acre campus with a stadium, a souvenir shop, a farm where the boys worked as hired hands, and vocational training facilities. Father Flanagan died in 1948, but the money kept rolling in under his successor, Monsignor Nicholas Wegner. It was now a virtual shrine that was the state’s biggest tourist attraction.
“I used to hear these stories about how the U.S. National Bank put on extra people for weeks and weeks before Christmas just to handle the Boys Town money that was coming in. Meanwhile, of course, I saw the boy count coming down.”
In its early years, Flanagan had searched court records and taken in a certain number of hard-core delinquents, even a few murderers. But by 1971, the home screened out the emotionally disturbed, mentally retarded, and serious juvenile offenders; it tried to limit its occupants to “homeless” boys who had no other significant problems.16 Built to house a thousand, Boys Town now employed some six hundred people to care for its six hundred and sixty-five boys.17 However, its gigantic institutional approach of housing boys in a same-sex facility, isolated from the surrounding community, with a custodial, even prisonlike atmosphere, had begun to seem out of date.18 The boys moved to the signal of bells: They prayed at the first bell in the giant “chow hall,” sat down to the second, ate at the third, put down their forks at the fourth whether they were finished or not, stood and prayed at the fifth, and dashed out of the chow hall at the sixth. Their mail was censored and they were allowed only one visitor a month, chosen by the staff, not themselves. They worked at menial jobs and had little recreation and no contact with girls. Boys Town emphasized low-grade vocational training: picking beans and making birdhouses.
So one evening in July 1971, at a meeting at the Buffetts’ house, Warren and Sun editor Paul Williams discussed the Boys Town rumors and decided to commission a story on how the institution raised and spent its money. The Sun had already made a couple of runs at this story and was told by Boys Town, “We don’t discuss our finances.”19 Now Williams took three city reporters, Wes Iverson, Doug Smith, and Mick Rood, and set them to work on the confidential “Project B,” planning an elaborate investigative reporting project. 20 Having noticed that the Boys Town marketing material said it got no money from any church or from the state or federal government, reporter Mick Rood pawed through records at the Nebraska state capitol in Lincoln and found out that this was false.21 That made them suspicious of Boys Town’s other claims.
Through other basic reporting, they got the institution’s property-tax records, educational records, and articles of incorporation. They found out that Boys Town had a history of strained relations with the state welfare department; Monsignor Wegner, who currently ran Boys Town, had refused to participate in program reviews by outside agencies despite the advice of his own staff.22 Williams used a Congressional source to get a report on the Boys Town post office and learned that it sent between thirty-four and fifty million pieces of fund-raising mail a year. This was a staggering number; fund-raisers for other organizations told them that, based on such numbers, Boys Town must be taking in at least $10 million a year. Using his financial knowledge, Buffett figured out that its operating costs could be no more than half of that.23 Boys Town was accumulating money faster than it could possibly spend it. It had undergone a major expansion in 1948. Assuming it had piled up $5 million a year ever since, Buffett thought it must have at least $100 million in excess funds. But so far, there was no proof.
Buffett had joined the board of the local Urban League, and from that connection knew Dr. Claude Organ, a local surgeon, the only black man on the Boys Town board. Buffett thought the doctor was a decent guy.
“We had breakfast over at the Blackstone Hotel right across the street. And I talked and talked and I tried to get him to tell me. He wouldn’t give me details, but he also told me I wasn’t wrong. He did even better than that. He let me know there was a story there, although I couldn’t get any numbers from him.”
Dr. Organ began quietly steering the reporting team, helping them stay on track without disclosing confidential information.24 The reporters had started talking to people around town but were not getting anywhere; most of the Boys Town employees were too afraid to talk. Buffett, playing newshound, roamed Omaha in his beat-up old tennis shoes, moth-eaten sweater, and pants covered with streaks of chalk.25 “It was a high,” he says. “Whatever was the male equivalent of Brenda Starr, Girl Reporter, well, that was me.” By now Warren had also adopted Susie’s friend Stan Lipsey, who remained the Sun’s publisher, as one of his new people, going jogging with him and playing racquetball in the Buffetts’ basement.
Then Warren had a brainstorm. He knew that Congress had passed a law that, among other things, required nonprofit organizations to file a tax return with the IRS.
“I was sitting there in the family room doing the Form 990 for the Buffett Foundation, and it just hit me—if I had to file a return, maybe they did too.”26
The reporters tracked down the Form 990 to the IRS in Philadelphia and waited impatiently for twenty days for the IRS to dig it out of its files.27
Two days later, the package arrived in Omaha. Paul Williams had hired Randy Brown, a new assistant managing editor, in part to help coordinate the Boys Town story, bringing the team to four reporters. “My first day at work, this 990 plopped down on my desk,” says Brown.28 Buffett, who had just bought See’s and was still mailing out boxes of candy to friends all over North America, nonetheless was so enthralled by Boys Town that he threw himself into helping Brown figure it out. Sure enough, Boys Town had a net worth of $209 million, which was rising at the rate of about $18 million a year, four times faster than the amount it spent to fund its operations. Buffett was elated. All his life, he had been waiting for a nun to commit a crime so he could expose the culprit by whipping out her fingerprints. Now he had used a tax return to nab a monsignor red-handed.
They moved desks, file cabinets, and three phones into Williams’s basement recreation room. In the end, “we tracked everything,” says Lipsey, “except, I think, two accounts in Switzerland. We couldn’t break through those.” The Sun’s reporters were stunned to find that Boys Town had an endowment three times the size of the University of Notre Dame. Conservatively stated, it was worth more than $200,000 per boy. Mick Rood took to calling it the “City of Little Men with a Large Portfolio.”29 The money machine was bringing in $25 million a year and could easily cover its costs ou
t of investment income without raising another nickel.30 As the story came together, the reporting team held a meeting in a room at the Blackstone Hotel, across the street from Buffett’s office. Coincidentally, the Boys Town board was meeting at the same time in a room down the hallway. The reporters tiptoed in and out, hoping they weren’t seen.31 The intrigue heightened as they worked on the obvious questions: What was Boys Town going to do with all that money? Why did it need to keep raising more? The last phase of the investigation meant to find that out.
As administrator of Boys Town, seventy-four-year-old Reverend Monsignor Nicholas H. Wegner was in charge of fund-raising. The monsignor knew by then that the Sun was asking questions; Boys Town had already started putting together a hasty program of reforms. But the reporters were confident that as yet he had no idea they had obtained Boys Town’s tax return. Their fear was losing the story to the Omaha World-Herald, which might swoop down with its greater resources once it realized that a juicy bit of news was waiting to be served up to the readership. An even greater risk was that Boys Town might work cooperatively and exclusively with the World-Herald to launch a preemptive strike with a friendlier story.32
The reporters plotted how to get to Wegner and to Archbishop Sheehan, his superior in the archdiocese. Rood, a thirtyish badass with shoulder-length wavy hair and a handlebar mustache, went to see Wegner. His first reaction was pity for Wegner, whose bald, wrinkled skull craned from his cassock like the head of an ancient tortoise. The monsignor was obviously frail, the survivor of fifteen surgeries, some of them major. As the interview proceeded, however, he rambled on incautiously and also denied receiving state funds. Asked to justify the exhaustive fund-raising, he said, “We’re so deep in debt all the time.” Knowing that nothing of the sort was true, Rood went straight back to Williams’s basement with the tape of the interview. After it was transcribed, Williams put it in a safe-deposit box.
The Snowball Page 46