The Snowball

by Alice Schroeder

  Graham had succeeded in maintaining both relationships in name only, however, and Buffett was not trying to emulate him. Buffett did not want two wives; for him it was a real strain to explain the relationships. Much later he would describe it this way: “Susie put me together, and Astrid keeps me together. They both need to give, and I’m a great receiver, so it works for them.”7 But the questions never ended, because explanations like these and statements that the arrangement suited all of them glided past the fundamental problem of all love triangles: If three weights balance on a scale, they can’t all be equal.

  The inequality of this particular triangle was multiplied because in fact it involved two triangles—but only one of them knew that. In a state of ignorance, Warren thought of Susie as the one who had been wronged. He tried to square things by placating her in private and showering her with lavish attentiveness in public, which left Astrid exposed and vulnerable. In a similar state of ignorance, Astrid—who admired and practically worshipped Susie—accepted that Warren would never marry her, ceded Susie the turf of all social and business events outside Omaha, and unhappily tolerated being called Buffett’s housekeeper and mistress so that his marriage to Susie would appear as intact as possible. Buffett would come to rationalize this: “Astrid knows where she fits with me. She knows she’s needed. That’s not a bad place to be.” And indeed, her role, however narrowly defined, did give Astrid a security that she had always lacked.

  It had taken a literal change in geography for Susie to maintain her aura of the selfless Mrs. Warren Buffett while simultaneously seeking fulfillment in a life completely outside that role. Yet it was Warren who looked as though he were getting the best of both worlds, even though the new relationship didn’t compensate for his loss. He couldn’t defend himself against the impression that he had driven his wife to move out through his relationship with Katharine Graham or—because some people got the time line wrong—his relationship with Astrid.

  He wanted desperately to hold the remaining pieces together, and would try for the rest of Susie’s life to make up for what he had done to disappoint her. But of course that didn’t change who he was and obviously didn’t mean he would stop seeing Kay. Buffett invited Graham to Omaha to visit the Strategic Air Command, probably as a pretext to introduce her to Astrid. Graham brought her best friend, Meg Greenfield, editorial page editor of the Post and one exception to Graham’s freely acknowledged weakness—she did not usually get on well with other women when men were around.8 On meeting an attractive woman, Buffett says, “Kay’s first thought would be how to get her out of the room.”

  Buffett took them all to dinner with Stan Lipsey at the Omaha Club. Kay carried on a spirited conversation with Warren; Meg and Stan occasionally joined in. The conversation left Astrid, who was not the type to put herself forward, entirely on her own. Except for ordering, she sat in silence for the entire meal. Mesmerized as always by Graham, Buffett did nothing to help. A couple of dozen people at a huge table nearby carried on with a raucous birthday celebration. Finally the celebrants got up, stood in a circle, and started to make squawking-beak motions, flap wings, and wiggle tail feathers with their hands to the sound of music, doing the Chicken Dance. Ever Miss Proper, Graham sat staring with a “priceless” look on her face.9

  From then on, Buffett almost always saw Graham outside of Omaha. When she called the house and Astrid answered the phone, Kay had nothing to say.10 She handled the situation mostly by acting as if she believed that Astrid didn’t exist, except for calling Astrid once to ask how to work her VCR.11

  Susie and Astrid were on a wholly different footing; they were perfectly comfortable with each other, and Astrid even went to San Francisco to visit Susie. Susie’s stark cubicle on Nob Hill now looked like a little girl’s room, gussied up with dolls and pillows and posters and a Mickey Mouse phone. She used the kitchen cabinets to store her blouses.12

  Susie by now was grateful to Astrid for making her life easier, as long as Astrid accepted the limited public role that Susie had defined for her. Moving to San Francisco had been difficult enough because she had had to leave behind so many friends and causes she cared about. Her departure had left shock waves in its wake. The Future Central Committee, Planned Parenthood, the Urban League, and other civil-rights organizations regrouped, but all felt a huge hole had been ripped from their center. Her friends and her hangers-on had coped in varying ways. A few felt abandoned, others simply missed her. Some began going back and forth to San Francisco, considering it a sort of second home. A couple of them even followed her to San Francisco and relocated there.13

  To many of the Buffetts’ friends, the explanation that Susie needed to live in San Francisco because it offered her a richer palette that she couldn’t find in Omaha conveyed a vague impression of time spent visiting art galleries, jazz clubs, and the symphony. But by the late 1970s, San Francisco was not the Paris of America. A wave of returning war veterans had washed up on the Bay Area’s shores, many of them injured physically, mentally, and spiritually. The worst-scarred relics fell to the pavement with the winos and the burned-out addicts left from the days of the skinny-dipping hippies who had blown their minds on LSD and pot in the Haight. Those still drawn to San Francisco for its hedonism, sexual freedom, and liberation stepped through a growing puddle of homeless on the streets. The gays had burst from the closet earlier in the decade, in a celebration of freedom that peaked at the Gay Pride Parade in Golden Gate Park in 1976. But a Florida singer named Anita Bryant began what became a national campaign of gay-bashing, which culminated in the murder of San Francisco mayor George Moscone and Supervisor Harvey Milk by a homophobic city employee in November 1978.14 After the jury accepted the assassin’s insanity defense and returned a verdict of manslaughter, some of the worst rioting in its history rocked San Francisco.

  Among the first of Susie’s new friends were a gay couple, one of whom was a former anesthesiologist who had left Omaha after a malpractice incident. She added others—musicians, artists, people she met in stores, at church, while getting her nails done, at the theater, at the Esalen Institute in Big Sur. She soon had a large circle, many if not most of whom were gay men. The rebel in Susie blossomed in San Francisco’s heady atmosphere, and her new life liberated her. The former hostess of charity luncheons now threw parties that felt like being backstage at a rock concert; she opened up her doors and invited in the carnival. But, true to form, she also took up a cause, once again defying convention. As she worked the soup kitchen lines, she became the accepting mother that many of her gay friends had never had.

  The part of her life that Warren still controlled was the money. She had plenty of Berkshire stock, but under the deal they had worked out, she wasn’t to sell a share. She fell in love with a Marc Chagall painting and wanted to buy it for her tiny new apartment. But she told a friend that she couldn’t do it. “It would ruin everything,” she said. Warren was equally clear: “I don’t want you selling Berkshire shares.” He still covered all her expenses. Gladys monitored her spending and paid all her bills.

  Similarly, it was Warren whom Susie got to lend her friend Charles Washington $24,900. He was an Omaha activist whom she had championed through thick and thin; he in turn had been one of the protectors who defended her stoutly to Bud Pagel, the reporter who asked “What Makes Susie Sing?” Buffett thought the loan was a terrible idea, and probably wouldn’t have agreed to it were he not now so eager to please his wife. Sure enough, seven months later, Washington missed a couple of payments. Rarely did anything pierce Buffett’s pleasant demeanor, but if he felt someone was trying to cheat him out of money, his eyes would flash pain and rage and revenge all at once. Within seconds, at most, the emotion would subside while he considered a businesslike response. This time, he promptly filed suit against Washington and won a judgment of $24,450.

  The Washington episode symbolized the reality of Warren and Susie’s new relationship; if Susie was to keep all her stock, his grip on the checkbook had to loosen. W
arren gave her an allowance, besides covering all her bills: This was her giveaway budget. When the children had needs, she took care of expenses that Warren wouldn’t. Howie had sold some of his Berkshire stock to build a tree house for him and Marcia to live in. They were struggling with their finances as well as their marriage. “It’s just terrible that Warren won’t pay for it,” Susie grumbled. “He was going to let the ceiling fall in. He was going to let them lose the house.” But this was part of their game: Warren knew that Susie would take care of it for them, as she had taken care of Little Sooz when she was unhappy in her marriage, as she always took care of everything.

  Everything, that is, except the money. Making that was Warren’s job, and all these changes and complexities and mounting bills had come at a time when the family fortunes were declining. Just as Susie was leaving for San Francisco, Warren had been dragged into court in Buffalo, New York, for a costly battle between two newspapers. Normally he was competitive enough to roll up his sleeves and relish something like this. But now, since he was facing a personal crisis, it became an expensive, absorbing episode that shut out the rest and blunted the pain. The Buffalo Evening News drama would be a protracted battle, one that would threaten Blue Chip’s value and rank among the most unpleasant of his career. It bore a vivid resemblance to the conflict he had faced in Beatrice many years before, one he had sworn to himself never to repeat.

  In the spring of 1977, he and Munger had finally bought the daily newspaper for which they had been searching these many years. At $35.5 million this was their biggest purchase ever.15 Rusting, icebound Buffalo wasn’t the growing one-newspaper town of their dreams, but it was still a good place to own a newspaper. Buffalo’s citizens left for their factory jobs before dawn and read the paper in the evenings. The Buffalo Evening News dominated its nearest competitor, the Courier-Express, which was weak financially. Buffett had developed a well-founded theory of competition in the newspaper industry.

  “Kay was always saying how competition made them better and all that stuff. I said, ‘Lookit. The economics in the business is inevitably leading to one newspaper in a town. Survival of the fattest is what I call it. And you win. There is no second place. There’s no red ribbon. In the end, there isn’t going to be any competition because that isn’t the way it works.’”

  The Courier-Express’s staff and publisher had also figured out that there was no red ribbon in newspapers. In 1920, seven hundred cities in the United States had two major newspapers. By 1977, the number was down to not quite fifty. On weekdays, the Evening News sold twice as many papers as the Courier-Express. The Courier-Express clung to survival through having the only Sunday paper in town, which made up sixty percent of its revenues.

  The Evening News had been offered to the Washington Post, which had turned it down. Kay Graham could not stomach another paper with a strong labor union. Buffett was not afraid of that. “We sat down with the unions before we bought it and said, ‘Lookit, we could be wrong for a variety of reasons, but there’s one thing that will kill any paper in a two-paper town, and that is an extended strike. You guys have got the ability to do that to us. And if you do it, well, you know, we’ll have lost. But that is a risk we’re taking, and we want you to understand we’re taking it. Although you hold the card, if you play it, we both lose.’” The unions seemed to understand.

  Buffett and Munger’s empire now had assets of over half a billion dollars,16 and controlled more than half of Berkshire Hathaway and sixty-five percent of Blue Chip. These two companies owned National Indemnity, the Rockford Bank, See’s, Wesco, ten percent of the Washington Post, a quarter of Pinkerton’s detective agency, fifteen percent of GEICO, and a bushel of other stocks—and finally the daily city newspaper he had sought for so long.17

  Murray Light, the managing editor of the Evening News, quickly discussed a plan with Buffett to start a weekend edition, a plan that the imperious former owner, the aristocratic heiress Kate Robinson Butler, had never liked. The late Mrs. Butler, a diminutive tyrant with bouffant white hair, had growled at her employees, pounded her fist on the leather surface of her imported French desk, and seen no need to change with the times.18 She rode the few blocks to the office from her ornate mansion, a major Buffalo landmark, in the back of a Rolls-Royce limousine and was said to be less interested in the newsroom than in her trips to Europe in pursuit of a prince worthy of her daughter’s hand.19

  The News’s publisher, Henry Urban, had gotten on well with Mrs. Butler, a large part of his job being to calm her on the many occasions when she took issue with the paper’s editorials. Mrs. Butler’s focus was not on profits, and neither was Urban’s. “You will not find a nicer man than Henry Urban. But the idea of negotiating with the newsprint producers just wouldn’t enter his head. As soon as I got there, the newsprint producers said, Does Mr. Buffett like to fish? And I told them, Well, Charlie likes to fish, but I buy the newsprint.” The News was paying ten percent more than other papers just across the bridge in Canada paid, and the same as publishers paid in Florida, California, and Dallas. Buffett wanted thirty bucks off to reflect lower shipping costs. “We were buying forty-thousand-plus tons a year. So thirty bucks was $1.2 million on a company that wasn’t making any money.” He Buffetted the newsprint producers. “I told all seven, we have contracts for various lengths of time at the wrong price. You’ve got the lowest freight cost of any American customer with us and you’re charging us the same. We will honor those contracts, but if you don’t renegotiate them, you will never have another newsprint contract with us again.” He won.

  But lower shipping costs alone would not cure the Evening News’s blues. Buffalo’s newspapers existed in an odd sort of equilibrium. One controlled weekdays, another weekends.20 Buffett and Munger agreed with Murray Light that the News had no choice but to extend its weekday advantage by expanding.21 “We had to do what we did if we were going to compete effectively,” says Munger. “One side or the other was going to win.”

  Two weeks before the Evening News launched its new Sunday edition, the Courier-Express filed suit on grounds of antitrust, saying the News’s plan to give away free papers on Sunday for five weeks, then to sell at a discount, amounted to an illegal monopoly that was trying to run it out of business.22 The Courier-Express’s lawyer, Frederick Furth, hit upon an ingenious strategy to spin Buffett’s views about no red ribbons into a story about monopolists from out of town stomping all over a local business.

  Furth’s subpoenas produced a sheaf of documents suggesting that Buffett and Munger were well aware that vigorous competition would doom the Courier-Express. The Courier-Express launched an all-out public-relations war, starting with a page-one story, amply fleshed out inside, and days and weeks of follow-up coverage, all portraying itself as a tiny neighborhood David fighting ruthless Goliaths from out of state. This message found eager ears in Buffalo, where jobs fell like rust flakes from the once-proud city’s oxidizing employment rolls.

  No sooner had Buffett been released from the hell of the Wesco investigation than he found himself embroiled in another bitter legal fight, one that would require his presence in the frigid, unfriendly locale of Buffalo, New York.

  The News began to drain Blue Chip’s coffers. Buffett’s lawyer, Chuck Rickershauser, had by now left Munger, Tolles to become the head of the Pacific Coast Stock Exchange. His replacement, Ron Olson, came to Buffalo to fend off the charge of monopolist-as-liquidator, part of a team Munger had assembled from Los Angeles. Olson filed an affidavit that spoke of his client’s love of newspapers beginning with his inky-fingered childhood, and his role in the Sun’s Pulitzer Prize. The Courier-Express, meanwhile, had tried to be so clever as to run a flattering profile of every judge who might be chosen for the trial, “to suck up to the judge.”23 The case ended up being tried by one they missed. Still, fortune nonetheless favored the Courier-Express in the assignment of federal judge Charles Brieant of the Southern District of New York. Buffett had always prided himself on being able to size up
a business very fast, from its balance sheet alone. In his first appearance in court in Buffalo, the Courier-Express’s lawyer, Furth, portrayed Buffett as someone who knew little of the Buffalo Evening News, having never inspected its plant and having failed to hire consultants to study the paper before buying it. Furth accused Buffett of having discussed whether the News would put the Courier-Express out of business, which Buffett denied. Furth approached the witness stand waving a copy of a recent, glowing Wall Street Journal profile of Buffett. His growing fame was about to be used against him as a weapon for the first time.24 Buffett had told the reporter how glad he was to be out of money management, his ego no longer on the line. But, in fact, with his newly heightened profile, his ego was now more on the line than ever before. In this story, his friend Sandy Gottesman had been quoted by the reporter as saying, “Warren likens owning a monopoly or market-dominant newspaper to owning an unregulated toll bridge. You have relative freedom to increase rates when and as much as you want.”25

  Had he said this? Furth demanded in court.

  No, well, Buffett responded, “whether it is like a toll bridge I don’t remember, but it is a great business. It may be better than a toll bridge in Fremont, Nebraska. I know a lot of honest people, but when they start giving quotes they don’t necessarily get them—”

  Furth bore down. Did he believe it or not?

  “I won’t quarrel with that characterization…. I would like to own one…. I have said in an inflationary world that a toll bridge would be a great thing to own if it was unregulated.”