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Chapter 12. The Eggheads Crack > Long-Term Capital Management

Long-Term Capital Management

By the early 1990s, Meriwether's group had made billions for Salomon. Although other Wall Street firms tempted him and his quant traders, they stayed at Salomon—at least until one event, which was out of their control, broke up the group. A Salomon bond trader named Paul Mozer ran the government bond operations. In 1991, Mozer went to Meriwether and confessed that he had illegally tried to corner the U.S. Treasury-bond market. Meriwether reported the incident to the CEO, Gutfreund. However, Gutfreund delayed reporting the incident to the government for several months.

Both the incident and the delay outraged the U.S. Treasury. Who would dare to try to manipulate the U.S. Treasury? In the ensuing firestorm, Gutfreund was forced to resign and Salomon's biggest investor, Warren Buffett, was asked to temporarily take over and save the firm's reputation. In the fallout, Meriwether was also asked to resign, even though Buffett acknowledged that he had done nothing wrong.


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