Book Reviews

authors are at odds over such an approach, with only one (presumably Hubbard) in favor. Instead, they jointly recommend adjusting the retirement age to account for the increase in life spans since Social Security’s creation in the 1930s and tying the annual increase in benefit payments to inflation rather than wage growth. These two adjustments alone, the authors argue, would nearly suffice to make Social Security solvent well into the future. Not all readers will agree with the authors’ underlying theoretical framework. For instance, structural shifts in the broader economy may mean that past growth rates are no longer attainable. People tend to save more of their income during their high-earning middle years and spend more of it during their low-earning retirement years. Therefore, all else being equal, an aging population will produce a lower aggregate saving rate and, in turn, a structurally lower growth rate. In the political arena, not all the authors’ policy ideas are likely to find a warm reception. For example, Hubbard and Navarro propose that when the price of oil drops below a certain level, the government should charge a levy to keep the price high, thereby providing an incentive for the development of alternative energy sources. Although this idea may go nowhere fast in Congress, the authors are to be commended for its novelty. On the whole, however, many readers will probably find Hubbard and Navarro’s proposals a sensible compromise for solving the United States’ current economic woes. Seeds of Destruction is a welcome addition to the ongoing debate in an increasingly partisan political environment. —J.H.T. The Snowball: Warren Buffett and the Business of Life. 2008. By Alice Schroeder. Bantam Books, (212) 782-9000, www.randomhouse. com/bantamdell. 976 pages, $35.00. Reviewed by Ronald L. Moy, CFA. “Life is like a snowball. The important thing is finding wet snow and a really long hill.” With that homely image, Warren Buffett has expressed the philosophy that has guided both his personal life and his professional career; it also provides the title for Alice Schroeder’s new biography of Buffett, The Snowball: Warren Buffett and the Business of Life. Other books about the “Sage of Omaha”—for example, Robert Hagstrom’s The Warren Buffett Way and Janet Lowe’s Warren Buffett Speaks: Wit and
Ronald L. Moy, CFA, is associate professor of finance at St. John’s University, Staten Island, New York.
January/February 2011

Wisdom from the World’s Greatest Investor—have focused on Buffett’s investment prowess or his words of wisdom. Much of the material in those books comes from Buffett’s legendary shareholder letters. Although a great deal can be learned from studying Buffett’s investment strategies, his life story is invaluable in truly understanding his investment philosophy. In 1995, Roger Lowenstein produced an excellent full-scale biography, Buffett: The Making of an American Capitalist. He did a masterly job of intertwining interviews with analysis of Buffett’s investment strategies. One limitation of Lowenstein’s book, however, is the neutral stance Buffett took toward the project, neither encouraging nor discouraging friends and family from participating. Despite this constraint, Lowenstein managed to create a fascinating 400-page look at the man. Unlike Lowenstein, Schroeder, a former managing director at Morgan Stanley, was able to obtain Buffett’s full cooperation, including permission to rummage through his files. The result is the definitive Buffett biography, totaling more than 800 pages of text and some 90 pages of notes. In a short video on www.amazon.com, Schroeder discusses her desire to write a book about Buffett in his entirety. She believed that numerous contradictions in his life needed to be explained. How did a man who grew up in a conservative Republican family become a liberal Democrat? Why is someone so interested in making money so uninterested in spending it on himself? Through interviews with Buffett, his family, and friends, Schroeder has been able to explore these and numerous other issues. For those who have read the Lowenstein biography of Buffett, many events recounted in The Snowball will be familiar. In the 13 years since Lowenstein’s book appeared, however, several momentous events have occurred in Buffett’s personal life and in the financial world, including the passing of Buffett’s longtime friend, Washington Post publisher Katherine Graham; the death of Buffett’s wife, Susie; the Long-Term Capital Management (LTCM) debacle; and the current financial crisis. Schroeder’s unlimited access to Buffett takes the reader from observer status to being a part of his life during these episodes. Buffett’s cooperation allows us not only to understand his personal side but also to gain insight into some of his investment decisions. Perhaps the most fascinating story is Buffett’s attempt, together with American International Group (AIG) and Goldman, Sachs & Co., to buy out LTCM. The deal fell through, and a bailout plan brokered by the Federal Reserve Bank of New York wound up saving LTCM and the financial markets. Most of us
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Less obvious were the causes of the severe financial calamity that ensued and the policy changes most likely to prevent a recurrence. New York City. Fridson. readers who view the profit motive as a positive force in the world may find merit in certain proposed reforms in the book. She does a skillful job of elucidating his relationships with friends. At the time. use the less flattering version. For instance. The Snowball is not only an enjoyable biography about an intriguing man. little heed was given to warnings by Buffett and others that excessive leverage and reckless use of derivatives might again bring the system to the brink. ©2011 CFA Institute .cfapubs. family. CFA. The 17 contributors had the opportunity to update their comments in light of the worsening of the crisis after Lehman Brothers’ collapse in September 2008 and the massive amelioration efforts of governments and central banks. At the very least.. was widespread. commenced work in the spring of 2007 on a co-authored paper on banking crises. it is an excellent book for anyone who simply likes a good read. Fridson. “The Less Flattering Version. Edited by Stephany Griffith-Jones.org Time for a Visible Hand: Lessons from the 2008 World Financial Crisis. Reviewed by Martin S. For example. Jr. Schroeder has succeeded in her objective of presenting Warren Buffett in his entirety.oup. All in all. This editorial suggestion had become painfully irrelevant when the paper’s deadline arrived in late 2007. reflecting the widespread view that financial engineers had permanently stabilized the markets by optimally redistributing risk throughout the financial system. By then it was clear that the notion of permanently neutralizing risk by spreading it around was illusory. As telegraphed by its title. details of the Salomon Brothers bond-trading scandal and the LTCM debacle have a familiar ring. Stiglitz. the financial markets. regrettably. www. the fear that one of those organizations would be the first domino to fall. José Antonio Ocampo. former Under-Secretary-General of the United Nations for Economic and Social Affairs José Antonio Ocampo.” Schroeder quotes Buffett telling her. potentially enabling it to influence the U. and Buffett’s Nostradamus-like ability to envision the future. professor of economics at Williams College and a contributor to the volume under review. warts and all. In the intervening years. the book demanded notice because of the stature of its three co-editors. CFA. Without Schroeder’s direct access to Buffett. but The Snowball reminds its readers that the Great Depression was not the most recent financial crisis to raise the specter of systemic risk. Congress’s postcrisis debate over financial market reform. Reading The Snowball drives home not only the truth that we are all dead in the long run but also that Buffett is usually correct. “Whenever my version is different from somebody else’s.Financial Analysts Journal who followed the story believed that the transaction broke down because the terms were unsatisfactory to LTCM.1 Comments on the authors’ outline said that it needed a section about the end of crises. Oxford University Press.00.M. What sets this near autobiography apart from other books about Buffett can be summed up in the title of the first chapter. the financial markets director at the Initiative for Policy Dialogue at Columbia University. and Joseph E. Her Wall Street background enables her to write about the financial side of Buffett’s life in a manner that is accessible to the layperson yet still provides insight to experts in the field. In the context of the recent AIG bailout. Alice. 358 pages. leading to a collapse of the world financial system. his avoidance of technology stocks during the dot-com boom provoked derision but his insights were ultimately vindicated with a vengeance. 92 www. this story would likely never have been told.com. —R.” Eschewing the authorized biographer’s temptation to confer sainthood on her subject—and throwing in one or two small flaws to make him seem human—Schroeder leaves readers feeling that they have seen the real Buffett. but the actual explanation is more interesting and even amusing. Nobel Laureate in Economics Joseph E.L. The 2008 financial crisis. Time for a Visible Hand comes down strongly on the side of greater government intervention in the market. and Stephany Griffith-Jones. $99. has been widely regarded as unprecedented. chairman of Intelligence Capital. is global credit strategist at BNP Paribas Asset Management. which led to bailouts of numerous financial firms. it also provides lessons on ethics. Gerard Caprio. Stiglitz. and business associates. Time for a Visible Hand: Lessons from the 2008 World Financial Crisis derives from a July 2008 seminar organized by Columbia University’s Initiative for Policy Dialogue and the University of Manchester’s Brooks World Poverty Institute. The volume was finally published in February 2010. Even so. which alludes to Adam Smith’s metaphor for the salutary impact of laissez-faire policies. advocates replacing government-provided deposit insurance with a Martin S. Buffett’s skeptical view of financial engineering is by no means a unique instance of his rejecting the prevailing wisdom. 2010. Avinash Persaud.S.

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