For $700 million and a job guarantee for Gutfreund, Buffett was given a security that combined the juicy bits of a stock and a bond. It guaranteed him a return of 9 percent a year, established him as the controlling shareholder of Salomon Brothers, and left him with about the same opportunity for huge gain as the ordinary shareholder--without the risks. Auctioned on the open market, the $700 million convertible preferred would have fetched anywhere from $850 million to $1.2 billion. His windfall came out of the shareholders' pockets, since his cheap option dilutes the value of the existing shares. Although a few of them sued, the deal never met the popular resistance it deserved, mainly because it involved Buffett. Public feeling was that if it was wrong, Buffett would never have done it; therefore it must have been right.

In effect the moralist had sold his reputation, without pausing to measure the man willing to pay such a price for it. Perhaps heartened by the critical success of the first foray, Buffett quickly made the business of saving CEOs from corporate predators a rule rather than an exception in his portfolio. He cut about $1.2 billion more of similar sweet, off-market deals with the chief executives of U.S. Air, Champion, and Gillette. Around the same time he became involved in other business he might be expected to avoid or even to denounce, given his views on modern financial excess. In the middle of 1988 he broke with his strict rule of long-term investing and became an arbitrageur, which is to say he speculated on pending takeovers. The next year he made a convenient exception to his fierce disapproval of leveraged buyouts and offered financial backing to the most notorious team--that of Ross Johnson--aiming to borrow $25 billion for a buyout of RJR Nabisco. In 1990 he built a large stake in the junk bonds of the newly leveraged RJR Nabisco (which, as George Anders describes in his forthcoming book, Merchants of Debt , was so badly constructed that one year after its transformation it very nearly became the largest bankruptcy in history).

Of course there was nothing illegal about any of this; it was even ethical to some people's way of thinking. The trouble is that Buffett wasn't one of those people. But rather than simply acknowledge that he had been forced to bow to the two central facts of modern financial life--that a lot of profitable financial business was of dubious social value, and that a money manager wishing to attract funds could ill afford to shun profitable deals--Buffett continued to defend his moral turf. While bashing Wall Street in the abstract, he praised in the concrete whatever happened to drift into his portfolio. Thus, in the Berkshire annual reports, Gutfreund became a man of the highest integrity, RJR Nabisco an unusually sound leveraged buyout, and arbitrage trading a good, solid business. This is not to suggest that Buffett was insincere. He was very sincere. He clearly wanted to believe the hoary myth he helped to perpetuate--that success and virtue are the same thing. But because they weren't, he spent his 1980s backing slowly and charmingly into a corner.

Buffett's dilemma is partly a function of his own financial biography. Between 1977 and 1991 Berkshire Hathaway grew from a medium-sized pool of $180 million to one of more than $11 billion in risk capital. With this success came the new problem of where to put the money to work. About the same time Buffett seemed to become frustrated with the lack of opportunity in the stock market. "In the '70s I had a lot of ideas and very little money," he told The New York Times in 1990. "Now I've got a lot of money and very few ideas." He explained to his shareholders each year that the investment climate was less friendly than the last and asked them not to expect their money to grow at the 23 percent annual rate he had achieved over the previous twenty-one years. He even once suggested, in 1985, that his bogey was merely to outstrip the average returns of corporate America. This modesty is inconsistent with Buffett's vanity about his reputation as an investment genius. The main threat to this reputation--other than his performance, which has lagged the market during the past two years--is the strong academic evidence that success in the stock market is no different from success in a coin-flipping contest. The suggestion that he is merely lucky drives Buffett to distraction. He regularly ridicules skeptical professors with a vaguely thuggish if-you're-so-smart-why-am-I-rich routine. (The reason he is rich is simply that random games produce big winners, but pity the business school professor on fifty grand a year who tries to argue with a billionaire.) While his little rhetorical victories may offer him short-term consolation, they also reveal the enormous pressure on Buffett to vindicate his precarious perception of himself.