Alice Schroeder, Warren Buffett’s Biographer, Simoleon Sense interview

The following are links and excerpts of a very insightful 6 part interview series of Alice Schroeder, author of Warren Buffett’s biography “The Snowball“, by Miguel Barbosa (Simoleon Sense). It is long, detailed and highly recommended. [HT Alice]

Simoleon Sense Interviews Warren Buffett’s Biographer, Alice Schroeder

– Part 1: The Forging of A Skeptic – From Accountant to Buffett’s Voice on Wall St. Here is an interesting excerpt,

Alice: […] At the time my former boss and mentor, Denny Beresford, was Chairman of the FASB (Financial Accounting Standards Board, the standard-setter for U.S. Generally Accepted Accounting Principles). He knew I was considering leaving Ernst & Young and suggested that I come work for the FASB. I took that job thinking that it would be intellectually challenging, analytical, and involve plenty of speaking and writing.

At the FASB,I was assigned, essentially by being next in line as the most recent arrival there, to a dreaded project, which was to oversee the issuance of some of the most important new accounting regulations for U.S. insurers in 20 or so years.

Nobody on the staff wanted to work on these. The insurance industry had been fighting ferociously for more than a decade to keep them from getting passed, and with a lot of success. […]

I got assigned to this project by chance, but I fell in love with the industry within a couple of weeks.

The main topic was SFAS 113, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts; I also went on to complete EITF 93-6, Accounting for Multiple-Year Retrospectively Rated Contracts; and, EITF 93-14, Accounting for Multiple-Year Retrospectively Rated Insurance Contracts by Insurance Enterprises and Other Enterprises.

Their titles are a mouthful, but essentially they all eliminate deceptive accounting practices in which reinsurance contracts were created specifically not to indemnify risk, but to shuffle or smooth earnings around from one accounting period to another – or artificially inflate an insurance company’s reported capital reserve one way or another.

If these rules passed, some companies and segments of the reinsurance industry would be losing their most profitable products, at least on a risk-adjusted basis. Conceptually, these deals were a very effective form of leveraging capital at very low, and even no, risk. They were very similar to the type of securitizations that got Enron in trouble. Not surprisingly, Wall Street also was starting to dabble in the business.

– Part 2: A Behind The Scenes Look At Wall St & Morgan Stanley. Here is an interesting excerpt,

Alice: […] So what is it like to be an analyst…When I started at Oppie it was very free form. Analysts used their judgment. Over time, as I moved through the different firms, especially Morgan Stanley, more and more requirements arose. There were things you had to write every time you published on a company. The financial models became standardized. Like any other business, the more you standardize something, the more you stamp out creativity.