WARREN BUFFETT, the billionaire investor and largest shareholder in Moody’s, told a hearing in Washington studying the causes of the financial crisis that the credit rating agency deserved less criticism than the bailed-out banks.
Mr Buffett, who had refused to attend the hearing until he was forced by a subpoena, stood alongside Ray McDaniel, chief executive of Moody’s, as both swore to tell the truth.
The Financial Crisis Inquiry Commission, chaired by former California state treasurer Phil Angelides, is investigating how triple A credit ratings were assigned to structured credit products that proved to be riddled with bad loans.
Asked whether the agency’s management should be changed because the ratings had to be downgraded substantially during the housing market collapse, Mr Buffett, chairman of Berkshire Hathaway, said: “I would say in this particular case that they made a mistake that virtually everybody in the country made.
“There was the greatest bubble I’ve ever seen in my life. . . Very, very few people could appreciate the bubble and that’s the nature of bubbles.” He added later: “Rising prices are a narcotic that affect the reasoning power up and down the line.”
Mr McDaniel said failures in properly rating securities were “deeply disappointing”. “That is injurious to the reputation of the firm and to the long-term value of the firm,” he said. Moody’s shares have fallen by more than 20 per cent in the past month.
“I am much more inclined to come along hard on the CEOs of institutions who caused the United States government to come in and necessarily bolster them,” said Mr Buffett.
Before Mr Buffett and Mr McDaniel appeared, former staff at Moody’s Investors Service told the hearing that they felt threatened by bankers to assign top credit ratings, that bad decisions were made in a constant push for market share and that the company lacked sufficient staff to keep up with the explosion in complex debt instruments.
"Profit margins were so wide, especially in CDOs , yet management still stinted on hiring staff," said Gary Witt, a former Moody's managing director. – Copyright The Financial Times Limited 2010
