... Don't Know Why, Don't Use 'em Myself, But No-One is at Fault you know.
Mr. Warren Buffett required a subpoena before he would testify on June 2 before the Financial Crisis Inquiry Commission. Refusing to provide his testimony voluntarily, and without any written statement, what Mr. Buffett had to say in New York City that day was revealing of many things.
Mr. Buffett did not portray the saint-like person who appears in his popularly accepted storyline. His testimony was that of a billionaire investor -- which is what he is, of course, a man who makes a great deal of money, almost all the time, 24/7. He is understandably detached from the preoccupations and concerns of non-billionaires.
Personally, Mr. Buffett said, he does not rely on credit raters. He assesses the investments he intends to make with his money "the old-fashioned way," you might say: He does it himself. All the diligence that is due comes from him.
300,000,000 Americans, on the other hand, made the same mistake in their investments that the credit raters did in over-rating the credit of those investments, so the credit raters could not have foreseen the collapse, Mr. Buffett said.
Wrong. Most people did not take the time to evaluate their investments before they invested their money, nor did they have so much money that they could afford to hire others to do it for them. Instead, they relied on credit raters to rate the risks of their investment vehicles.
300,000,000 Americans did not have the job of rating the credit of thousands of financial instruments. Moody's did. S&P did. And Fitch did.
They failed spectacularly. if their goal was to inform accurately.
Mr. Buffett also testified that in his judgment there should be no change in the model or makeup at Moody's in particular.
This is important because Mr. Buffett's Berkshire Hathaway is the single largest shareholder in the Moody's corporation.
Here is a video provided by the Financial Crisis Inquiry Commission, courtesy of C-Span, displaying Mr. Buffett's testimony: http://www.c-span.org/Watch/Media/2010/06/02/HP/R/33689/Financial+Crisis+Inquiry+Commission.aspx . For journalistic take on this and Moody's testimony, see generally Andrew Frye and Matthew Leising, "Buffett Says Moody's Chief Shouldn't Be Singled Out (Update 2)" (Bloomberg.com, Wednesday, June 2, 2010); Betty Liu, Andrew Frye and Hugh Son, "Buffett Says Moody's Model No Longer 'Bullet Proof' (Update 2)" (Bloomberg.com, Wednesday, June 2, 2010); Tom Braithwaite and Aline van Duyen, "Buffett Rejects Criticism of Moody's" (Financial Times Online at ft.com, Wednesday, June 2, 2010); Stevenson Jacobs, "Buffett Defends Rating Agencies For Missing Crisis" (Associated Press Copyrighted story published in Washington Post Online, Wednesday, June 2, 2010).
Please Read The Disclaimer. In a future post, recent successes, and failures, of the Credit Raters will be examined. Insurance to cover Claims made by and against them may come into play often and for large amounts of money at stake.
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