This time it's his defense of the credit rating agencies. Again, Buffet owned a substantial portion of Moody's which is one of the leading agencies and also one of many who over-rated products that lead to the economic crisis. Buffet has enough money and claims to want to give it away before he dies. He also always has talked about investing in what you know, so it can be argued that he should have known. Wouldn't it be nice if he could one day admit he was wrong and played a role in this painful crisis? Yesterday he sounded like Alan Greenspan.
"The entire American public was caught up in a belief that housing prices could not fall dramatically," said Mr Buffett.In this critical piece by The Independent, you can see how the system worked. (How much change today is still debatable.) It's much like the infamous big accounting firms that we heard so much about during the Enron and other "cooking the books" scandals. The deals with businesses become "too big to fail" so nobody wants to rock the boat. Whatever the client wants, the client gets or else the deal is canceled and given to another business that will agree to anything. If none of this had any impact on others -such as retirement accounts or even keeping the economy afloat- this would not matter nearly as much. Unfortunately, this is a critical issue that impacts us all.
He added that if he had known how far the US housing market would collapse, he would have sold his investment firm's stake in Moody's, which currently stands at 13%.
Moody's chief executive Raymond McDaniel admitted to the commission that his company "is certainly not satisfied" with the performance of the ratings it gave the mortgage-linked debt.
He said analysts had growing suspicions that Wall Street was packing CDOs full of increasingly dubious mortgages, but in ways that were difficult for Moody's to detect. Gary Witt, another ex-managing director, said he argued repeatedly for more resources to properly investigate the underlying mortgages and to test more of the assumptions that went into the company's models. He quit when his requests were repeatedly denied.
Both men said Wall Street bankers would exercise their power as the rating agencies' clients. Mr Kolchinsky said they were granted requests to bar unsympathetic analysts from particular projects, though this was denied in later testimony by the company's chief executive, Raymond McDaniel. Mr Witt said bankers would go over analysts' heads to appeal to their superiors to improve ratings. "They would pull any lever they could," he said.
Mr Kolchinsky called it "a chess game which we kept losing", and he said the balance of power shifted even further in the bankers' favour after they stepped up the pace of CDO creation in 2006, using derivatives of derivatives.
