Copyright 2010 Gannett Company, Inc.All Rights Reserved USA TODAY
June 3, 2010 Thursday FIRST EDITION
SECTION: MONEY; Pg. 6A
LENGTH: 451 words
HEADLINE: Buffett comes to defense of credit-rating agencies; Says even he didn’t see scope of housing bubble
BYLINE: Paul Wiseman
Legendary investor Warren Buffett defended Moody’s and other credit-rating agencies Wednesday, saying they shouldn’t be singled out for missing a massive speculative bubble in the housing market.
“I was wrong on it, too,” Buffett told a commission appointed by Congress to investigate the financial crisis. “I called it a bubble-ette. That was the wrong term to use. It was a four-star bubble.”
Buffett, whose firm Berkshire Hathaway owns more than 13% of Moody’s stock, was issued a subpoena to appear before the Financial Crisis Inquiry Commission hearing in New York. The 10-member panel is investigating accusations that Moody’s and other rating agencies, seeking to attract new business from banks and brokerages, weakened their credit standards to give the top ratings to dubious housing-related securities that went bust.
“The picture is not pretty,” said Chairman Phil Angelides, former treasurer of California. “From 2000 to 2007, Moody’s slapped its coveted triple-A rating on 42,625 residential mortgage-backed securities. Moody’s was a triple-A factory.” By contrast, just four U.S. companies have a triple-A rating; Buffett’s Berkshire Hathaway doesn’t make the grade.
But the ratings proved wildly inflated once housing prices began to tumble in 2007. Moody’s had to downgrade 83% of the $869 billion in mortgage securities it had rated triple-A in 2006, imposing huge losses on pension funds and other investors who had relied on its judgment.
Congress is considering legislation that would impose tougher regulations on the credit-rating industry.
Former Moody’s executive Eric Kolchinsky told the panel that the company compromised its standards in a push to gain market share over rivals Standard & Poor’s and Fitch. “You couldn’t say no to a deal,” he said.
Gary Witt, another former Moody’s manager, said the agency didn’t hire enough people qualified to analyze complicated securities. “We were always playing catch-up,” Witt said. “The profit margins were so wide, and yet management really stinted on hiring staff. I couldn’t understand it then, and I still don’t now.”
Moody’s CEO Raymond McDaniel rejected the criticisms, saying the agency had walked away from hundreds, maybe thousands, of potential deals because of concerns over credit quality. He said Moody’s had simply failed to foresee the severity of the nationwide housing collapse.
The Oracle of Omaha agreed. “It really was the granddaddy of all bubbles,” Buffett said. In boom times, even the wisest can lose their common sense, he said, noting that the scientific genius Sir Isaac Newton was a victim of the notorious South Sea stock bubble of 1720: “Rising prices are a narcotic that affects reasoning power up and down the line.”
LOAD-DATE: June 3, 2010