Buffett to testify on ratings agencies

08:56, June 01, 2010      

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US investor Warren Buffett appears this week before a commission searching for the causes of the 2008 financial crisis, to provide his assessment on the role a much-maligned credit-rating industry played.

Buffett, who runs Berkshire Hathaway, and Raymond McDaniel, chief executive of Moody's, will appear tomorrow as the Financial Crisis Inquiry Commission examines credit ratings.

Berkshire owns a 13 percent stake in Moody's, but has pared it down from nearly 20 percent over the last year.

Moody's, Standard &Poor's and Fitch Ratings are widely criticized for fueling the crisis by assigning unreasonably high ratings for too long, and then downgrading them too quickly. Many subprime and other risky securities lost all or much of their value.

"The question is, can we get a better handle of what was going on, and were the securities really misunderstood?" said George Cohen, a University of Virginia professor. "The bigger issue is whether we ought to change the entire system."

Buffett has long relied on seeming contradictions in justifying his attitude toward rating agencies.

On the one hand, he loves the business model. There is not much competition, the need for capital is virtually nil, and the agencies are essential for companies needing to raise cash: Without ratings, no money can be raised.

Yet Buffett told tens of thousands of shareholders at Berkshire's annual meeting on May 1, "We have never paid any attention to ratings for bonds at Berkshire. We don't think we should farm out, outsource investment judgment."

"He's on several different sides of the issue," Cohen said. "He might say the system could be better, but that as long as the system is the way it is, he wants to make money from it."

Source: Global Times


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