Warren Buffett, Moody’s largest shareholder had to testify recently before the Financial Crisis Inquiry Commission alongside Moody’s CEO Raymond McDaniel. Buffett had rejected a request to appear before the panel, but was compelled to testify by a subpoena. He was repeatedly asked whether Moody’s CEO McDaniel should keep his job, he avoided giving a direct answer.
Warren Buffett defended credit rating agencies. He said the agencies were among many who missed warnings signs of the crisis. “They made the wrong call,” Buffett acknowledged. But he said he counted himself among those who failed to foresee the collapse of the housing bubble. Buffett called it the “greatest bubble” he had ever seen. “The entire American public was caught up in a belief that housing prices could not fall dramatically,” Buffett told a congressionally chartered panel investigating the financial crisis. Had he known how bad it would get, Buffett said he would have sold his company’s stake in rating agency Moody’s Corp.
The Financial Crisis Inquiry Commission was created last year to study the causes of the 2008 collapse of the global financial system. The 10-member commission, chaired by Phil Angelides, a Democrat, and Bill Thomas, a Republican, is expected to issue its report in December. The commission is studying the causes of the financial crisis meets for its latest public hearings. It has also summonsed other prominent players in the credit crunch such as Alan Greenspan (former Fed Chairman), Chuck Prince (CEO Citibank), Bob Rubin (former Treasury Secretary) as well as other prominent bankers.
Editorial Comment: How bad was Buffett’s call? Buffet acquired 14% equity in D&B just before Moody’s was spun-off from D&B as an independently listed company. He said in a shareholders meeting at that time that it did not take any rocket science to buy D&B stock. Profiting from the stock split he later sold his investment in D&B, but kept his stock in Moody’s as a major shareholder. In hindsight he should have kept D&B and sold Moody’s.