Buffett to face grilling over investment in ratings agency

Warren Buffett has one of the bigger claims to having predicted the credit crisis, describing credit derivatives as "financial weapons of mass destruction" as long ago as 2002, but when he testifies before the commission investigating the crisis this morning he will not be playing his familiar role of avuncular investment oracle.

Rather, he will sit next to the chief executive of Moody's, the credit-rating agency of which Mr Buffett's Berkshire Hathaway owns 13 per cent, to be grilled on the failures of that company and its peers in the run-up to the crisis.

The Financial Crisis Inquiry Commission (FCIC) is investigating the misunderstandings and possible conflicts of interest that led rating agencies to declare that billions of dollars of mortgage derivatives created by Wall Street were as close to risk-free as US government debt – before a wave of mortgage defaults and collapsing house prices proved they were not just risky but, in many cases, worthless.

Moody's, together with its biggest rival, Standard & Poor's, vastly increased profits in the run-up to the crisis as they were paid by the banks to rate their newly minted mortgage derivatives, and Mr Buffett was an enthusiastic supporter of the companies' business model until recently. Now, as the agencies face curbs on their activity and new competition mandated by the forthcoming financial reform legislation in Congress, Berkshire Hathaway has trimmed its holding from 20 per cent at its peak.

Mr Buffett resisted giving evidence after a series of back-and-forth communications with the commission, telling friends he had no unique insights that would make it a valuable exercise. In the end, he had to be subpoenaed by the commission's lawyers, and will appear at a special New York hearing to examine the "credibility of credit ratings, the investment decisions made based on those ratings, and the financial crisis".

The billionaire investor will appear alongside Raymond McDaniel, Moody's chief executive. The proceeding panel will hear from former executives of the specific division rating mortgage securities, including Eric Kolchinsky, an executive hailed by Congress as a whistleblower because in 2007 he told bosses he thought ratings on mortgage derivatives were artificially inflated.

Last month, Mr Buffett took a wide range of questions on the crisis and its aftermath from Berkshire Hathaway shareholders at the company's annual meeting, where he launched a defence of the activities of Goldman Sachs' in the creation and trading of mortgage derivatives. Berkshire has an investment in Goldman through preference shares purchased at the height of the panic in 2008.

He also set out his view on how the rating agencies came to mis-rate so many securities, blaming not conflicts of interest but group-think. "It is very hard to think contrary to the crowd," he said. "They couldn't see a world where residential housing countrywide would collapse. They succumbed to the same mania that prevailed throughout the investment world."

Modelled on the bipartisan 9/11 Commission, the FCIC has been asked to report on 22 factors in the onset of the crisis, from fraud and due diligence failings to monetary policy and regulation. Recommendations are due on the President's desk by 15 December.

Previous hearings have taken testimony from the heads of Wall Street banks at the heart of the credit crisis, including Goldman Sachs, Citigroup and Bear Stearns.

PROMOTED VIDEO
Arts and Entertainment
booksPhotographer Richard Young has been snapping celebrities at play for 40 years - but he says it wasn’t all fun and games...
News
i100
Sport
Aguero - who single-handedly has kept City's Champions League dreams alive - celebrates his dramatic late winner
footballManchester City 3 Bayern Munich 2: Argentine's late hat-rick sees home side snatch vital victory
News
Muhammad Ali pictured in better health in 2006
peopleBut he has enjoyed publicity from his alleged near-death experience
Arts and Entertainment
Tony breaks into Ian Garrett's yacht and makes a shocking discovery
TVReview: Revelations continue to make this drama a tough watch
News
news
News
ebooksNow available in paperback
News
peopleSinger tells The Independent what life is like in rehab in an exclusive video interview
News
The assumption that women are not as competent in leadership positions as men are leads to increased stress in the workplace
science... and it's down to gender stereotypes
Arts and Entertainment
Inner sanctum: Tove Jansson and friends in her studio in 1992
booksWhat was the inspiration for Finland's most famous family?
News
i100
Arts and Entertainment
Singer songwriter Bob Dylan performs on stage
films
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Citifocus Ltd: Product Development - Asset Management

£Attractive: Citifocus Ltd: High calibre individual with significant product d...

Citifocus Ltd: Credit Ratings - Banking Sector

£Negotiable: Citifocus Ltd: Leading global bank seeks experienced credit analy...

Citifocus Ltd: Economic Crime Investigation & Analysis

£Attractive Package: Citifocus Ltd: High calibre individual with a high degree...

Citifocus Ltd: Snr Risk Analyst - Capital & Liquidity

£Attractive: Citifocus Ltd: High calibre individual with superior academics an...

Day In a Page

Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

Our partner charities help veterans on the brink – and get them back on their feet
Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

Putin’s far-right ambition

Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

Escape to Moominland

What was the inspiration for Finland's most famous family?
Nightclubbing with Richard Young: The story behind his latest book of celebrity photographs

24-Hour party person

Photographer Richard Young has been snapping celebrities at play for 40 years. As his latest book is released, he reveals that it wasn’t all fun and games
Michelle Obama's school dinners: America’s children have a message for the First Lady

A taste for rebellion

US children have started an online protest against Michelle Obama’s drive for healthy school meals by posting photos of their lunches
Colouring books for adults: How the French are going crazy for Crayolas

Colouring books for adults

How the French are going crazy for Crayolas
Jack Thorne's play 'Hope': What would you do as a local politician faced with an impossible choice of cuts?

What would you do as a local politician faced with an impossible choice of cuts?

Playwright Jack Thorne's latest work 'Hope' poses the question to audiences
Ed Harcourt on Romeo Beckham and life as a court composer at Burberry

Call me Ed Mozart

Paloma Faith, Lana del Ray... Romeo Beckham. Ed Harcourt has proved that he can write for them all. But it took a personal crisis to turn him from indie star to writer-for-hire
10 best stocking fillers for foodies

Festive treats: 10 best stocking fillers for foodies

From boozy milk to wasabi, give the food-lover in your life some extra-special, unusual treats to wake up to on Christmas morning
Phil Hughes head injury: He had one weakness – it has come back to haunt him

Phil Hughes had one weakness – it has come back to haunt him

Prolific opener had world at his feet until Harmison and Flintoff bounced him
'I have an age of attraction that starts as low as four': How do you deal with a paedophile who has never committed a crime?

'I am a paedophile'

Is our approach to sex offenders helping to create more victims?
How bad do you have to be to lose a Home Office contract?

How bad do you have to be to lose a Home Office contract?

Serco given Yarl’s Wood immigration contract despite ‘vast failings’
Green Party on the march in Bristol: From a lost deposit to victory

From a lost deposit to victory

Green Party on the march in Bristol
Putting the grot right into Santa's grotto

Winter blunderlands

Putting the grot into grotto
'It just came to us, why not do it naked?' London's first nude free runner captured in breathtaking images across capital

'It just came to us, why not do it naked?'

London's first nude free runner captured in breathtaking images across capital