The fundamental reason for Moody's disastrously optimistic credit ratings on billions of dollars of mortgage derivatives was not fraud or conflicts of interest, but simply the failure to predict a nationwide housing market collapse in the US, Warren Buffett said yesterday – and even he hadn't predicted such a thing.
In a full-throated defence of the credit rating agency's chief executive, Raymond McDaniel, who testified alongside Mr Buffett, the billionaire investor said that Moody's and its executives should not be singled out for their contribution to the financial crisis.
He said he was more inclined to condemn firms that needed to take government bailout money, of which Moody's was not one. "I think when society has to step in to save institutions for societal reasons, the chief executive should go away broke, and I think his spouse should go away broke. But I don't know who – except John Paulson and Michael Burry [two fund managers famous for successfully betting on a housing crash] – could have been chief executive of Moody's and come up with better ratings."
Mr McDaniel made "a mistake that 300 million other Americans made... That's the point of bubbles, they become mass delusions."
Mr Buffett has sold some of his 20 per cent shareholding in Moody's since the credit crisis prompted lawmakers to look at changing the business of credit ratings, and he now has just 13 per cent. Although Mr Buffett conducted his appearance before the FCIC in his usual, avuncular fashion, he made it clear he had not wanted to testify by refusing to make an opening statement before taking questions.
"Thank you for coming," the commission's deputy chairman, Bill Thomas, said to him. "Thank you for the subpoena," he replied.