Warren Buffett, Chairman, Berkshire Hathaway discusses his 13% stake in Moody's, in advance of the Financial Crisis Commission hearings last week. Buffett confesses that he wished he sold it years ago, but that he does not regret owning it, claiming it is like owning Philip Morris even though you know smoking's bad for you. He says its a great business, even though he personally does not make use of their service for his investing decisions.
DAGEN MCDOWELL, FBN ANCHOR: Barbara, if you could just -- deep apologies, if you could just hang tight we need to go to our very own Liz Claman who is with Warren Buffett -- Liz.
LIZ CLAMAN, FBN CORRESPONDENT: Yes, in fact, he's been subpoenaed to be here today at the new school in downtown Manhattan and he is here to discuss his ownership of about 13 percent stake in Moody's, the ratings agency which is very much at the store of, of course, the financial crisis and he has testified before the Financial Crisis Commission today. Before that, he speaks with us here on FOX Business.
Thank you for being here.
Warren Buffett: My pleasure
Claman: Well, they have to subpoena you. Why didn't you just agree to speak with them?
Buffett: Well, I've had requests from eight Congressional panels or panels that they authorized in the last 12 or 15 months and if I -- if I went to one without a subpoena, I'd have a hard time explaining to the other eight why I don't show up in Washington, and I have a job at Berkshire in Omaha.
So, I've always offered with any of these panels to tell them anything I know by phone, be interviewed as long as they want, they can call me back. I just did it for Elizabeth Warren's commission last week and they asked a bunch of questions about AIG, and I told them everything I knew and I said if you'd like more information call me back. So --
Claman: You're cooperating.
Buffett: Well, I didn't cooperate willingly because like I say, if I cooperate with one, I've got to cooperate with eight that want me to show up for television.
Claman: They're going to ask you here why did you own the largest stake of any shareholder in Moody's, which is the ratings agency that, Warren, so badly got these credit ratings wrong on so many levels that eventually blew up in the faces of investors. You, being the largest shareholder, what was so attractive to you about Moody's when you don't even use their products?
Buffett: Well we are forced to use it in terms of our own ratings. I don't use it in terms of making my own credit judgments about other credit --
Claman: That's what I'm talking about.
Buffett: And 10 or 12 years ago, we bought Dun & Bradstreet, which consists of two really good
businesses, Dun & Bradstreet and Moody's, Moody's being the better business because Moody's basically earns extraordinary returns on invested capital, it has the freedom to price and it's got a wonderful business and that's why we -- and Dun & Bradstreet is a good business too so we bought it 10 or 12 years ago.
Claman: So it's purely, look, I don't smoke, but I own Phillip Morris kind of decision.
Buffett: Right.
Claman: OK, that much I get. A lot of people here today are saying that the business model is so conflicted at these ratings agencies, specifically Moody's where it's issue or pays, meaning the very business or product that is getting rated, that's the organization that pays Moody's to rate it. Should the business model be changed?
Buffett: It's pretty hard to change it, Liz. I mean, just imagine if you're my sister out in Omaha and you want to buy a triple-A bond. Are you going to make a payment to Moody's for it? You know, you're going to hear that it's rated triple-A, you know, by listening to your network or something of the sort and you're not going to pay.
So, it's not very feasible to have the people who buy triple-A bonds one by one -- $10,000 bond here, 5,000 bond -- to make them pay for it.
Claman: Should the government mandate ratings agencies be nationally recognized, sort of the Good Housekeeping Seal of Approval?
Buffett: Well, in a sense, states have done that already in terms of -- and actually, the banking authorities have done it because they've already said that you needed to be rated -- you need to own securities of a certain rating if you ran a life insurance company or that sort of thing.
So there has been a mandated rating arrangement and that's the reason that we have no price flexibility when we -- when Standard & Poor's or Moody's come to rate Berkshire and they say we're going to charge you a million dollars, and I say, gee, I'd like to do it $900,000. And they say, well, look around down the street, you won't find somebody.
Claman: Well, we all know how wrong they got it when they were rating triple-A what turned out to be total and utter junk. Warren, do you think that the ratings agencies are culpable for the financial crisis?
