Chairman Phil Angelides presided over a full day of testimony on Wednesday, June 2, at the Financial Crisis Inquiry Commission’s (FCIC), “Hearing on the Credibility of Credit Ratings, the Investment Decisions Made Based on Those Ratings, and the Financial Crisis,” at The New School in New York.
In his opening remarks, Angelides, 56, called Moody’s Corp. “a Triple-A factory” and said the rating agency bestowed “its coveted Triple-A rating on 42,625 residential mortgage-backed securities.” He added that, “In 2006, $869 billion worth of mortgage securities were Triple-A rated by Moody’s. Eighty-three percent went on to be downgraded. Investors–from university endowments to teachers and police officers relying on pension funds–suffered heavy losses.” See hearing documents.
Moody’s did well for itself and shareholders during the years before the crisis, Angelides asserted, adding that Moody’s structured products division’s revenue grew “from $100 million to $700 million” during the runup to the crisis. One of the questions he asks, however, is, did Moody’s fail to staff up to keep up with exploding demand for ratings?
See “Financial Crisis Committee Grills Moody’s on Ratings Failures,” covering the first session testimony.
While the first session was compelling, perhaps the stars of the June 2 hearing were the renowned investor and Berkshire Hathaway Chairman and CEO, Warren Buffett, and Raymond W. McDaniel, chairman and CEO of Moody’s McDaniel, on the defensive, asserted more than once: “We believed our ratings were appropriate at the time they were assigned.”
In response to that, Angelides asked Buffett: “Should there have been a management change at Moody’s?” Buffett’s Berkshire Hathaway owns about 13% of Moody’s.
Buffett confessed to being, “more draconian about my view of CEOs’ responsibility when government has to step in and save institutions: CEOs should go away broke and their spouses should go away broke.” He added that the real estate bubble was, “the biggest bubble I have ever seen in my life…a four-star bubble and the rating agencies missed it.”
He was enticed to testify at this hearing by a subpoena. Later, in an interview for CNN, Buffett told a reporter that he’d been invited to testify at eight congressional hearings, and though he’d tried to answer requests by phone, he couldn’t fulfill all the requests.