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Moody's, S&P, pay for ratings and Warren Buffet's quiet hypocrisy
First, the fact that Moody's, Fitch's etc get paid for proffering their ratings advice is nothing new.
I blogged about that and its incestuous results four months ago. Amongst my links was Mish at Global Economics, who noted this:
Given that the power for this leverage ultimately traces back to the blank check of Moody's, along with Fitch's and S&P, it's no wonder the "Oracle" has remained silent.
So much for him having been touted as a source of financial advice to Obama.
I blogged about that and its incestuous results four months ago. Amongst my links was Mish at Global Economics, who noted this:
Moody's: "Moody's has no obligation to perform, and does not perform, due diligence."As for Warren Buffet? A quiet or dirty little secret that the "Oracle of Omaha" doesn't tout, but the man who called derivatives "financial weapons of mass destruction" owns 20 percent of Moody's. It's contained within a CondeNast Portfolio story noting how CDOs being "shorted" by more savvy investors were then having their "shorts" leveraged to create ... new CDOs.
S&P: "Any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision."
Given that the power for this leverage ultimately traces back to the blank check of Moody's, along with Fitch's and S&P, it's no wonder the "Oracle" has remained silent.
So much for him having been touted as a source of financial advice to Obama.
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Maybe I missed it, but what is your proposal for Moodys new revenue model? Who is it that is supposed to pay them? Or are they a non-profit?
December 2, 2008 10:17 PM | Reply | Permalink
Without taking a position on the rating agencies, I have to observe:
1) A short position is inherently leveraged in that you are borrowing something to sell that you do not own, with the promise that you will repay the loan by delivering the security you borrowed at a later date. It defies logic that you could short a CDO, or any other security, in order to borrow against that liability (which is what that short position is; not an asset) to create a new CDO.
2) How does Warren Buffett's stake in Moody's (which has been public information for many years) disqualify him from giving Obama, or anyone else, advice? It may have been hypocritical, but it was also a winning bet for many years. That suggests he understands how to profit from the way the markets work, even if they do not always work in favor the rest of society. That's not a disqualification.
December 3, 2008 12:19 PM | Reply | Permalink