Fool analyst Anand Chokkavelu breaks down Berkshire Hathaway
After being subpoenaed, Buffett recently came to Washington, D.C., to appear in front of the Financial Crisis Inquiry Commission. Why did he have to be subpoenaed? Because no fewer than eight government committees have asked him to appear in Washington over the last year and a half or so. Not surprising. After all, why wouldn't you invite Buffett? Though he was a reluctant witness, he answered the Commission's questions gamely.
The topic of the day was the role of the rating agencies in the financial crisis. To get you up to speed, the rating agencies gave housing-related debt and securities ratings that were way too high during the crisis. Why was this so harmful? The government only recognizes the ratings of a handful of firms (Moody's
Before we get to his thoughts, keep in mind that Buffett isn't a disinterested party. Through Berkshire Hathaway, he's the largest investor in Moody's. He defended the rating agencies by pointing out that few saw the magnitude of the crisis coming -- including Buffett himself. He also noted that there isn't an easy fix to the current system. For example, opening up the market to more ratings agencies could spur a race to the bottom -- in other words, if you're a company looking for a rating, you'll go to the rating agency that is likely to give you the best rating. Or the cheapest price, regardless of the thoroughness of the rating.
So no huge insights from Buffett on how to fix the system. But what about the rating agencies from an investing standpoint?
Well, Buffett's been selling shares of Moody's for the last year or so, taking his holdings down by over a third. Why's he selling? All this attention may spark regulation that takes away Moody's government-mandated moat -- as well as that of Standard & Poor's. If you're looking for a possible opportunity in the space, check out Morningstar
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