NYT: What's with Berkshire's Moody's Stake?

The New York Times raises a question that’s lately been on more than a few inquiring minds: What’s up with Warren Buffett and Berkshire Hathaway’s (BRK.A) 20% holding of Moody’s (MCO)?:

Mr. Buffett, 78, one of the world’s richest men, is known for piquant and unsparing criticism of his own performance, as well as the institutional flaws of Wall Street.

But on the subject of the conflict of interest built into the rating agencies’ business model, Mr. Buffett has been uncharacteristically silent — even though that conflict is especially glaring in his case because one of the companies that Moody’s rates is Berkshire. (Its Aaa rating, for the record, is the same as the one from Standard & Poor’s. Fitch downgraded Berkshire for the first time last week.) . . .

“Warren deserves credit for his candor in admitting mistakes,” says Alice Schroeder, author of “The Snowball,” a biography of Mr. Buffett. “But he chooses which mistakes to discuss. It also pays to listen for the ‘dog that didn’t bark.’ ”

One of those nonbarking dogs, she says, is Moody’s.

Berkshire had an ideal opportunity to cut its Moody’s stake when it raised money last year to fund recent investments in General Electric (GE) and Goldman Sachs (GS). No sales yet, however. . .

Comments

[Conservativ...:]

I think the conflict is apparent, but what is the incentive to continue to hold the investment?
Are ratings agencies going to disappear, or, will they need to upgrade their form of service and its quality?
At what point would the conflict be something which would require regulatory intervention, causing BRK to jettison its Moody's holding?
At what cost/price?

Mar 19 08:25 AM

[hardware:]

Hey, everyone needs a few goomahs or goombahs in the business - if you pay cash its illegal but a double-eye wink when you're an owner does the trick for nothing.

Mar 19 10:07 AM