I read a few articles today that were critical of Warren Buffett's testimony before the Financial Crisis Inquiry Commission about the crisis and Moody's role. And, having studied the media and Buffett, I can sort of understand both perspectives.
The media and the man on the street look to the "greats" for answers and insights. Warren Buffett was there to tell the truth and the facts from his perspective. Remember that Buffett is a "hands-off" kind of manager. He normally chooses to associate himself with the "able and trustworthy" then trust them to do their thing in an "able and trustworthy" manner.
So, perhaps we should be putting more pressure on Moody's and its upper management team. One would think that, in this day and age, a major rating agency would have developed financial ratios that measure acceleration and deceleration of debt and risk levels, relative to historical periods.
Who is responsible for this ship? Moody's CEO, Raymond McDaniel.
He may be a nice guy who is trustworthy. The bigger question is ability:
As the leader and CEO of Moody's, did he prepare his ratings ship for rough waters? Perhaps this captain should retire his commission with honor, and suggest ideas and improvements for the next captain.
Now what about measuring acceleration during periods of bubbles?
Recall from your high school physics, a version of the Acceleration formula:
The most famous is a = F/m, where F is the net force applied to a mass, m. Acceleration is also the change in velocity, (Delta-V), divided by the change in time, (Delta-t). So, a = Δv/Δt.
May I suggest you math guys develop a formula similar to a = Δv/Δt.
I think if should go something like this: Bubble Acceleration = change in velocity of transactions involving debt divided by the change in time.
So, having a bit of an ego myself, I hereby call this the Labitan Acceleration Formula for Bubble Detection: aL = ΔvD/Δt.
Or, think of it as the Labitan Acceleration for Bubble Detection = change in velocity of debt transactions debt divided by the change in time.
LAFBuD = ΔvD/Δt.
As always, I appreciate hearing your views,
Bud Labitan
Author of the new book 'Price To Value'
http://www.amazon.com/Price-Value-Bud-Labitan/dp/0557317185
Author of 'The Four Filters Invention of Warren Buffett and Charlie Munger'
http://www.amazon.com/dp/0615241298
Author of Valuations - 30 Intrinsic Value Estimations in the style of Warren Buffett and Charlie Munger
http://alturl.com/u3s9
Labitan Partners
budlabitan@aol.com
www.frips.com
Disclosure: long BRK
Disclosure: long brk.a, brk.b