2010: Why is Berkshire selling Moody's?
BECKY QUICK: This question comes from John Bailer (PH), who’s asking about the rating agencies. He points out that you started selling your stake in Moody’s this year.
“Has the investment case for Moody’s changed due to potential regulation, and if so, why not sell the position to zero?”
WARREN BUFFETT: We won’t discuss what we will or won’t do with any position, but I would say this. The ratings agencies have had, and still have, under current conditions, an incredibly wonderful business.
I mean, it takes no capital at all, you know, the pricing power is significant. And certain parts of the world feel they need rating agencies.
There are also — a certain part of the world is very mad at rating agencies. And many feel that the rating agencies let them down when the rating agencies, essentially, succumbed to the same mania, in effect, you can say, that prevailed throughout the investment world, and, really, the political world, and the media world, et cetera.
They made the same mistake that, again, politicians made, I made, you know, you made, mortgage brokers made, whomever.
They couldn’t see a world where residential housing, countrywide, would collapse.
And I don’t think that was done because they were — the incentive part of it, there may have been some small aspect that that played. I just think that, you know, it’s very hard to think contrary to the crowd.
And on the other hand, there is a, obviously, a backlash against rating agencies. There may be legal remedies. You can get views on that either way.
If they are not forced to change their — the whole structure around them does not change in some dramatic way — it’s a pretty darn good business in that you can’t shop pricing in the rating agency business.
We have never paid any attention to ratings for bonds, I mean, you know, at Berkshire. We don’t think we should farm out, outsource, investment judgment.
If we can’t do it ourselves, we just don’t do it. And we’re not going to rely on somebody else’s opinion, whether it’s a rating agency or an investment advisory organization, or a management consultant firm, or anybody else.
So, it’s not a business that we rely on, but we do recognize that if the, sort of, the social model doesn’t change, it still remains a phenomenal business.
Charlie?
CHARLIE MUNGER: Well, I would argue that the rating agencies, in their present forum, and structured with their present incentives, have been a wonderfully constructive influence in our country for a great many decades.
And what happened, of course, is that the cognition faltered. They drifted with the stupidity of their times in a way that was regrettable.
Part of it came out of asininity in American business education. They overbelieved in these ridiculous models and so on and so on. And I have yet to hear a single apology from business academia for its huge contribution to our present difficulties. (Applause)