PREVIEW-Buffett, Moody’s CEO rate a date on market crisis

* Buffett, McDaniel to testify Wednesday to crisis panel

* Conflicts, ratings quality to be explored

* Buffett subpoenaed to appear at New York hearing

By Jonathan Stempel

NEW YORK, May 30 (BestGrowthStock) – Legendary investor Warren
Buffett appears this week before a commission searching for the
causes of the 2008 financial crisis, to provide his assessment
on the role a much-maligned credit rating industry played.

Buffett, who runs Berkshire Hathaway Inc (BRKa.N: ) (BRKb.N: ),
and Raymond McDaniel, chief executive of Moody’s Corp (MCO.N: ),
will appear Wednesday as the Financial Crisis Inquiry
Commission examines credit ratings and how investors use them.

The congressionally appointed commission, chaired by former
California treasurer Phil Angelides, is examining causes of the
worst financial crisis since the 1930s.

It has held hours of closed-door interviews, and hearings
featuring some of Wall Street’s biggest names, like a fiery
Goldman Sachs Group Inc (GS.N: ) CEO Lloyd Blankfein and a
defensive Robert Rubin, once ensconced at Citigroup Inc (C.N: ).

Wednesday’s hearing in New York will bring together two men
at opposite ends of the investor popularity spectrum.

There is Buffett, the investor icon with a near-Teflon
ability to resist criticism. Nonetheless, despite his frequent
public appearances, Buffett resisted testifying until he got a
subpoena.

Berkshire owns a 13 percent stake in Moody’s, but has pared
it from nearly 20 percent over the last year.

And then there is McDaniel, who runs a company to which
criticism sticks like Velcro. Five other current and former
Moody’s officials will also testify, including whistleblower
Eric Kolchinsky and Brian Clarkson, who drove Moody’s expansion
in structured products before being replaced in 2008.

Moody’s, McGraw-Hill Cos’ (MHP.N: ) Standard & Poor’s and
Fimalac SA’s (LBCP.PA: ) Fitch Ratings are widely criticized for
fueling the crisis by assigning unreasonably high ratings for
too long, and then downgrading them too fast. Many subprime and
other risky securities lost all or much of their value.

“The question is, can we get a better handle of what was
going on, and were the securities really misunderstood?” said
George Cohen, a University of Virginia law professor. “The
bigger issue is whether we ought to change the entire system.”

Critics say the agencies’ model of having issuers pay for
ratings is rife with conflict and corrupts their assessments.

Hoping to ease pressure on issuers to shop for ratings and
agencies to award high marks, the Senate voted on May 13 to
create a board overseen by the U.S. Securities and Exchange
Commission to assign rating agencies to initially assess debt
issues.

It also voted to require regulators to develop their own
credit standards rather than rely solely on agencies.

Angelides was not immediately available for a comment.

CONTRADICTIONS

Buffett has long relied on seeming contradictions in
justifying his attitude toward rating agencies.

On the one hand, he loves the business model. There is not
much competition, the need for capital is virtually nil, and
the agencies are essentially a toll booth for companies needing
to raise cash: Without ratings, no money can be raised.

Yet Buffett told tens of thousands of shareholders at
Berkshire’s annual meeting on May 1: “We have never paid any
attention to ratings for bonds at Berkshire. We don’t think we
should farm out, outsource investment judgment.”

This is a variation of the surprise argument Buffett used
to defend marketing of securities by Goldman, which led to an
SEC fraud lawsuit. Buffett said investors should do their own
credit homework, and not worry who might bet against them, or
what someone else thinks of any securities’ credit quality.

“He’s on several different sides of the issue,” Cohen said.
“He might say the system could be better, but that as long as
the system is the way it is, he wants to make money from it.”

Berkshire had no comment on what Buffett plans to say,
including plans to address wider economic or business ills.

McDaniel has more at stake from ratings reform, given that
more than two-thirds of Moody’s revenue comes from ratings.

He told a Senate subcommittee on investigations on April 23
there were “a number of things that in hindsight I wish we had
done differently, absolutely.” Among these were an insufficient
focus on macroeconomic housing trends, and a shortfall in
cross-disciplinary expertise in rating committees, he said.

Moody’s in April handed over documents to Angelides in
response to the commission’s first subpoena. A month earlier,
it received a “Wells notice” indicating possible SEC civil
charges over its failure to downgrade some European debt after
learning a computer glitch caused inflated ratings.

McDaniel exercised some stock options the day the Wells
notice was received. Moody’s spokesman Michael Adler said this
exercise resulted from participation in a prearranged plan that
“includes pre-determined time and price triggers.”

Stock Market Basics

(Reporting by Jonathan Stempel; Editing by Tim Dobbyn)

PREVIEW-Buffett, Moody’s CEO rate a date on market crisis