“He hasn’t discussed publicly what he might be doing to influence the management at this time of crisis,” she says. “Last spring, he knew the rating agencies were deeply involved with the financial crisis. Since he didn’t sell Moody’s then, he should explain what he’s doing to influence the management.”
Moody’s, meanwhile, believes the ratings system may need tinkering but it is not broken.
Michael Adler, a Moody’s spokesman, said the company’s role was simply to assess the odds that a given bond issuer will default—in some cases, taking into account the possibility of government intervention. He said anyone who makes assumptions about the stock price of those issuers based on Moody’s findings about its bonds is misusing the data. (A lot of investors are misusing the data, in that case.)
Mr. Adler also stated in an e-mail message that there were potential conflicts of interest with any ratings system, whether issuers, government or investors pay.
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“Moody’s, for its part, has implemented a series of changes and procedural safeguards to help mitigate potential conflicts and increase the transparency of our analysis,” Mr. Adler wrote. “That said, we believe that a healthy dialogue with regulators and other capital market participants is beneficial.”
But not all models for paying rating agencies are equally risky, says a former Moody’s managing director, Jerome S. Fons—and none is more vulnerable to conflicts of interest than the issuer-pays model.
Mr. Fons, who left the company in 2007 as part of a reorganization, says that Mr. Buffett has long found his connection to Moody’s a little awkward. Mr. Buffett never attended any board meetings, he says, and Berkshire has never bought any additional shares after it acquired its stake in 2000 as part of a deal with Dun & Bradstreet, then its parent company.
It is widely assumed that Mr. Buffett does not use rating agencies at Berkshire: like many leading investors, he employs his own researchers.
“I think he’d love to sell his stake in the company, but he can’t,” Mr. Fons says. “As soon as it was known that he was selling, the value of the company would plunge.”
It is hard to expect any capitalist to push for change that squeezes profits. Then again, Mr. Buffett is not just any capitalist. He is the closest thing that the United States economy has to a life coach.
Typically, chief executives who show up on television after announcing their worst year ever offer some variation of “Don’t worry, America, I’ll do better soon.” When Mr. Buffett appeared on CNBC last week, the subtext was more like, “Don’t worry, America, you’ll do better soon.” (He said that though the economy had “fallen off a cliff,” he was, as ever, bullish about the country’s long-term prospects.)
Mr. Buffett is more than just our reassurer in chief. He also has a history of speaking out against parts of the financial system he considers broken or unfair, even if those parts benefit him. He is one of the few superrich people in favor of steeper estate taxes, for instance.
Given how hard it would be to revamp the rating agencies, and given his credibility and the impact that reform would have on his portfolio, Mr. Buffett may be ideal for a job that no other executive or public official could do: rating agency reform.
“Nobody is better positioned than Buffett,” Mr. Fons says. “If he comes up with a good plan, people would pile on immediately. And if he really is a high-minded idealist, if he wants to leave a meaningful legacy, this would be it.”