The growing backlash against Warren Buffett

After defending Goldman Sachs and Moody's, the Oracle of Omaha is getting hit with criticism.

By Kim Peterson Jun 3, 2010 1:37PM

Warren Buffett. Credit: (© Paul White/AP)Public opinion is turning against Warren Buffett.

The billionaire investor is getting raked over the coals this week after defending credit ratings agencies like Moody's, saying that lots of people -- himself included -- did not expect the economy to implode.

"The entire American public was caught up in a belief that housing prices could not fall dramatically," he told a panel looking into the financial meltdown, according to The Associated Press.

Ratings agencies have been a constant target of criticism, mainly because they gave stellar scores to many mortgage-backed securities that would later prove to be junk. And Moody's made some serious cash in doing so, according to the AP, with revenue soaring from $600 million in 2000 to $2.2 billion in 2007.

If you were an investor who put any stock at all in what Moody's or its competitors said, you might have gone ahead and pursued a toxic investment like the Abacus deal from Goldman Sachs (GS). Moody's and Standard & Poor's both gave Abacus their highest AAA rating -- but Abacus would later cost investors hundreds of millions of dollars.

 

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Buffett's company, Berkshire Hathaway (BRK.B), owns about 13% of Moody's (down from 20% a year ago). But the investor says he doesn't rely on credit ratings for his own investment choices.

This comes a month or so after Buffett defended Goldman Sachs, one of the most vilified firms on Wall Street. "I haven't seen anything in Goldman's behavior that makes it any more subject to criticism than Wall Street generally," he said at a news conference, according to The Wall Street Journal.

And then you have Buffett's contradictory stance on derivatives, which he once called "financial weapons of mass destruction." Turns out that Berkshire has a $63 billion derivatives portfolio.

These have not been the best of times for Buffett or his reputation as a brilliant and ethical investor. Several high-profile financial observers are turning on Buffett this week.

Charlie Gasparino, speaking on Fox Business, says Buffett owns Moody's even though he believes the ratings agencies are a sleazy business. "That takes Warren Buffett down three notches in my book," he adds.
"Somehow in the last month, Buffett has gone from being the authority on value to defending some of the most dysfunctional and socially worthless elements of the global financial system," writes Bond Girl.

The rating agencies stamped pretty much anything with an AAA rating, and that was not just an intellectual accident, Bond Girl writes. Even worse, this behavior didn't end with the financial crisis.

The Pragmatic Capitalist goes a step further, saying the hypocrisy of Warren Buffett never ceases to amaze. "Are investors beginning to see Buffett for what he truly is -- just another Wall Street banker who just happens to live closer to a corn field than a skyscraper?"

Edmund Andrews says Buffett "has turned into an evasive, disingenous, bumbling buffoon." When Buffett was asked how he would change the ratings agencies to avoid future disasters, he was hard-pressed to come up with an answer, Andrews writes.

"Having basked for years in public adulation for his his investment brilliance . . . Buffett suddenly acted as if he hadn't the slightest idea about the goings-on at Moody's even though Berkshire Hathaway had been one of its biggest shareholders," Andrews writes.

Finally, Felix Salmon calls Buffett an institutional shareholder who actually owns and runs large companies of his own, and one who can act more like an owner than most shareholders.
But he doesn’t, and he has no visible desire to fix the problems at Moody’s or at the ratings agencies more generally. He just says he wishes he’d sold his Moody’s stock earlier, passing on those losses to some other sucker. I don’t think he’s ever going to be able to live this one down.

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