Thursday, June 3, 2010

Say it isn't so Warren........

Warren Buffett defends (sort of) the ratings agencies that
blessed all those toxic CDOs (collateralized debt obligations)
with AAA ratings, here.

I wonder if his take on the rating agencies might be
different if he had not been a major shareholder in Moodys?

An excerpt:

"The FCIC is trying to figure out how the entire financial
system blew up -- they have a report due by the end of the
year -- and Buffett gave them a history lesson on market
psychosis. The rating agencies -- Moody's and McGraw
Hill's Standard & Poor's -- were no more tragically
myopic than anyone else. Their analytical models had the
same horrendous flaw, one shared by the entire American
public, which said residential house prices can't take a dive,
and they won't take a dive all over the country all at the
same time."

How can an analytic model provide any semblance of
accuracy when the rating agencies had no clue about the
nature of the debt underlying those CDOs?

Wouldn't you look before you rated?

Just wondering.

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