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put up the list here so people can see 1.3 billion in moody's stock still why do you still own moody's warren it's a good business very good business i mean even after the financial crisis where they mispriced lots of financial insurance well a lot of people miss price a lot of people made mistakes then uh but uh we pay moody's a lot of money to rate us you know i'd like to not pay them that money so i've seen their position the competitive position and you know they operate in a business uh with very wide profit margins very high returns on capital and it's a business that will probably grow over time is it a conflict of interest that you pay them to rate you well i i wish it were so that we didn't have to pay them but as a practical matter you know we need their rating we shouldn't need their rating i mean anybody should be able to look at berkshire all the ways it's a wonderful credit but the world in the way the world exists we need their rating and we need standard poor's rating and we are not in a position to negotiate on price and i hate to say that on national television where the guy listening maybe the guy that determines my bill next time but that is the position we're in yeah we don't want to go into too much detail about uh and invest our marketable investments but i would say that the moat is just in our view uh is far wider deeper and and infested with far more poisonous uh characters in the case of moody's than in the case of the operating company if you've had experience just in terms of making decisions about how you either obtain credit information in the case of the operating company or if you or if you want to obtain ratings on securities or something i think you'd conclude that that moody's uh is a much stronger franchise than the operating company doesn't mean the operating company can't turn out to be a better business it might have more upside under certain circumstances too but if you're really thinking of you know what bad can happen to you i think that you would regard moody's as a considerably stronger franchise than the operating companies charlie well i'd certainly agree you've been slowly and gradually reducing your stake in moody's by about 25 percent you now own about 13 percent in the company we sold down from 48 million shares about 30 million over the last year does that reflect a lack of confidence or a growing lack of confidence in this company it means that i think that what was once a bulletproof franchise may not be bulletproof it's still it's still quite a franchise but whether it's bulletproof or not we'll find out in the next year what would trigger you'd eventually sell out of moody well that would be price alternative investments i mean we we sold based on price we sold based on other things we can do with the money okay um and so what you're saying essentially is that the moat around moody's has basically gradually eroded the motor's there but there may be somebody comes along and sandblasted at any point would you buy into moody's would there be anything that would that would there's a price at which i'll buy almost anything and but i i mean it is going to happen soon but uh no i don't preclude buying or selling anything you said they're not bulletproof as they were 10 years ago you still hold a 13 stake in moody's which you've been selling off quarter by quarter are rating agencies still an attractive investment well they may be and they may not be it depends on what comes out of hearings like this and the legislative process they had a a bulletproof franchise and they still have an unusual franchise and the question is whether it gets changed in some material way and that the only way it will get changed is by is by some kind of governmental action i don't know whether that's coming or not do rating agencies in the model that they operate under need need to change warren well i think they've generally done a fairly good job but i think they're limited in what they can do i i do not follow rating agencies ratings i i come to my own conclusions about credit but i don't follow stock pickers recommendations either equity recommendations uh i think they have some utility but i don't think i don't think anyone should think that a rating of say double a today means it's going to be double a 10 years from now where's the social utility in rating agencies and you know charlie monger talks about and you talk about social utility a lot and the ceo of moody's just said in there well we give these ratings to the public for free but what they also did is not just moody's fitch and s p and rating agencies across the country rated absolute junk with the highest possible rating they could if you look at the record in mortgage-backed securities right it's a disaster if you look at the record generally on corporates and municipals the ratings haven't been bad over the years i mean that the triple a's have behaved better than the double a's the double a's better than the a's and so on they're far from perfect but they have been better than somebody that doesn't know anything about it and they one advantage they have is if you take just take insurance companies if they could invest in anything they pleased you would have you would have some buccaneers get into that business take other people's money and go and who knows what they would do with it so there there it is some utility in providing a check in regulated industries on what managers do with the funds under their control that belong to other people i mean you've said this is disastrous how the rating agencies and many others you said including yourself missed the housing crisis can you chalk it all up to a mistake warren or was there as phil angel ladies who led the commission say uh he said today it was a toxic brew of corporate non-responsibility the people in charge yeah well i i i mean i'm not sure you know who on the panel in 2004 was saying we're in a housing bubble i mean i wasn't saying it so i'm not pointing the finger but but who was doing it and if they did it early they became cassandra's that everybody laughed at but if you look at if you look at history we should put john paulson and michael bury may be in charge of the next regulatory agency because they they called it but that doesn't mean they'll call it next time i mean when a bubble really gets going when the internet bubble was underway you know get out of the way because it was going to run right over you and you had companies selling for tens of billions of dollars that were valueless so when people think they smell easy money and they've seen rising prices sort of justify it in the past and your neighbor who's got 20 points less of iq than you is getting rich because he's doing these things it gets very tempting to go along with the crowd you faced some questions in the hearing warren and honestly some heat about your responsibility being a 13 uh stakeholder in moody's what do you think your responsibility is when it comes to a company like this well i don't think i can manage moody's and i don't and i think that moody's generally i think they were way off on the real estate bubble and i think that congress was and i think freddie and fanny were and i think the media wasn't just going down the line 300 million americans thought house prices couldn't really collapse and we were all wrong and i think they were no better than the rest of us are you a believer in the government stepping in as senator al franken has proposed when it comes to the rating agencies and having the government assign rating agencies two different firms and their products i'm not sure how that would work i mean i i don't i have no reason to think that would improve the really the system now might it get in the way i just don't know i mean i'm not sure how whether you'd have 20 rating agencies and somebody in washington spinning a wheel you know as to which one gets assigned i i just i i i i don't know of any institution i can think of to set up that will rate things better than moody's and standard poor's i don't use their ratings though i i think i can do a better job in certain selected cases not across the board just occasionally i can do something better but you know in the end one of the great rating agencies uh in a certain sense the two of them were freddie and fanny they they guaranteed 40 of the mortgages in the country and they were rating those mortgages and all kinds of data yeah so i i think finger pointing is you know you got to be a little careful with it maybe not the most useful thing moody's is a little like harvard it's a self-fulfilling prophecy you know i hate to think of how much you could mismanage harvard now and still have it work out pretty well if you cut the price of the admission of the harvard business school by ten thousand dollars a year uh you would have less demand in all probability than uh than an increase in demand i mean it's totally counter-intuitive in that respect because it's the cachet of the school for in in in that case is it's not only reinforced it's almost it almost makes it necessary to be priced toward the top so it you can throw away the demand and supply curves that they teach you in economics 101 on something like that i frequently i have a little fun with when i attend business schools because i ask them you know what the definition of a wonderful business is and we go through all this stuff and then i say you know i tell them that really the best business i've seen is that you know is the harvard business school or the stanford business school because the more they increase the price the more people want to get in the more people think the product is worth and that is a marvelous position to be in why do you own the largest stake of any shareholder in moody's which is the ratings agency that warren so badly got these these credit ratings wrong on so many levels that eventually blew up in the faces of investors you being the largest shareholder what was so attractive to you about moody's when you don't even use their product well well we we we are forced to use it in terms of our own ratings i don't use it in terms of making my own credit judgments about other credits that's what i'm talking about and 10 or 10 or 12 years ago uh we bought donna bradstreet which consists of two really good businesses done on bradstreet and moody's moody's being the better business because moody's basically earns extraordinary returns on investor capital it has a freedom to price and it's got a wonderful uh business and and uh that's why we and dennis bradstreet has a good business too so we bought it 10 10 or 12 years ago purely look i don't smoke but i own phillip morris kind of decision okay that much i get a lot of people here today are saying that the business model is so conflicted at these ratings agencies specifically moody's where it's issuer pays meaning the very business or product that is getting rated that's the organization that pays moody's to rate it should the business model be changed it's pretty hard to change it liz i mean just imagine if you're my my sister out in omaha and you want to buy a triple a bond uh are you going to pay make a payment to moody's for it you know you're going to you're going to hear that it's rated triple a you know by listening uh to your network or something of the sort and you're not going to pay uh so it's not very feasible to have the people who buy aaa bonds one by one ten thousand dollar bond here five thousand dollar bond to make them pay for should the government mandate ratings agencies be nationally recognized sort of the good housekeeping seal of approval well in a sense states have done that already in terms of and actually uh the banking authorities have done it because they've already said that you needed to be rated uh you need to own securities of a certain rating if you ran a life insurance company that sort of thing so there has been a mandated rating arrangement and that's the reason that we have no price flexibility when we when standard poor's or moody's comes to yeah the rate berkshire and they say we're going to charge you a million dollars and i say gee i'd like to do it for 900 000 and they say well look around down the street you won't find anybody well we all know how wrong they got it when they were rating triple a what turned out to be total and utter junk uh warren do you think that the ratings agencies are culpable for the financial crisis no i don't think the the major responsibility but i think they participated in it just like everybody else that had this notion in their mind that house prices couldn't go down you being the largest shareholder of moody's would that make you knowingly or not complicit in in helping to unwind the financial system no i don't think so i'll give my opinion about any societal matter and really you know i i don't think i don't think smoking's good for you but i'm going to cigarette bonds the dirt inside is that they're going to quickly move at some point from the moody's investment to your five billion dollar goldman sachs investment are you going to answer questions about i'd love to i'd love to and you will say you don't regret that at all in any way shape or form oh no no do you regret owning moody's no i i mean i regret not selling it a couple of years ago but if i'd seen this coming they didn't see it coming i didn't see it coming you know the media didn't see it coming congress didn't see it coming basically the american public got this notion in their mind that house prices couldn't fall there's a whistleblower named eric kulczinski who will be testifying in there and the whistleblower is going to say that he was pressured to uh give better ratings so that moody's could maintain market share did you ever know anything about that no i've never heard of it does it surprise you but i would well i would doubt it yeah that because in in effect i need moody's and standard and poor's uh they don't have to do anything for me to get market share they own me basically so actually they are in the position you know basically of a of a newspaper in a one newspaper town they don't have to count out anybody if there's ten newspapers in town you do have to count down the people well the ratings agencies because of what happened in the loss of credibility refuse at some point or cease to exist oh no i i i i think they'll be rating agencies of one sort or another but as i've said many times we don't use them ourselves i mean we are forced to be rated but but in terms of evaluating credits we don't we don't use them hooties you're not buying you've been selling that at least that's right we sold some last week yeah you sold some last week on monday through wednesday there was a filing on that uh the obvious question becomes are you gonna keep selling that you're gonna drop down i guess the obvious answers i don't tell uh if we sell we have to announce it as long as we have more than 10 percent and then if we get to 10 we don't have to announce it after that uh uh and we don't have to announce it very quickly after we do it yeah we have to announce it so there would be an advantage to owning less than ten percent because then you're yeah but you know we've done i mean we're selling moody's at six times what we paid for it okay you
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