BLOGNAME: LOUDER THAN WORDSAn informal, stream-of-consciousness reflection on business ideas, events and issues in modern business, modern life and with some specifics to the web-software industry by Paul Tomori, Internet Entrepreneur
|More Irony And Disrespect for Warren Buffett|
By Paul Tomori
Thursday, June 03, 2010 at 23:29:20 (EDT)
Not to belabour the recent fiasco imposed on Warren Buffett, I can't help but respond to some of the ridiculous observations some people are making about the man despite the fact that he was forced against his will to attend the FCIC hearings into the financial collapse.
In all that I have read, no one else besides me has lamented the expropriation of Buffett's valuable time against his will. I guess it is hard for most people to feel sympathy for such a wealthy guy, but I do. The most common attempted justification I have heard as to why it was perfectly valid to force Buffett to testify is because he is Moody's largest shareholder (13% down from 20% a year ago since has has sold off many shares in recent months). To me, that reasoning is very weak. He's a shareholder. That is all. He is not a director, he is not involved in the running of the business, does not know the president, doesn't even know where the head office is and doesn't even respect the work they do enough to outsource his risk assessment to them! In other words, just because he is a shareholder does not make him responsible one iota for the work that Moody's does. He's a shareholder for at least one perfectly valid reason: because it was a sound investment of the capital under his care. It is not a crime nor is it disingenuous to own shares in a company whose products you don't use, especially if you are the custodian of other people's money... people who are trusting you to turn a profit for them.
Apparently, the FCIC group are promising to publish their findings in December 2010, 5 months after Obama has required reform to be in place. How ironic. Reforms will be in place in July by government mandate, yet the commission assigned to investigate the financial collapse will deliver their recommendations and observations in December. Is that putting the cart before horse, or what?
Did you read that a few of the people grilling Mr. Buffett actually got him to autograph books for them? Hey, there's a good way to meet a celebrity: Abuse your powers to subpoena the celebrity to attend a hearing under the illusion of government mandate (which was nothing more than veiled coercion).
So, you require a guy to come and testify, providing critical observations about a company for which he is the biggest shareholder and you expect objectivity? Not only that, as outlined in point 1 above, you actually use his large shareholding as a justification for the subpoena? Dumb. Naturally, if you put someone in a conflict situation asking them to speak objectively about something they themselves own, they are going to be protective of their asset. Of course, he didn't berate Moodys like people were hoping for! Of course he is going to try to try to dissipate the heated scapegoating of one particular ratings agency when he himself is the largest owner of that agency! Imagine if he had hopped on the mob bandwagon calling for heads at Moodys. What would that do to the share price? HIS share price? That people are lambasting Buffett for going easy on Moodys is just a failure of imagination on their part or their failure to understand human nature.
John Keefe at Money Watch refers to Buffett's testimony as "Green and Uncooperative" in this blog post. Well, Mr. Keefe, you reveal your true colors when you imply that Buffett should be "happy" to speak before the commission. Keefe suggests that speaking under oath before a commission after having been subpoenaed (i.e. forced against his will) to attend is similar to Buffett's penchant for speaking by his own choice CNBC. They are two VERY different ways of speaking, Mr. Keefe.
Edmund Andrews at Capital Gains and Games says Buffett's performance was "shameful," adding that "I never thought I would ever say this, but Warren Buffett has turned into an evasive, disingenuous, bumbling buffoon." Mr. Andrews, that commission is lucky that Buffett opened his mouth at all considering the outrageous circumstances of his forced attendance, so don't blame Buffett for not giving you the sentiments you wanted to hear. And don't try to tell anyone you would have done differently if it were your shareholdings being brought under question.
You know what is the most ironic thing here. The government is the one who has authorized and endorsed and supported the ratings agencies in the first place. The government's own bureaucracy keeps things anti-competitive by their love affair with Moodys. Buffett is a self-admitted reluctant customer of Moodys. He doesn't like the fact that he doesn't have any negotiating power with them as a customer, so he mitigated that problem by becoming a part-owner. And now, since Moodys has lawsuits flying at them, Buffett has an inherent fiduciary duty to keep his mouth shut about any of Moodys failings or at least he must be as evasive as possible... at the risk of perjuring himself. Give the guy a break.
At the end of the day, ratings companies like Moodys are really only providing an opinion anyway, not a warranty. Yes, there is some objectivity in that certain financial benchmarks must be met, but there are loads of inherent subjective assumptions when it comes to determining a security's stability (i.e. the assumption that frontline workers who sold mortgages properly assessed mortgage seekers). There are also reams of subjective presumptions about where market tides might take a given security (one rater might presume that housing prices will continue a steady ascent, another might presume a slow steady decline). So it's very ironic that a government-mandated agency, that can't predict the future, and must assume some fundamental truth in the information they gather should be held to such a high standard as what we are seeing here. It's even more ironic that an aloof shareholder of such a ratings company should be dragged over the coals of that company's failings. Even if there are problems in Moodys assessments and even if there is even improprieties at the firm, a rating should only be one consideration for a buyer of securities. The buyer MUST do his/her own due diligence... plain and simple. Accountability is theirs.
Better luck next time, Mr. Buffett. Now get back to work please. And pay no heed to the mob mentality that wants to eat you for dinner, but get your autograph first before sticking the knives in.
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