Berkshire's Moody's downgrades Buffett
Apr 9th 2009 7:00AM
Updated Dec 4th 2009 1:14PM
Why is this a great PR move? Well, Berkshire owns 20 percent of Moody's. And what could be a better demonstration of Moody's independence and objectivity than its decision to downgrade the financial strength of its biggest shareholder?
Pretty clever, no? Sure -- unless you start to consider that Moody's and the other ratings agencies gorged on fees from investment banks to rate toxic waste for years -- using their AAA credit ratings to convince investors to buy the securities. Now that the ratings agencies have no fees to earn from rating toxic waste, they are studiously trying to rebuild their reputation for objectivity.
There's just one problem. It's far more useful to close the barn door when the cow is inside, rather than hours after it's bolted off the farm. Put another way, it would have been nice if Moody's had rated the toxic waste at junk levels before investors bought it -- rather than after.
And it would have saved investors considerable pain if Moody's had downgraded Berkshire before Berkshire's shares lost 44 percent of their value -- rather than after.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.