Giving evidence before the Financial Crisis Inquiry Commission in Washington DC yesterday, Buffett said Moody’s, of which he own 17 per cent, had made “a mistake that three hundred million other Americans made” in missing the signs of the housing bubble.
He said: “The whole American public was caught up in a belief that American housing couldn’t fall dramatically. Very, very few people could appreciate the bubble. That’s the nature of bubbles – they’re mass delusions.
“Rising prices are a narcotic that affect the reasoning power, up and down the line.”
Buffett, who is chief executive of Berkshire Hathaway, admitted that he too had missed the signs of the housing crash of 2007. He said: “In 2006, I was not sitting there thinking the housing bubble would get as large as it did and that it would burst. If I did, I would have sold my stock.”
The panel spent yesterday grilling representatives of the ratings agencies, who have been blamed for giving assets that held toxic mortgage debt AAA status.
Commission chairman Phil Angelides attacked Moody’s for the fact that around 90 per cent of its 2007 investment grade ratings were relegated to junk status today. He said investors would have been better off flipping a coin to decide on investments rather than take Moody’s ratings as an assessment: “The miss was huge. Even the dumbest kid in the class gets 10 per cent in an exam.”