Fitch

Ratings Agency Downgrades British Petroleum

by

Recently, we talked about how Warren Buffet’s Congressional testimony about Moody’s responsibility for causing the banking crisis and stock market crash by rating collateral mortgage options (CMO) triple-A up until it was already obvious to everyone that these investments were in trouble, was wrong headed. Today, the ratings agencies Fitch and Moody’s gave us all another reason to wonder why we listen to rating agencies at all with its downgrade of British Petroleum. It is not that downgrading BP is incorrect. It is both the timing and the sanctimonious nature of how the downgrades British Petroleum (BP plc – NYSE:BP) stock and debt came about. It has been six weeks since the April 20th explosion on the Deepwater Horizon oil rig and the company’s stock has already fallen over 40% since the incident. Which has been a big hit on Members of Congress are calling for BP to put $20 billion into some sort of escrow fund out of concerns that the company may end up not being able to fully pay its legal obligations resulting from the massive gulf oil spill. Yet, both Moody’s and Fitch’s statements act like their concerns about BP are actually news to anyone. “Today’s …

Read More

Warren Buffet Wrong About Moody’s

by

Warren Buffet testified before Congress that Moody’s rating agency should not be blamed for its enormous role in the financial collapse that occurred following the blow up in the real estate market and the subsequent implosion of collateral mortgage options, or CMOs. These securities eventually became the so-called toxic securities that continue to weigh down the balance sheets of many financial companies. Buffet is not dumb nor is he being led to say certain things by Berkshire Hathaway’s large stock holding in Moody’s. Rather, Buffet is saying that Moody’s and the other rating agencies including Standard and Poors and Fitch can’t be held responsible since what they missed is the same thing that everyone else missed. In other words, they weren’t any worse than anyone else. The problem with this line of thought is that the whole point of Moody’s business is that it knows MORE THAN EVERYONE ELSE. Otherwise, what is the point of paying them to rate securities. If Moody’s role in the securities industry is nothing more than the corroboration of information that others have already figured out, then what is the point of what they do exactly? Don’t forget that numerous investment concerns including pension plans, …

Read More