Friday, April 10, 2009

Warren Buffett's Credit Rating

Over at the Guardian, I note that even Warren Buffett's Berkshire Hathaway has had its credit rating cut:
Worried about your credit rating in this economy? You're not alone. Even Warren Buffett isn't immune to the financial downdraft. This week, the credit rating agency Moody's dropped Berkshire Hathaway's rating from AAA to AA2.
This cut came despite Berkshire's $25 billion in cash and Buffett's well known disdain for fancy financial engineering. Back in 2003, he called derivatives "financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."
Since then, the banking bubble just grew:
This ballooning of the notional value of derivatives and swaps was not accompanied by a comparable growth in actual economic activity. As we have learned, the financial wizards weren't creating value, but simply churning their customers and pocketing inflated fees from the transactions.
Paul Krugman writes how banking, which was considered boring when he was in school, became exciting, much to our detriment:
In the years that followed, of course, banking became anything but boring. Wheeling and dealing flourished, and pay scales in finance shot up, drawing in many of the nation’s best and brightest young people (O.K., I’m not so sure about the “best” part). And we were assured that our supersized financial sector was the key to prosperity.
Instead, however, finance turned into the monster that ate the world economy.
The monster grew so fearsome that it even took a bite out of Warren Buffet. It's time to tame it.

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