The following post is by “Gatzzb,” a friend of Dealbreaker.
Over the last decade few investors have been more quoted – and emulated – than Warren Buffett, the Oracle of Omaha. And for good reason. Mr. Buffett remains one of the most talented investment managers, capital allocators and business managers of our generation with a track record few have come close to matching. Just read any of his letters from the last 30 years and you’ll quickly understand why (sex jokes help). But with his long time passive stake in Moody’s Corp (MCO), I believe Mr. Buffett has practiced what he has often preached against: putting profits before ethics.
Moody’s
Maybe the guys at Moody’s are finally getting it. Apparently somewhat lost on the Moody’s clan during the past 6 or so years when getting a rating was about as tough as waking up, was the clear arb at the top of the capital structure. Between the two masters of mean reversion analysis, Moody’s had more stringent conditions than S&P to achieve a AAA rating for ABS securities. When there was plenty of appetite for sub-AAAs, Moody’s didn’t seem to care one bit about the arb. It has taken the government’s requirement of only one AAA rating for TALF eligibility to snap Moody’s out of this haze and now, naturally, they are complaining about it.
The need to have a AAA rating to be eligible “for government programs raises the specter of rating shopping,” Andrew Kimball, head of the global structured finance business at Moody’s Investors Service, said during the company’s investor day today. “Those programs don’t differentiate on the quality of the rating. Rating shopping becomes a problem.”
The irony in his statement is delicious. No doubt Ben Bernanke will soon be listening to the debate on why its unfair to treat two completely worthless ratings differently.
Fed’s TALF Fuels Rating ‘Shopping,’ Moody’s Says [Bloomberg]
We are sure you’re like us and just skip to the David Einhorn section when it comes to the Ira Sohn Conference notes that Zero Hedge has posted, courtesy of BTIG’s Mike O’Rourke. Here’s the take on Einhorny:
The theme of Davd Einhorn’s presentation was the curse of the AAA. Obama administration is following the same policies of the Bush Administration. The administration is reflating the economy back to 2006 levels. For the economy to recover underwater entities need to restructure their debt. The willingness for banks to negotiate in this environment depends upon where the positions are marked. The Obama loan modifications lack the most important aspect of restructuring: debt reduction. The debate in the banks was too narrow with only two options discussed- Nationalizing versus Taxpayer Bailout. There is a 3rd option, debt or preferred equity conversion to common equity. Attempt to induce debt of equity conversions without creating a downdraft in the group. Banks are not materially more solvent today than they were two months ago. Regulatory forbearance has created this rally in banks. We should be overcapitalizing the banks and direct them to restructure the debt of their borrowers. The Government spending and guarantees put the U.S. AAA credit rating at risk. US debt needs to be managed responsibly.
Einhorn goes on to nuke Moodys, his short. Good play!
Ira Sohn Conference Notes [Zero Hedge]
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