Warren Buffett called rising prices on everything from houses to Internet stocks “a narcotic” that blinds people to all kinds of risks in the system. He suggested Moody’s, which was supposed to be watching out for these risks, simply took too much of the drug. But, shit, everyone was shooting up during the bubble.
"They made the wrong the call," Buffett said. But he added: "The entire American public was caught up in the a belief that housing prices could not fall dramatically. “When your next door neighbor is making money very easily by buying a second home, you start thinking ‘maybe I should do that too.’”
Buffet is testifying before the Financial Crisis Inquiry Commission alongside Moody's CEO Raymond McDaniel. Buffett's is Moody's largest shareholder. Buffett said McDaniel, although he missed the warning signs, shouldn’t resign as CEO.
On derivatives, he said: “Used improperly, as they are almost certain to be, [derivatives] pose a potential systemic risk.” On his $5 billion investment in Goldman Sachs, which has paid off quite handsomely: "If the Fed had not acted, everyone would have been toast, but I thought the federal government would act." He said Goldman was the best of the firms that came to him in the fall of 2008 and the firm actually ended up paying him more than they originally proposed as the crisis deepened.