NEW YORK — Credit rating agencies came under fire for their role in the global financial crisis Wednesday, as senior industry figures -- including mega-investor Warren Buffett -- were grilled by US investigators.
Answering allegations that rating firms helped propel the sale of risky investments that poisoned the global financial system, senior officials from Moody's admitted mistakes were made, but denied any wrongdoing.
Buffett, who holds a major stake in Moody's, said the agency had "made the wrong call" in assessing some complex financial products but firms that failed after buying dodgy products should shoulder most blame.
"Financial institutions that have failed and have required the assistance of the federal government... the CEOs should basically go away broke, and I have said I think his spouse should go away broke," he said.
The powerful "big three" raters -- Moody's, Standard & Poor's and Fitch -- have been accused of blithely awarding mortgage-backed securities their lucrative "AAA" investment ratings simply to net more business.
These top ratings are often seen as a seal of approval by investors and a sign that a company, country or debtor will pay back borrowed cash on time and in full.
"The picture is not pretty," said Phil Angelides, the chairman of the Congress-appointed panel.
"From 2000 through 2007, Moody's slapped its coveted triple-A rating on 42,625 residential mortgage backed securities," he added. "Moody's was a Triple-A factory."
Raymond McDaniel, Moody's chief executive, told the commission it was "deeply disappointing" that the firm misjudged how risky mortgage-backed investments were, but said steps had been taken to improve the system.
"Moody's is certainly not satisfied with the performance of these ratings," he said, facing questions about why he had not resigned.
"There has been an intense level of self evaluation within our organization," he said.
The rating agencies have come under fire from US lawmakers who are putting the final touches to financial reforms that would see stiffer curbs on how the firms do business.
Criticism has focused on the fact that agencies are paid by the same firms they rate.
Eric Kolchinsky, a whistleblower who once worked for Moody's, said the industry was largely unregulated and "given a blank check" to pursue profits over sound assessments.
"Rating agencies faced the age-old and pedestrian conflict between long-term product quality and short-term profits. They chose the latter," Kolchinsky said in prepared testimony.
He accused Moody's of lying about the influence that banks -- which packaged and sold the securities -- had over the ratings process.
"Banker requests to keep certain analysts off of their deals were granted," he said.
He also accused banks of concealing the worst-performing parts of bonds that banded together mortgage debt.
"I have had cases where bankers were, I believe, lying to me about where those were being placed and there's nothing that I could do about it. You know, there's no penalty for lying to a rating agency analyst," he said.
Moody's CEO McDaniel denied that "misleading or manipulative" information was used in ratings.
He also said that some proposals to regulate the market would "likely have a positive impact," but that other measures were "contradictory."
Rating agencies have returned to the spotlight in recent weeks as a string of European countries have seen their credit ratings downgraded, pushing the cost of borrowing ever-higher.
European Union officials on Wednesday called for a centralized monitoring of rating agencies, accusing them of sparking "attacks" by speculators.
Standard & Poor's and Fitch were not asked to testify, according to a panel spokesperson.
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