Thomas to Moody's, Buffett: ‘If if and buts were candy and nuts, we’d all have a Merry Christmas’

 

Phil Angelides, left, Bill Thomas, right

Former California Treasurer Phil Angelides and retired Bakersfield, Calif., Congressman Bill Thomas aren’t exactly stand-up comedians. They are serious, brainy policy wonks.

And there’s nothing funny about the job Congress gave them to do.

But the imagery that emerged during a hearing Wednesday of their congressionally-created commission, the Fiscal Crisis Inquiry Commission, was both funny and accurate. And it cut to the heart of the Wall Street excesses that brought the U.S. economy to the brink of collapse.

Democrat Angelides and Republican Thomas co-chair the bipartisan FCIC, which is supposed to explain to Congress by Dec. 15 who did what to whom that led to the financial mess, and create a road map for Congress to better protect investors and the nation’s economy.

The 10 FCIC members were grilling representatives of the rating agency Moody’s, as well as its major stockholder, investment giant Warren Buffett of Berkshire Hathaway, about the AAA ratings Moody’s gave to what turned out to be disastrous investment instruments, primarily involving subprime real estate loans.

When asked about the assurances Moody’s provided, a former company director told commissioners that Moody’s was focused on “market share,” meaning it was focused on making an increasing number of deals and bringing revenue into the company.

Traditionally, bankers would bring deals to the rating company a month or two before they closed, giving analysts time to evaluate risks and establish accurate ratings, which are used by investors in their buying decisions.

But as the market heated up, the deals came in just days before closing. Some even arrived after closing, according to FCIC testimony Wednesday.

To that, Angelides asked, “Did you ever see ‘I Love Lucy?’ That famous episode where she’s working in a chocolate factory and the conveyor belt just goes faster and faster? Did you ever feel like Lucy?”

Thomas went further with the chocolate analogy, likening the deals the bankers were making to putting chocolates in a box, with the best being those with solid deals and performing loans, and the questionable ones with creamy soft centers.

Buffett acknowledged that rating agencies “made the wrong call,” but noted that the entire American public believed housing prices would not dramatically fall.

He acknowledged that he did not recognize the significance. He pointed out that during his company’s annual meeting, he called the situation at “bubblette.” But it turned out to be “a four star-bubble,” Buffett told commissioners.

After sorting through a series of excuses expressed during the hearing, Thomas observed: “If ifs and buts were candy and nuts, we’d all have a Merry Christmas.”

Thomas has long been critical of the role rating agencies have played in the nation’s financial crisis.

Angelides noted Wednesday that these rating agencies were the “referees in a game that got out of control.”

About the author: Dianne Hardisty is The Bakersfield Californian’s retired editorial page editor. Now a freelance writer in Bakersfield, Hardisty interviewed former Bakersfield Congressman Bill Thomas in December on the eve of the first major Fiscal Crisis Inquiry Commission hearing.