World Business

Buffett to testify before financial crisis panel

(Agencies)
Updated: 2010-06-02 15:02

The government has filed civil fraud charges against Goldman, alleging it failed to tell investors that one of its clients, hedge fund Paulson & Co, was betting against the securities.

Credit rating agencies came under fire in April from the Senate Permanent Subcommittee on Investigations, which is also probing the causes of the financial crisis. The panel's chairman, Sen Carl Levin, said the Senate's regulatory overhaul should curb the industry's inherent conflicts of interest that allow rating agencies to be paid by the banks whose investments they rate.

Banks generally want higher ratings to make the securities they offer more attractive to investors, and former executives have acknowledged that competition within the industry often led the agencies' analysts to rate high-risk securities as safe.

To tackle the conflict of interest problem, the Senate's version of the financial overhaul would end banks' ability to choose the agencies that rate their investments. An independent board, appointed by regulators, would choose the rating firms.

Related readings:  Investors shun Buffett's advice  Warren Buffett offers another charity steak lunch   Moody's upgrades outlook rating for Hong Kong banks to 'stable'  Fraud charge may stifle Goldman bid

But critics of that plan point out that the agencies would still be paid by the banks whose products they rate. That means the ratings could be influenced by those banks.

Others have questioned whether regulators - who themselves missed warning signs leading to the crisis - should choose which agencies rate which financial products.

The FCIC will also hear testimony from several former Moody's executives at Wednesday's hearing.

The FCIC is a bipartisan group created by Congress to examine a range of issues surrounding the financial crisis. It is structured like the group that investigated the terrorist attacks of Sept 11, 2001.