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US shelter prices the ''granddaddy' of all bubbles, says Warren Buffett

BILLIONAIRE investor Warren Buffett says the running-up in US housing prices before the crash was "the granddaddy of entirely bubbles".

Mr Buffett told a panel investigating the financial exigency today that he, along with most other Americans, missed the severity of the bubble as the price of homes in the US rose and lending standards loosened through a great quantity of the past decade.

As it was happening, he told Berkshire shareholders that it was a "bubble-ette," he said. "But it was a four-asterisk bubble."

Members of the Financial Crisis Inquiry Commission, meeting in New York to deliberate the credibility of credit ratings, grilled Mr Buffett for more than couple hours about his views of the crisis.

The bipartisan 10-member panel, created by Congress last year to examine the causes of the monetary meltdown, had subpoenaed Mr Buffett to provide testimony.

Mr Buffett, known because the "Oracle of Omaha" for his market insights, cited his confess failure to grasp the extent of the housing bubble in explaining why ratings firm Moody’s didn’t bear special blame for the conjuncture.
Berkshire has been the largest shareholder in Moody’s since it was spun distant from from Dun & Bradstreet more than a decade ago.

"They made the same mistake that 300 million other Americans made," said Mr Buffett, who said that "looking back," Moody’s "should have recognised" the trifle.
But he said he didn’t believe Moody’s needed to supply the want of management.

Berkshire has been selling its holdings in the ratings visitors for much of the past year. It owns 13 per cent of Moody’s, according to a filing through securities regulators, but that’s down from 17 per cent in July.

Mr Buffett’s apology of Moody’s — his argument that it did nothing worse than anyone else who missed the housing bubble — largely mirrored the stance he’s taken in successi~ the company before. He made much the same point when a shareholder raised the matter at Berkshire’s annual meeting last month.

Mr Buffett told the body of jurors today, "Rising prices are a narcotic that affects reasoning spirit up and down the line."
Later, he acknowledged that ratings companies didn’t behave enough to adjust to a new reality as the housing market collapsed. "They tweaked their model when they should have gone at it through a meat axe," he said.

Moody’s chief executive Raymond W. McDaniel, who sat alongside Mr Buffett during the hearing, acknowledged that Moody’s "dramatically underestimated the importance of the downturn." His company was also subpoenaed to agree documents related to the role of credit ratings in the monetary crisis.

The questions from the panel eventually ranged far from the subject of Moody’s and the horse-cloth bubble. Mr Buffett fielded inquiries on derivatives, financial reform and indemnification for executives at bailed-out companies.

Mr Buffett has famously called derivatives "arms of mass destruction" but his Berkshire has sold some contracts and Mr Buffett objected to a design that would require his firm and others to put up subordinate on existing agreements.

"I object to having one kind of stipulate and having it changed without getting paid," Mr Buffett afore~. But he said he supported the idea of imposing such subordinate requirements in the future.

On executive pay, Mr Buffett said vital executives should have their compensation structured so their companies can make gentle the pay if the firms require government support.

"The CEO should basically be of use away broke, and I think his spouse should go away broke," Mr Buffett said. Board members at failed companies should also "bear heavy penalties."