economy was really moving along at quite a clip

One is from senate— is from Congressman Barney Frank who takes a look at— this idea that— "Look, we're just not going to give them the government mandate for them to be required anymore, so that will therefore create a lotta competition in the marketplace." The other is from Senator Al Franken, who says, "We'll set up a government oversight board that tells you where you're going to go to get your ratings." Do either of those models make sense? BUFFETT: Well, I'd have to see more details on it. I— I— I think that the market will continue to demand from the brand names. I mean, I— I wish it weren't the case. I mean, when the rating agency comes to rate Berkshire, they have me by the throat. You know, if they say that it's gonna cost me a million dollars, and I say, "You know, why can't you do this for $900,000?" The— the— I have— I have— no leverage whatsoever. So— if there were ten agencies, and I could say, "I'd like the cheapest." People will say, "Well, you took the cheapest, but they— they gave you— you know, they didn't do the work," or something to the sort. So it's— it's— it's not an easy answer. BECKY: So there's not necessarily a clear solution that cuts out any sort of conflict of interest along the line? BUFFETT: No, our— our solution as a buyer securities is we don't use rating agencies. I mean, I— I don't think— and I don't— and I doubt if BIMCO does, for example, or BlackRock. I mean, our— our— our job is to rate credit ourselves. We do not outsource that to rating agencies. But the world does, and it has all these regulations built in. So the rating agencies sort of evolved into this natural duopoly. That's what made it a good investment but tough to— BECKY: I was gonna say— (LAUGHTER) you don't use the ratings agencies, but you're the largest investor in Moody's— BUFFETT: Yeah, it— it had— it— it had one of the world's great business models. If you look at the return on invested capital for Standard & Poor's or Moody's, it's practically infant. So they have the power to price. And if you wanna know one question to ask in terms of determining whether somebody's got a good business or not, just ask 'em whether they can raise prices tomorrow. BECKY: You know, that's interesting, though you— when you first that talking, you said, "They had a great business model." Is that business model gone? BUFFETT: It's not gone at the moment, but it's— it's— it's perhaps threatened in some way. And— and— and the— ten years ago, it looked like nothing would happen to it, and now there's the possibility of something happening to it. It's still a great business model. I mean, I have to get rated— we have a company called Berkshire Hathaway Assurance. We have to get a rating from Standard & Poor's and Moody's. BECKY: You have been selling your stake— you're still the largest sell— shareholder, but you've been selling your stake. If you had your druthers, would you own no Moody stock at this point? BUFFETT: No, if I— if— if that were the case, I would've sold it all. (LAUGH) It depends on the price, it depends on alternative investments. But it does not have the bullet proof situation that it had ten years ago. BECKY: That's why you've been selling?

BUFFETT: Well, that— that is a reason. It's a big reason, but it's not the only reason. But it's what we can do with the money and what price we're getting for it. BECKY: Is the political spotlight, the regulatory spotlight with the problems with the— with the ratings agencies another reason? BUFFETT: That threatens the bulletproof franchise. (LAUGH) Yeah. BECKY: I mean, as an— as an investor, you— you talk all the time about the companies that you're highly invested in. Do you know the CEO of— of Moody's well? BUFFETT: I wouldn't know if I saw him, I— I met him once three or four years ago, but I'm not very good on names (LAUGH) and faces, so I will be sitting next to him today, and— and— you know, I hope they don't put somebody else in there, or I'll c— (LAUGH) I'll call him by the wrong name. BECKY: The other— there are a lotta questions that come up, though. Are you proud of the work that Moody's has done— BUFFETT: I— I— BECKY: —as an investor? BUFFETT: —I think— listen, if I'd seen this coming, I would've sold my Moody stock at 60 or 70 too. So I— I wasn't a lot smarter myself. BECKY: Okay. There was an— a column that was written yesterday by Andrew Ross Sorkin of The New York Times and it's asked a question at the bottom, he proposed a lotta questions— BUFFETT: Uh-huh. BECKY: —he'd be asking if he were on this commission today. One of this is that— you sold a lot of your— you sold a stake in Moody's a week after they received the Wells Notice. Did you know about that Wells Notice? BUFFETT: No, I never— never heard of it till I read— read about it the other day. I— we started selling it a year ago, and we had 48 million shares, we sold about 18 million shares over the last year, and it's— it's been when the price is up to some degree. And once it was publicized that we'd sold stock, every now and then a dealer the would have a bid for 100,000 shares, or something, would come in. But— no, I had no notion that they had a Wells Notice. BECKY: You said today on The Today Show (on NBC) that— you thought the real reason for the financial crisis was— housing and the housing bubble. BUFFETT: It— it— it was the housing bubble. I mean, there are a lot of other things that entered in, but— but if we hadn't had the housing bubble— and everything that went

with it when it popped, and— and you know, it was the largest asset class to the American public, and it's one of 66 or 67 percent of the American public had an investment in it, and they were leveraged in it. So, you know, if s— if 66 or 67 percent of the American public had stocks margined to the hilt, and something caused that bubble to pop, that would've been a big pop too. But this was— the was the biggest asset class, you know? (LAUGH) BECKY: You know, there are a lotta people who are worried about what's happening in Europe right now. How big of an impact is that having on the economy? Because the last time we spoke with you, you thought the economy was really moving along at quite a clip. BUFFETT: The economy's picking up steam. And particular March, April, and May, it's— it's— it's shown some acceleration. So what's happening in Europe has not had an effect here yet in— in terms of our businesses. It's— it's a dangerous situation, but— but— but so far our recovery is coming along. We're hiring every week. BECKY: You're hiring every week at Berkshire— BUFFETT: Every week, yeah. BECKY: (General Electric CEO) Jeff Immelt though, said, when he looked at the European economy, it's tottering right now. BUFFETT: Yeah. BECKY: Can that catch up? Is that— a wave that can kind of wash over us? BUFFETT: Well, it's something I'll watch with great interest. (LAUGH) They have— they have— you know, they have a very severe problem over there. And— and most economies get through most severe problems. But— but they have one right now. BECKY: Are you more optimistic or less optimistic than you were a month ago? BUFFETT: I'm always optimistic about the country. BECKY: But do you feel optimistic about the country, let's just talk about the economy. You feel better or you feel worse— BUFFETT: Oh I feel— I feel optimistic about the U.S. economy, sure. BECKY: But the global economy? BUFFETT: Well, I feel optimistic about Asia. (LAUGHTER) BECKY: You feel optimistic about— BUFFETT: Antarctica I'm big on. BECKY: (LAUGH) Okay. When the flash crash came up, and it disrupted the trading, and we saw this massive drop of over 1,000 points in the Dow, it raised a lotta people's concerns about how stable the markets are. Do you have any concerns?

BUFFETT: No, no it doesn't affect, you know, we're still out there selling what we sell, and the— the world wasn't gonna change. It c— it could've been a cyber attack. I didn't know what was going on there for 15 or 20 minutes. And— and— but it didn't make any difference. I mean, it doesn't make any difference on Saturday and Sunday when the markets are closed, right? (LAUGH) BECKY: But do you th— do you have confidence that the markets function properly, or do you think there's more that needs to be done? BUFFETT: We'll, they— they— prob— there's probably some mechanical aspect that I don't understand, that needs work on. But— but— but— no, that did not raise fundamental questions in my mind about either the economy or the market. BECKY: Okay, and again, as you're getting ready to head in today to speak to this (Commission, is there anything you want to make) sure you impart to them? BUFFETT: No, I'll— I'll be there to answer their questions. I don't have an opening statement. BECKY: In terms of the meetings that they had with you beforehand, did they focus mostly on the ratings agencies or was it— a broad range of questions? BUFFETT: No, I talked to them for two hours, and there wasn't more than ten minutes on rating agencies. So it was a surprise to me to find out that I was going to appear with six people from Moody's. They— they did not indicate that to me in any way, shape, or form. BECKY: All right, well Warren, we wanna thank you very much for your time ahead of this, and we'll be watching the hearing today. BUFFETT: Okay, thank you. General Electric is CNBC’s corporate parent company.