Fallout comes to Berkshire-Hathaway

Billionaire investor Warren Buffett, Chairman and CEO of Berkshire Hathaway Inc.

TEXT OF INTERVIEW

Steve Chiotakis: Moody's says the fallout is affecting Berkshire-Hathaway. Enough so that the credit reporting agency has taken billionaire Warren Buffett's company down a couple notches from its top AAA rating.

Marketplace Steve Henn joins us now from Washington. Steve, was this a surprise?

Steve Henn: You know, not really. About a month ago, Fitch, another rating agency, cut Berkshire's credit rating, and S&P has signaled that it's likely to do the same pretty soon. But there's some ironies here -- you know, Berkshire-Hathaway owns about 20 percent of Moody's, and a lot of folks blame Moody's and other credit rating agencies for getting us into this mess. You know, they rated mortgage-backed securities really highly during the boom, and a lot of folks say in retrospect that was a huge mistake. The other thing that's kind of fascinating is Warren Buffett famously called derivatives "weapons of mass financial destruction" a couple years ago. What's gotten him into trouble in the last few months, though, is a big book of derivatives contracts that have lost a lot of money.

Chiotakis: So Steve then, how do you think this is gonna affect Berkshire-Hathaway as a business?

Henn: Well, it will make it a little bit more expensive for Berkshire to borrow money. And there's also some risk if its ratings are cut again that it could hurt its insurance businesses. You know, Berkshire owns a big swath of diverse businesses, from Geicko to Fruit of the Loom, but it makes a lot of money from insurance. And as we've seen before, when insurance companies' credit ratings suffer, that could be really bad news.

Chiotakis: So should we then be worried about the business, about the future of Berkshire-Hathaway?

Henn: You know, probably not. Berkshire has huge, enormous cash reserves, more than $24 billion at the end of last year. You know, it's not immune from the current crisis, but it's clearly in very good shape. One concern that some of these agencies have raised, though, is about the future of the leadership within the company. You know, Warren Buffett is 78 years old, and there's no clear successor at Berkshire, and there's no obvious choice of who's going to replace him when he retires.

Chiotakis: All right, Marketplace's Steve Henn joining us from Washington. Steve, thank you/

Henn: Sure thing.

About the author

Steve Chiotakis was the host of Marketplace Morning Report until January 2012.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...