After the worst financial collapse since the Great Depression, three officials from the Financial Crisis Inquiry Commission visited Warren Buffett at his office in Omaha, Nebraska. They wanted to ask America’s most successful investor about his 24 million shares in the credit-rating agency Moody’s. The commission would later identify Moody’s and other rating agencies as “key enablers of the financial meltdown,” for granting super-safe triple-A ratings to securities that were backed by junk mortgages. Trillions of dollars’ worth of rotten financial instruments—the fuel of the crisis—“could not have been marketed and sold without [the rating agencies’] seal of approval,” the commission concluded.
During that May 26, 2010, meeting, Buffett deflected responsibility for Moody’s actions. “I knew nothing about the management of Moody’s,” he told the federal investigators, explaining candidly why he owned so much stock: Moody’s faced practically no market competition.
“The single most important decision in evaluating a business is pricing power,” Buffett said. “If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business.” The “big three” rating agencies—Moody’s, Standard & Poor’s, and Fitch—controlled 95 percent of the rating-agency market, an insurmountable advantage over would-be competitors. “If you’ve got a good enough business, if you have a monopoly newspaper or if you have a network television station,” Buffett concluded, “your idiot nephew could run it.”
Warren Buffett is America’s favorite tycoon. The business community hangs on his every word. The annual meetings at Berkshire Hathaway, Buffett’s conglomerate, have been dubbed “Woodstock for capitalists.” Barack Obama and Hillary Clinton hailed his endorsements in their campaigns for president; even Bernie Sanders has supported Buffett’s position on taxes. The press treats him like a Kardashian, publishing quirky features about his bad eating habits, frugal spending, and hobnobbing with celebrities (an actual headline last November: “Katy Perry Wants to Know What Warren Buffett Thinks of Bitcoin”). An old cartoon show called Warren Buffett’s Secret Millionaires Club featured the so-called “Oracle of Omaha” teaching children how to get rich.
This Nation investigation documents how Buffett’s massive wealth has actually been built: on monopoly power and the unfair advantages it provides. Companies in Buffett’s portfolio have extorted windfall profits, evaded US taxes, and abused customers. In the two specific cases discussed below, in the banking and high-tech industries, Buffett’s investments have prompted federal investigations for anticompetitive or other illegal practices.
Buffett did not respond to repeated interview requests for this article, nor did he reply to questions submitted to his office at Berkshire Hathaway.