When Warren Buffett testifies before the Financial Crisis Inquiry Commission Wednesday, it will be because he was subpoenaed. If you don’t know how a subpoena works, this one begins with capital letters, “YOU ARE HEREBY COMMANDED to appear and give testimony.”
As Buffett characterizes it, “This is an offer you can’t refuse.”
And to all that there’s naturally a backstory — a very interesting one at that.
On May 12, Buffett, the CEO of Berkshire Hathaway, received a letter from the FCIC’s executive director, Wendy Edelberg, saying that his views on a variety of subjects would be of “great value” to the Commission. The subjects, the letter said, would range from (but not be limited to) “the use and misuse of derivatives instruments, regulatory shortcomings, too big to fail, rating agencies and the shadow banking system.”
To start the process, the letter said, the commission would like first to arrange a “private interview” where Buffett’s views could be explored. And then, it continued, “we may request that you appear before the Commission at a hearing.”
The letter said that arrangements for all this could be worked out with the general counsel of the commission, Gary Cohen.
Buffett had by that time watched some of the Commission’s hearings and knew that the witnesses had mainly been people implicated in the crisis — bankers, notably — or charged with regulating it out of existence.
Knowing that he was in neither camp and doubtful that his testimony would indeed be of “great value,” he decided to say no to this surprising invitation.
So, at his request, his assistant, Debbie Bosanek, called Cohen and said — as she paraphrases it — that “Mr. Buffett appreciates the invitation and is flattered by it, but he has a full plate with Berkshire and just can’t do it.”
Cohen was not pleased, to put it mildly. Ignoring the word “request” in the first letter, he told Bosanek sternly that “this was not an invitation but more of a command performance.” He said that another letter — “worded differently” — would be coming.
There followed two more rounds of letters from Cohen. The first, on May 17, was indeed worded differently but signaled its general conciliatory tone by a heading that said, “Re: Renewed Request of the Financial Crisis Inquiry Commission.”
Only at the letter’s end did the threat come through: “We would prefer not to use compulsory process to secure your cooperation, and are sure that it will not be necessary.”
But ah, it was. Buffett could by then see the likely end of this argument. But he was also determined to stick to his belief that the “private interview,” followed by hearings, would neither be beneficial to anyone nor a good use of his time. So Buffett told Cohen in a phone call that he would not be volunteering to testify — and if that meant a subpoena was in the cards, let it happen.
The subpoena — that command in capital letters — came on May 25. But the continuing, urgent wish of the commission to avoid coercion was contained in an accompanying letter, also dated May 25, that “respectfully” requested Buffett’s testimony at a hearing on June 2 in New York City.
Had Buffett accepted the respectful request, the subpoena would have become irrelevant. But he did not accept, and the subpoena was therefore automatically served.
The subpoena and the accompanying May 25 letter made it clear that the topics Buffett was originally asked to speak about had narrowed. The announced subject of the June 2 hearing is “Credibility of Credit Ratings, the Investment Decisions Made Based on Those Ratings, and the Financial Crisis.”
The connection between Buffett and credit ratings is Berkshire’s longtime ownership of stock in that industry’s biggest independent company, Moody’s. Sitting at the witness table with Buffett will be Moody’s CEO, Raymond McDaniel.
The only other scheduled witnesses that day are five additional people from Moody’s.
The very last part of the June 2 hearings title is echoed in the letter to Buffett, in which he is told he will be asked to give his views on “the most significant causes of the financial crisis.”
Indeed, yesterday three men from the commission, including Cohen, came to Omaha and did the “private interview” with Buffett. They began by asking him about credit rating companies and then verged into all of the other subjects mentioned in the first letter to him.
– “Warren Buffett To Testify Under FCIC Subpoena After Resisting Commission’s Request”, Carol Loomis, Fortune, June 1