Sunday, March 1, 2009

Buffet's Newsletter

I got a kick out of these remarks from that newsletter to his clients:
Mr. Buffett was just as scathing on the subject of derivatives, which he had likened to weapons of mass destruction long before they started eviscerating the balance sheets of banks around the world.
In his letter, Mr. Buffett explained that the danger of derivatives was not merely the difficulty in assessing their value; rather, it was the “web of mutual dependence” they create among financial institutions. Derivatives contracts keep various parties entangled for years, which, as he vividly explained, can create real hazards once those assets start deteriorating. “Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease,” he wrote. “It’s not just whom you sleep with, but also whom they are sleeping with."
Source Link

PS: from the link within the block quote:

Throughout the 1990s, some argued that derivatives had become so vast, intertwined and inscrutable that they required federal oversight to protect the financial system. But the financial industry lobbied heavily against such measures, and won backing from important figures, including Alan Greenspan, chairman of the Federal Reserve from 1987 to early 2006.

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