Thursday, February 23, 2006

Derivatives

"I agree. We took an $88 million loss to get out of Gen Re's derivative business. Many companies have similar problems, but don't want to face up to them. You're seeing the unwinding of a derivative book in the Enron debacle. You couldn't devise a worse system. It's like hell." by Warren Buffett (2002 Annual Meeting)

“Charlie and I think that there is a low but not insignificant probability that at some time -- I don't know when; it could be three years, it could be 20 years -- derivatives could lead to a major problem. The problem grows as derivatives get more complex. We hoped to give a mild wakeup call to the financial world that there's a problem. In the energy sector, derivatives destroyed or almost destroyed institutions that shouldn't have been destroyed. [He mentioned Enron.]” by Warren Buffett (2003 Annual Meeting)

“In engineering, people have a big margin of safety. But in the financial world, people don't give a damn about safety. They let it balloon and balloon and balloon. It's aided by false accounting. I'm more pessimistic than Warren. I'll be amazed if we don't have some kind of significant blowup in next 5-10 years.” by Charlie Munger (2003 Annual Meeting)

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