“Derivatives are financial weapons of mass destruction.”
– Warren Buffett
How many of you know safe weapons of mass destruction?
– Coming Derivatives Crisis Designed To Destroy The Entire Global Financial System: $600 TRILLION To $1.5 QUADRILLION Worldwide Derivatives Market – World GDP At Around $65 Trillion
– MEGA BAILOUT: Federal Reserve Now Backstopping $75 TRILLION Of Bank Of America’s Derivatives Trades
– Berkshire Hathaway Q3 profit falls on derivatives (Reuters, Nov. 4, 2011):
Warren Buffett’s conglomerate Berkshire Hathaway Inc reported a smaller third-quarter profit on Friday after losing more than $2 billion on derivatives related to stock market performance.
That was nearly three times what Berkshire lost on the same instruments a year ago. Buffett has sharply criticized derivatives in general, but has said these particular contracts were safe and would ultimately be lucrative.
But Berkshire was hurt, like many other insurance companies in particular, by sharp declines in a broad range of market values. In a quarterly report to the U.S. Securities and Exchange Commission, Berkshire said the indexes covered by the contracts fell anywhere from 11 percent to 23 percent in the quarter.
“It’s a noneconomic event,” said David Rolfe, chief investment officer of Wedgewood Partners, which has about $900 million under management and has held Berkshire shares for about 13 years. “Operating (was) in-line to terrific, the derivatives always need explaining.”
Berkshire reported a net profit of $2.28 billion, or $1,380 per Class A share, compared with a year-earlier profit of $2.99 billion, or $1,814 per share.
Cash at the end of the quarter was $34.78 billion, down from $47.89 billion at the end of June. During the third quarter Berkshire funded the purchase of chemical maker Lubrizol and a $5 billion investment in Bank of America Corp, which accounted for the decline.
Read moreWarren Buffett’s Berkshire Hathaway Loses More Than $2 Billion On Derivative Bets