A plaque remaining from the Big Apple Night Club at West 135th Street and Seventh Avenue in Harlem.

Above, a 1934 plaque from the Big Apple Night Club at West 135th Street and Seventh Avenue in Harlem. Discarded as trash in 2006.

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Entry from August 25, 2009
Financial Weapons of Mass Destruction (derivatives)

Derivatives (such as forwards, futures, options, and swaps) can be risky financial investments. Warren Buffett, C.E.O. of Berkshire Hathway, wrote in its 2002 annual report (published in March 2003, at the start of the Iraq War when the term “weapons of mass destruction” had become popular) that derivatives were “time bombs.” Buffett summarized his opinion on derivatives:

“In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

In 1992, investment banker Felix Rohatyn described derivatives as “financial hydrogen bombs.”


Wikipedia: Derivative (finance)
Derivative: A financial contract whose value is derived from the performance of assets, interest rates, currency exchange rates, or indexes. Derivative transactions include a wide assortment of financial contracts including structured debt obligations and deposits, swaps, futures, options, caps, floors, collars, forwards and various combinations thereof.

Wikipedia: Warren Buffett
Warren Edward Buffett (born August 30, 1930) is a U.S. investor, businessman, and philanthropist. He is one of the most successful investors in history, the largest shareholder and C.E.O. of Berkshire Hathaway, and in 2008 was ranked by Forbes as the richest person in the world with an estimated net worth of approximately $62 billion.

Buffett is often called the “Oracle of Omaha” or the “Sage of Omaha” and is noted for his adherence to the value investing philosophy and for his personal frugality despite his immense wealth.. Despite his overall frugality, he flies in a corporate jet (Gulfstream 450) named the Indefensible.

(Oxford English Dictionary)
weapon of mass destruction n. a weapon intended to cause widespread devastation and loss of life, (now) esp. a chemical, biological, or nuclear weapon; usu. in pl.
1937 Times 28 Dec. 9/3 Who can think without horror of what another widespread war would mean, waged as it would be with all the new *weapons of mass destruction?
1945 N.Y. Times 16 Nov. 16/1 The agreement goes as far as is possible in the present state of the world to avert the further use of atomic bombs and similar weapons of mass destruction.
1961 Amer. Polit. Sci. Rev. 55 20/1 This revision should aim not only at banning nuclear weapons but also other weapons of mass destruction of the so-called ABC family (atomic, bacteriological and chemical).
2003 Morning Star (Nexis) 25 Mar. 9 He asks if the international community could prevent the unthinkable-the use of a weapon of mass destruction by a terrorist organisation.

Berkshire Hathaway Inc. - 2002 Annual Report
Pg. 13:
Derivatives
Charlie and I are of one mind in how we feel about derivatives and the trading activities that go with them: We view them as time bombs, both for the parties that deal in them and the economic system.
Pg. 15:
Charlie and I believe Berkshire should be a fortress of financial strength—for he sake of our owners, creditors, policyholders and employees. We try to be alert to any sort of megacatastrophe risk, and that posture may make us unduly apprehensive about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

This is Money (UK)
The 82-trillion-pound timebomb
Special report, Mail on Sunday
9 March 2003, 12:00am
WHEN super-rich financial guru Warren Buffett warns of a ‘mega-catastrophe’ threatening the markets, even the most confident investor is likely to sit up and take notice. This weekend, shareholders in Buffett’s investment company, Berkshire Hathaway, are reading exactly that warning. Buffett sent his annual letter to shareholders on Saturday, but extracts released in the US Press early last week triggered a global debate.

At the centre of the controversy are those mysterious financial instruments known as derivatives, which Buffett variously described as ‘timebombs’ and ‘financial weapons of mass destruction’.

MarketWatch
Mar 13, 2003, 12:05 a.m. EST
Derivatives are the kiss of death
99% of passive investors should never use them

By Paul B. Farrell, CBS.MarketWatch.com
LOS ANGELES (CBS.MW) - Was Warren Buffett unreasonable in calling derivatives “financial weapons of mass destruction” and “time bombs?” A Wall Street Journal editorial says yes.

I thought Buffett laid this issue to rest with his recent warning about the derivatives in Fortune. But unfortunately, The Journal followed Business Week in defending derivatives and their bizarre world of short-term trading and market timing.

It’s extremely dangerous to leave Main Street investors with a strong impression the $2 trillion derivatives market has value to average Americans. It doesn’t. The high-risk world of derivatives is enemy territory for the vast majority of individual investors, and should be avoided at all costs.

9 May 2003, Chicago (IL) Daily Herald, sec. 3, pg. 1, col. 5:
Derivatives no cause for alarm—Greenspan
Rebuts Buffett’s criticism that they threaten economy

Associated Press
Federal Reserve Chairman Alan Greenspan, taking issue with the warnings of billionaire investor Warren Buffett, said Thursday that the growing use of complex financial instruments known as derivatives does not pose a threat to the country’s financial system.
(...)
Greenspan used his speech as a rebuttal to warnings about the use of derivatives issued by Buffett, he president of Berkshire Hathaway Inc., in March in his annual letter to shareholders. Buffett contended that derivatives were “financial weapons of mass destruction” saying that they posed grave risks to the financial system.

Posted by Barry Popik
New York CityBanking/Finance/Insurance • (1) Comments • Tuesday, August 25, 2009 • Permalink


Greenspan used his speech as a rebuttal to warnings about the use of derivatives issued by Buffett, he president of Berkshire Hathaway Inc., in March in his annual letter to shareholders. Buffett contended that derivatives were “financial weapons of mass destruction” saying that they posed grave risks to the financial system.

Posted by Louis Vuitton  on  04/06  at  02:14 AM

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