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QuestionerThere was a lot of talk among the Berkshire Faithful when you took what I believe was the unprecedented step of pre-releasing a portion of your annual letter, published in Fortune, which focused primarily on the dangers of derivatives, which you called financial weapons of mass destruction. Since your warning about derivatives, there's been a huge rally in the credit markets in general. Does this reflect investors' lack of concern for these systemic risks, or is it caused by other factors?
WarrenCharlie and I think there is a low but not insignificant probability, and low at some time, maybe in three years, maybe in five years, maybe in 20 years, and very possibly never, that derivatives could accentuate in a major way a systemic problem that might even arise from some other phenomenon. And we think that's inappropriate. recognized, we think the problem grows as derivatives get more complex and as their usage increases. So it was a call, what we hope was a mild wake-up call to the financial world, that these things could be very troublesome. People really, they don't want to think about it until it happens, but there are some things in the financial world that are better thought of before they happen. even if they're low probabilities. And in the financial world and derivatives, it's as though nobody gave a dam about safety. And they just let it balloon and balloon and balloon and balloon in usage and number of trades and size of trades. And that ballooning is aided by this false accounting, where people are pretending to make money they're not really making. I regard that is very dangerous.
CharlieAnd I'm more negative than Warren in the sense that I'll be amazed if I live another five or ten years if we don't have some significant blowup.