"A lot of mischief can happen with derivatives" · Transcript · BuffettMungerGPT

WarrenA lot of mischief can happen with derivatives. Charlie and I have seen it happen when there's a derivative transaction, particularly a complicated one. The plain vanilla ones, probably people will not get in big trouble on, but when you have a complicated derivative transaction and the trader at Investment House A is on one side, and a trader on investment house B is on the other side, and they record a transaction, which has to be a zero-sum game between the two of them, and both put on the books of profit that day. I've never seen one where they both put on a loss that day. It lends itself to mischief, and the scale is absolutely huge in getting larger all the time. And I will tell you that I know the management of some of the companies that have big derivative activities, and they do not have their minds around what is happening. So we think they're dangerous as used in society. We use them ourselves, incidentally. You know, we get them collateralized. We've made money off of them. them. But I would predict that sometime in the next 10 years that you will have some very big problems that will either be caused by or accentuated in a big way by people's activities and derivatives.