ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Warren Buffett MBA Talk video 1 hr 28 min

Updated on September 17, 2011

Warren Buffett MBA video

3-15-11 Buffett Warns about Derivatives in Testimony Before Financial Crisis Inquiry Commission

Echoing his previous characterization of derivatives as " financial weapons of mass destruction," Warren Buffett, in his testimony before the Financial Crisis Inquiry Commission, expressed concern about the risk to major banks such as Morgan Stanley due to excessive use of derivatives. He also discussed the failings of securities rating agencies and the dangers of too much leverage.

Buffett's contrasted the massive use of derivatives to a "couple of guys rolling the dice for $5 a throw." He said "If I look at JP Morgan, I see two trillion in receivables, two trillion in payhables, a trillion and seven netted off on each side and $300 billion remaining, maybe $200 billion collateralized...that's all fine. But I don't know what discontinuities are going to do to those numbers overnight if there's a major nuclear, chemical or biological terrorist action that really is disruptive to the whole financial system...Who the hell knows what happens to those numbers? I think it's virtually unmanageable." [Within the past week the earthquake and sunami in Japan may provide a test for markets in general and firms that are loaded with derivatives in particular. U.S. stocks dropped deep into the red Tuesday, joining a global market selloff that started in Tokyo as Japan's nuclear crisis deepened and worries escalated over the human and economic toll of last week's devastating earthquake. 3-15--The Dow Jones Industrial Average dived 285 points, or 2.4%, to 11703, while the Standard & Poor's 500-stock index shed 35 points, or 2.7%, to 1261. The Nasdaq Composite tumbled 77 points, or 2.9%, to 2623.]

The sharp selloff came after news of two more explosions at Japan's Fukushima Daiichi nuclear-power plant, releasing large amounts of nuclear material directly into the atmosphere. Prime Minister Naoto Kan warned of "substantial" radiation leaks. Tokyo also suffered an aftershock in the late evening, according to Dow Jones Newswires.]

Buffett also raised the issue of companies who use derivatives to smooth earnings , for example, Coca Cola which employs the instruments to protect against currency fluctuations in the many countries where the company does business or Burlingthon Northern which has used derivative contracts to protect against fuel cost fluctuations. He said, according to a report in the New York Times, "And I'm not saying there's anything wrong with that, but that's the motivation...I wouldn't do it."

A transcript of Buffett's testimony is linked below. Also linked below is a transcript of David Einhorn's testimony before the Commission in which he explains how he foresaw the subprime mortgage melt down. Both transcripts are worth reading in their entirety.

Comments

    0 of 8192 characters used
    Post Comment

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)