Possibly the most over-used phrase in commentary on derivatives is Warren Buffett's maxim from his 2002 letter to Berkshire Hathaway shareholders that derivatives are "financial weapons of mass destruction". It was therefore interesting to note that Robert Pickel, CEO of the International Swaps and Derivatives Association (Isda), stated before the US Senate in March that Buffett had written in his 2009 letter that he had started to use single-name credit default swaps to sell protection; and that he would like to enter into more. Has the world's most influential investor changed his mind?
Reading Buffet's letter this year he appears to remain rather cautious of what he still sees as "dangerous" products, but certainly Isda, as the largest global representative of participants in the privately negotiated derivatives industry, is making concerted efforts to address the concerns of market participants and regulators. In particular, it has recently announced initiatives in credit...