I just find it hilarious that these warnings about derivatives are coming from the same man who put the silver market into shock a few years ago when he moved around some of his silver holdings. Buffet has used futures and other derivatives for years without any qualm, so why does he continue on his anti-derivative tirades?
.."The 1929 crash involved some horrendous over leveraging."... Yes ...I think was 20:1 in a stock account. Or 5% equity, and 95% debt.
Orange county was damaged by stupidity (I remember looking at them in my MBA). Barings bank combined stupidity with poor control systems and senior management stupidity (greed = lets wait). Derivatives are fine --- but like a gun or a motor vehicle or swimming pool they have risk. I'm not giving up my pool or cars ... or my derivatives
It looks really stupid when you read about it in a book ten years after it happened. Just like if we made the right choices WWII wouldnt have happened. Paging Taleb.
They didn't have hedge funds leveraged at 250% average owning "fund of funds" hedge funds also leveraged at 250% average, that own hedge funds leveraged at 250% average, nor did they have a big "carry trade" funding it, nor did they have the banks all falling head over heels to lend money at low rates for companies to "buy themselves" by "leveraging up", nor did they have ARM's or 125% loans or Interest only loans, or No-Doc loans, etc, nor did they have a government $9,000,000,000,000 in debt. The list is too long. The only thing missing is a "when" does it go "pop" and where to hide when it does.