War of Words - Buffet vs. Greenspan

"Derivatives are financial weapons of mass destruction, …The dangers are now latent but they could be lethal…. Many people argue that derivatives reduce systemic problems, in that participants who can't bear certain risks are able to transfer them to stronger hands,…These people believe that derivatives act to stabilize the economy, facilitate trade and eliminate bumps for individual participants. And, on a micro level, what they say is often true. Indeed, at Berkshire, I sometimes engage in large-scale derivatives transactions in order to facilitate certain investment strategies. The macro picture is dangerous and getting more so. Large amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers, who in addition trade extensively with one another. The troubles of one could quickly infect the others. On top of that, these dealers are owed huge amounts by nondealer counterparties, some of whom are linked in such a way that many of them could run into problems simultaneously and set off a cascade of defaults." - Warren Buffet, in a letter to shareholders of Berkshire Hathaway Inc.