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Topic Title: Soros and Buffett never traded derivatives (NYT)
Created On Thu Oct 09, 08 03:34 PM

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gelfand
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Thu Oct 09, 08 03:34 PM

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http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html

'George Soros, the prominent financier, avoids using the financial contracts known as derivatives �because we don�t really understand how they work.� Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential �hydrogen bombs.�

And Warren E. Buffett presciently observed five years ago that derivatives were �financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.�'

The implication that these "wise men" are untainted by trading in derivatives is absurd! Soros ran a global macro fund where he traded derivatives such as futures contracts on stocks, bonds, and commodities.

Warren Buffett has sold long-dated puts on stock indices http://seekingalpha.com/article/66749-trading-put-options-with-buffett . Ooh, that's an especially evil derivative the "over-the-counter" kind.

Maybe derivatives do need further regulation, but the regulation should be done by people who know what they are talking about.

quantmeh
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Thu Oct 09, 08 04:22 PM

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Quote
Originally posted by: gelfand
the regulation should be done by people who know what they are talking about.

daveangel
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Thu Oct 09, 08 05:17 PM

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and he has sold tons of protection in HY index ...

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Knowledge comes, but wisdom lingers.

Anthis
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Thu Oct 09, 08 05:36 PM

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Quote
Originally posted by: jawabean
Quote
Originally posted by: gelfand
the regulation should be done by people who know what they are talking about.

like Fuld?

quantmeh
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Thu Oct 09, 08 06:17 PM

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interestingly, Fuld admitted mistakes. AIG execs didnt. Lehman was let go down. AIG was bailed out. => never admit mistakes

ppauper
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Thu Oct 09, 08 08:48 PM

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Quote
Originally posted by: gelfand
Warren Buffett has sold long-dated puts on stock indices http://seekingalpha.com/article/66749-trading-put-options-with-buffett . Ooh, that's an especially evil derivative the "over-the-counter" kind..

indeed, there have been threads about him losing a lot of money

DominicConnor
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Fri Oct 10, 08 08:59 AM

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You can't avoid an exposure to derivatives, as this market is showing very clearly.

All firms of all kinds have exposures to future market changes. Even a streeet vendor punting newspapers sees his costs vary. Implicit exposure to several commodities, inflation, interest rates and FX.

If you hedge you use derivatives, but if you do not hedge then it should be clear to the sort of people who read this that you are in effect taking the other side of a forward contract.

A share is itself a derivative, composed of several underylings :capital value changes, dividends, an option that it might be taken over upping the price, and a set of entertaining variable tax consequences, since dividends and capital growth/lose are taxes quite differently from each toher and for different classes of investor.

Also take Warren Buffet's analogy about derivs being "weapons of mass destruction".
No country which has a long position in WMDs has been seriously attacked since acquiring them.
Iraq did not have WMDs and got trashed, N. Korea which has WMDs is treated very politely.

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Discussion on the new regulations on bonuses here.

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