JAY ELWES
In a letter to shareholders in 2002, the great money man Warren Buffett issued a warning. There was one financial asset traded on world markets that was making him worried. “Derivatives”, he wrote, “are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
When Buffett wrote those words, the total value of all derivatives in existence was $142 trillion. Things didn’t stop there: by the dawn of the crash in 2008, the figure stood at $458 trillion. Suddenly Collateralised Debt Obligations, and their close friend the Credit Default Swap, both forms of derivative, became almost everyday phrases, as they became the nitro and glycerin that helped blast the global financial system to pieces.