[dirtboy]

Capitalism doesn't need to be regulated for risk,

Then why did Buffet way this?

... derivatives severely curtail the ability of regulators to curb leverage and generally get their arms around the risk profiles of banks, insurers and other financial institutions.

[militem]

Derivatives have their place in the financial markets. They are great tools for hedging and re-distributing risk. However when the PhD wielding geeks started designing derivatives that even the Sage of Omaha could not understand, the boards of the investment banks should have asked what was happening down in the dealing rooms. That they didn't is why they have now collapsed.

Actually, Buffett is famous for investing in simple and understandable businesses. But that is just nit-picking. More importantly, Buffett, and Wells Fargo CEO Dick Kovacevich, understood the inherent risk and irrationality of the investments. They are now in a position to buy at a discount.

[Sherman Logan]

When the investment banks became shareholder-owned global behomeths managed by annual bonus incentivised executives, that risk control was lost.

Brilliant young geek just out of college.

Here's a billion dollars to invest. If you make money, on paper, for the company, we'll pay you tens of millions in bonus. If you lose money, at worst you'll be fired, and the government will probably pick up the company's losses anyway.

With lopsided incentives like that, why is anyone surprised that we're in the mess we are?

[since1868]

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