Urbane Gorilla!

AIG: How It Spent Your Tax Money

I posted this to another site, but it's interesting.... The Wikipedia entry under 'Credit Default Swaps' is worth reading if you'd like to see the variety of ways that these swaps can be gamed... Anyway, this paragraph references Warren Buffet and it is pertinent:

Warren Buffett famously described derivatives bought speculatively as "financial weapons of mass destruction." In Berkshire Hathaway's annual report to shareholders in 2002, he said, "Unless derivatives contracts are collateralized or guaranteed, their ultimate value also depends on the creditworthiness of the counterparties to them. In the meantime, though, before a contract is settled, the counterparties record profits and losses--often huge in amount--in their current earnings statements without so much as a penny changing hands. The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen)." The same report, however, also states that he uses derivatives to hedge, and that some of Berkshire Hathaway's subsidiaries have sold and currently sell derivatives with notional amounts in the tens of billions of dollars.[21] Berkshire Hathaway, with a market capitalization of $196 billion[22], certainly does have enough equity to collateralize or guarantee these contracts.