On a related note, also see Recipe for Disaster: The Formula That Killed Wall Street, the latest Wired cover story
Some skepticism about these models is overdue, he added. “Our advice: Beware of geeks bearing formulas.”
Mr. Buffett was just as scathing on the subject of derivatives, which he had likened to weapons of mass destruction long before they started eviscerating the balance sheets of banks around the world.
In his letter, Mr. Buffett explained that the danger of derivatives was not merely the difficulty in assessing their value; rather, it was the “web of mutual dependence” they create among financial institutions. Derivatives contracts keep various parties entangled for years, which, as he vividly explained, can create real hazards once those assets start deteriorating.