Thursday, April 29, 2010

Buffett in the Omaha World-Herald on Retroactive Derivative Regulation

Derivatives pose a serious risk
“They are dangerous to the system,” Buffett said. “That's why I have no objections to the idea that regulation is coming on them.”
...
Buffett said it would be unconstitutional for Congress to essentially rewrite existing contracts and require companies such as Berkshire to post collateral on deals already in place.
...
By way of example, Buffett said his company was approached recently about a deal with a big Wall Street firm. The firm offered Berkshire $7.5 million if Berkshire chose not to post collateral and $11 million if it did.

“There's two different markets for these contracts,” he said. “To change one contract into another contract . . . retroactively would be just the same as changing the price on the contract. “

Or to put it another way:

“If the restaurant only gets paid for an 8-ounce steak, they don't want to give you the 12-ounce one,” Buffett said.

Full article.