Should some complex financial instruments be outlawed by regulators in the same way that the US Food and Drug Administration refuses approval for some drugs?
Bill Donaldson, the former chairman of the Securities and Exchange Commission, thinks the idea should at least be considered as part of the reform of financial regulation in the US.
He mentioned this during a discussion on regulatory reform that I moderated yesterday at the Council on Foreign Relations in New York. The suggestion was not supported by the other panel members but it was certainly striking. Read more
My FT column this week is on the Sage of Omaha:
Michael Kinsley once defined a political gaffe as the moment “when a politician tells the truth” and is embarrassed by it. By that standard, Warren Buffett’s deal to write $35bn of put options on equity markets was a financial gaffe.
On the face of it, Mr Buffett’s gambit looks both unwise and uncharacteristic. Shares in Berkshire Hathaway, his holding company, tumbled last week (they have since recovered) because it is nursing a mark-to-market loss of about $5bn on the derivatives contracts.
In fact, a casual observer might question what Mr Buffett, who once condemned derivatives as “financial weapons of mass destruction”, was playing at when he bet that four equity indexes, including the Standard & Poor’s 500, would not be below their existing level in 2019 to 2027.