Buffet predicted the "credit swap" crisis 5 years ago (the derivatives that are

[pnwmom]

greatly aggravating our current banking system problems).

Too bad no one in government acted.

http://www.reuters.com/article/newsOne/idUSN1837154020080918

On Main Street, insurance protects people from the effects of catastrophes.

But on Wall Street, specialized insurance known as a credit default swaps are turning a bad situation into a catastrophe.

When historians write about the current crisis, much of the blame will go to the slump in the housing and mortgage markets, which triggered the losses, layoffs and liquidations sweeping the financial industry.

But credit default swaps -- complex derivatives originally designed to protect banks from deadbeat borrowers -- are adding to the turmoil.

"This was supposedly a way to hedge risk," says Ellen Brown, the author of the book "Web of Debt."

"I'm sure their predictive models were right as far as the risk of the things they were insuring against. But what they didn't factor in was the risk that the sellers of this protection wouldn't pay ... That's what we're seeing now."

Brown is hardly alone in her criticism of the derivatives. Five years ago, billionaire investor Warren Buffett called them a "time bomb" and "financial weapons of mass destruction" and directed the insurance arm of his Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research, Stock Buzz) to exit the business.

SNIP

[54anickel]

1. A lot of people were crying out against the "derived wealth" scheme for years, but

were written off and admonished as lunatics. Part of the problem was that derivatives were difficult to explain in a way anyone could understand them - it just sounded too kookie to be true.

I remember a guy who used to call into Tom Clark on Wisconsin Public Radio almost everyday and would bring it up whenever he had the chance. Clark always blew him off for being off topic. When he was "on topic" Clark would blow him off saying that it's ridiculous, no one would invest in it if it truly were the way the caller made it out to be.

A blow up in derivatives made it to at least the one if the lists I watch for economic predictions since 2003.

[pnwmom]

2. No one thinks of Buffet as a kook. I'm sure you're right that there were lots

of others who were predicting this, but Buffet has a stature that I would expect might make more people listen to him. Too bad they didn't.

[54anickel]

3. There were those who began to question his decision when he had his

firm get out of derivatives. Some thought he was beyond his prime and playing it too safe. Obviously the majority of his investors stuck with him, but the talking heads continually put him down, they didn't want his concerns taken too seriously.