Ask Colin

Do you agree with Warren Buffett that derivatives are a potential time bomb?

In general terms, I think his warning is well founded. One only has to consider what the failure of Long Term Capital Management did. It almost caused a meltdown in the world financial markets. US and other central banks took urgent action to shore up the system. If they are worried, then we should be too.

I think that you should read Buffett's comments very carefully. I think they are on the Berkshire Hathaway web site. He describes some ways a crisis could unfold and that may help us to see such an event coming.