It has been quoted in the press that Warren Buffet, the famous investor, has allegedly warned that financial derivatives were potentially financial weapons of mass destruction (WMD).
The recent Madoff’s alleged Ponzi scheme does appear to give some credence to this. Although this story has almost certainly started many film producers thinking about how they can market a blockbuster of the now famous Bernie Madoff and his financial WMD, of more immediate focus and concern should be our assessment of if there are any more lurking “Ponzi scheme’s” out there in the financial world. Complex derivatives appear to have already proved themselves the modern day WMDs, which can wipe out economic cities.
As my grandfather would say, “if it looks too good to be true…”. As nations of investors we need to get back to the basics of financial ratio analysis and make sure that we clearly understand what we are investing in.
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