Warren Buffett is a person known for his honest talks that may even be treated as blunt by some individuals. In the letter, he seems to be rather concerned about the future of the business. In particular, he refers to the financial derivatives claiming them to be a time bomb that is likely to explode soon. Various organizations are selling these financial weapons to people, as they see them as a preventive tool that can help to cope with risks. But Buffett underlines that such actions are likely to lead to false accounting. He also states that lots of money will be needed to alter the situation in future. There is a possibility that such investments will cause a corporate meltdown, which will have an adverse influence on the whole country.
In the next letter, Buffett speaks about the situation that happened when he cooperated with Munger, whose views were similar to his. He admitted that the company Berkshire Hathaway turned out to become a large business that they never wanted to create. They had two types of contracts, but none of them considered counterparty risks. The issue occurred as they controlled all the money. He underlines that the company was sold, and more than a half of derivative contracts were going to expire soon. They both are sure in future and are not bothered with possible problems.
I believe that Buffett’s ideas are rather efficient, and there is an underlying consistency in them. The value of derivatives is mainly affected by the credit worthiness. That is why they should be guaranteed and utilized efficiently. Moreover, marking to market is not connected with the money exchange and scale frauds may occur.