Financial Pearl Harbor Necklace Harbor Necklace

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What happens when you write $40 billion of equity index puts and the market tanks? Probably nothing, for another 14-18 years. According to the derivates disclosure section from Warren Buffett's Berkshire Hathaway's June 2008 10-Q, the Oracle of O sold approximately $40 billion worth of index put options between 2005 and 1Q 2008, receiving nearly $5 billion in premium. This morning on CNBC, O Cubed told Becky Quick that a financial-themed Pearl Harbor would occur if the Fed did nothing. Sounds like someone who wrote a bunch of index puts recently to DB. (Granted, indexes would have to be below 2007 levels in 14-18 years for him to have to take losses.)
Though many are psyched at the idea of Buffett diving into bed with Blankfein, is this the best idea right now? "Value plays" in financials have destroyed more than a few smart investors in the last 6 months and The Big O didn't even consult with the Charlie Munger on this one, much less his favorite girl at Scores (Very) West. (She is his usual confidant on such matters, you know.) To this pessimism, the Oracle of O would probably say "When people are greedy, be fearful. When they are fearful, be greedy." But he is also prone to give advice on nipple clamps and genital piercing, so your mileage may vary.

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