We couldn't help but snicker a bit at the news, reported via Bloomberg, that Berkshire Hathaway CDS costs have "almost tripled in two months." Bloomberg attributes the soaring CDS quote to a series of equity index puts Berkshire wrote some time ago. The puts have attracted a great deal of attention almost since their original sale, partly because of Buffett's often quoted (and seemingly hypocritical) analogy putting derivatives in the "financial weapons of mass destruction" category. (We picture Brooks Brothers clad Femmebots holding suitcases filled with cash and shooting fire from their perfectly shaped breasts while intoning "Here's your liquidity. Here's your liquidity." in robotic-monotones).
As far back as February, Barron's suggested that those puts could show losses as high as $2 billion in the third quarter. Their near $7 billion paper liability at present would be a painful surprise to anyone relying on Barron's estimates, if the puts were really capable of inflicting much pain on Berkshire at this point. They aren't.
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