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Lehman Brothers and Saddam Hussein

April 15, 2009

falloutsheltersignlargeIn 2002, Warren Buffett called derivatives, “Financial weapons of mass destruction.”

It turns out that Lehman Brothers had actual weapons of mass destruction on their self-destructive balance sheet: They went long, and took physical delivery of 500,000 pounds of uranium yellowcake. Click here for the story. The quantity is “slightly” less than the amount needed to make one nuclear bomb, according to Gennady Pshakin, a Russian nonproliferation expert.

In contrast, Saddam Hussein’s stockpile had 550 metric tons of yellowcake. (This helps explain why Dick Fuld was pilloried, whereas Saddam was hanged.)

Question:What is a derivative security backed by an actual weapon of mass destruction?
Answer: A CDO-Squared.

[Disclosure: Rocky just checked the Fed’s website. Yellowcake is NOT acceptable collateral under the TALF program. However, if one holds a vial of enriched uranium for a few hours, no margin “haircuts” will be required either.]

  1. allocator
    April 16, 2009 at 8:26 pm

    Yellowcake sounds so friendly. “Could I please have a double-shot cappucino and a coconut cream pie? …. no wait, lets make it the yellowcake with whipped cream and strawberries.”

    The group of consultants I’m planning to bid with on a new government contract was looking to bolster (stretch really) our collective resume with some more capabilities. I suggested we just make some up, as there are so many categories already that perhaps no-one would notice a few more. Before governance nixed my initiative, I did come up with “Toxic Debt Remediation Specialist” – and was prepared to write a grand job description about wearing special suits, safely detecting, securing, and transporting TD (never through a tunnel), correct medical responses in case of exposure (quarantine all employees involved – in their homes, without pay), and even how to export it to the US. Apparently now they’ll take all you can send, and recycle and re-export it to China and Japan re-branded as “Treasuries”. (Chinese and Japanese ESL skills being what they are – who wouldn’t want “treasure”?)

    Sigh … just a few business cards … if only for the next mind-numbing cocktail party …

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