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Berkshire Hathaway shares have been dropping steadily bringing into question the abilities of its owner, Warren Buffet to continue to make the right decisions. In trading as recent as Thursday afternoon, the shares had fallen by $2,760, or 3.3 percent, reaching $81,240 a share on the New York Stock Exchange. The five year cost of protecting $10 million of Berkshire debt against default had risen to $490,000 annually by Thursday from the $294,000 of a week ago, from a low of $31,000 at the start of 2008, according to recent reports.

Schiff's Insurance Observer editor Peter Schiff says that the company is in an unusual time. Schiff says that it is the equivalence of a person having trouble making mortgage payments compared to a billionaire. He says that the financial crisis affects them, but not in the same way.
Under some derivative contracts, between 2019 and 2027 Berkshire might have to pay as much as $37.04 billion if the Standard & Poor's 500 index and three other stock indexes were to fall to a point lower than when Berkshire first entered the contracts. It had already obtained about $4.85 billion of upfront premiums.

By September 30th, Berkshire had managed to write down $6.73 billion on the contracts. It is almost certain that losses have increased since then. During the month of October alone, Berkshire shareholder equity had fallen by $9 billion, which translates to 7.5 percent.
Buffett is reported as saying that he expects the contracts to eventually be profitable, separating them from what he calls the ‘financial weapons of mass destruction’ that are represented by the other derivatives.

The end of December also brought Berkshire $10.78 billion in possible liabilities linked with various credit events, one example being junk bond defaults. This compared to $4.66 billion at year-end 2007.

According to Moody's Investors Service, by the end of 2009 it is expected that the global junk bond default rate might possibly rise to 10.4 percent from 2.8 percent in October. Since the typical junk bond is yielding more than 20 percent, new financing is basically nonexistent.
Whitney Tilson, the managing partner of T2 Partners LLC, a hedge fund firm, says that based on Buffet’s 50-year track record of selling insurance, his firm is confident Buffet is selling these at the right price. He points out that the most important thing is that he does not have to post cash collateral until there are definite defaults.

A credit rating downgrade would not make a material difference but Berkshire would have to post what might be called ‘nominal’ added collateral on derivatives. This however, would according to Jackie Wilson, Buffett’s assistant be far below 1 percent of assets, in the event that Berkshire lost its triple-A ratings. As of September 30th, when Berkshire assets were at $281.7 billion, the company was posting no such collateral.