Nobel Laureate Merton Says Buffett’s Financial WMDs Help Society

When Paul Volcker said the last financial innovation that improved society was the automated teller machine, Robert C. Merton took offense.

Now the Nobel Prize-winning professor is hitting back, pointing to markets for options and interest-rate swaps that are humming along as fast as ever. He says Warren Buffett’s remark that derivatives are “financial weapons of mass destruction” was taken out of context by those who want to banish them, when a better solution is to make them safer without sacrificing their advantages.