Two of the more respected voices in the market, Warren Buffett and Bill Gross (at PIMCO) have been yelling about the derivatives situation for a while now.

As far as avoidable: Absolutely. However, the big investment houses and banks were too busy chasing the shiny to sit down and do any serious diligence and the ratings firms were too busy making money hand over fist slapping AAA ratings on this worthless trash to pay any serious attention either.

Somewhat off topic, but interesting nonetheless, will be the impact of Basel-2 regs regarding AAA rated instruments. Quite a few banks had been amassing AAA rated CDOs as a way to lessen capital reserve requirements.

Now that S&P, Moody’s and Fitch’s have stopped going along with the “charade”, it will be curious to note the fallout in other market sectors, as well.