Warren Buffett has called derivatives "weapons of mass financial destruction" but then he went and wrote a whole bunch of derivative contracts. Is he being disingenuous?

On the surface the answer is yes. If you look at it from the point of view of the 'margin of safety', the concept Buffett learned from Benjamin Graham, the answer is no.

The derivative positions are "put options" on at least three world wide Indexes. This means that for an up front fee, Berkshire will pay out a very large sum of money, many years from now on a particular day, if the indexes are below a specific value on that day. That specific value is called a strike value. Unlike the derivative contracts written by AIG there is no requirement to post a collateral if the "mark to market" value varies which almost surely it will. Collateral in finance means a security or guarantee (usually an asset) pledged for the repayment of a loan. In this case it's cash. The term "mark to market" means the contract is given a value daily even thou the contract matures many years from now. Having to payout a collateral pushed AIG into bankruptcy.

Furthermore, to completely lose all the money, all three indexes would have to go to zero. It just won't happen.

All these factors : 1. the lack of collateral required 2. the time to maturity 3. multiple indexes 4. the choice of indexes 5. the up front fee all constitute a "margin of safety".There is one other "margin of safety" not so obvious and that is of a manager that has both the experience and good judgment backed by a sound mental framework for decision making.

Perhaps the analogy is the use of explosives. If used without skill, experience and good judgment, it could blow up in your face. But used with skill and only in selected situations such as demolition it is the only solution.