Why Derivatives Aren't So Bad

They've been dubbed financial weapons of mass destruction, attacked for causing the financial turmoil sweeping the nation and identified as the kryptonite that brought down the global economy. Derivatives have become the universal symbol of Wall Street greed, yet few Main Streeters really know what they are—namely, financial contracts between a buyer and a seller that derive value from an underlying asset, such as a mortgage or a stock. That hasn't stopped public opinion from turning forcefully against them. Most experts believe that Barack Obama needs to put an end to the financial alchemy that turned low-quality mortgages into trillions of dollars of high-priced derivatives. There seems to be near consensus that derivatives were a source of undue risk.

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