frank miller

[alice wellintown]

Thanks for posting the testimony on CDS, but most of it is, in the old
parlence, esoteric and needlessly so.

It's not so hard to understand. The NPR page is actually much better
because it presents a dialectic, the basic disagreement is that some
see derivitives as evil bets and others as hedges or options that
allow an investor to reduce or offset certain types of risk.

Derrivitives are simply everything in the market. Yes, our markets are
derriviatives. That's it. We can, if  we want to confuse people talk
the details and types, touch every inch of the elephant like blind
men, but we get a better idea once we understand that all investments
are derivitives, even gold. So what does this mean?

Here, wiki helps us because it has an excellent definition:
A derivative instrument is a contract between two parties that
specifies conditions—in particular, dates and the resulting values of
the underlying variables—under which payments, or payoffs, are to be
made between the parties (Wiki).

OK, so, you give a mortgage to a bank. It's a derrivitive. It's an
agreement and the terms are specified and the conditions listed.

Easy. Now, read Fabozzi.

The handbook of mortgage-backed securities
Frank J. Fabozzi

http://books.google.com/books/about/The_handbook_of_mortgage_backed_securiti.html?id=bmaW8_9IEzcC

Just kidding. But a good place to start. And, as I mentioned several
times. the best book for all you guys and gals interested in this
subject is
Marcia Stigum’s *The Money Market*

Why are CDS or certain contracts, options, etc. so powerful that they
act like a nuclear meltdown?

The are not so powerful or so evil or so deadly. No more than the
mortgage you gave to the bank. Derrivitives are not the problem, no
more than mortgages or comodities or land. Under Bush the Senior we
had a major bank crisis. Remember that? Small relative to his sons
bank crisis, but essentailly the same problem. It ain't cars that are
evil, it's drunk driving.