Are Derivatives Bad?

The politicians who love to point fingers have painted derivatives bad, and have designated them a major cause of our financial distress.

But derivatives are back, as they ought to be, because they perform an important function as a financial instrument.

What people usually don’t know: Timothy Geithner, the Secretary of the Treasury, overlooked meetings, monitoring trading of derivatives, when he headed the New York Federal Reserve. So, the mysterious workings of derivatives should not have been so foreboding, dangerous, and deadly, causing the 2008 financial meltdown.

There is now a desire that derivatives trading have tougher regulations. In effect, more collateral to be needed by traders and more clarity. I can see having transparency, but derivatives make financing cheaper in the long run.