Are Derivatives Bad?

Are derivatives that bad?

The politicians who love to point fingers have painted derivatives bad, and have designated it a major cause of the recent financial meltdown.

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

What people don’t know, by the way: Timothy Geithner, the Secretary of the Treasury, used to overlook meetings to see how the trading of derivatives were coming along, when he headed the New York Federal Reserve. So, the mysterious workings of derivatives should not have been so foreboding for him prior to the meltdown.

There is now a bill being introduced for derivatives trading to have tougher regulations. In effect, more collateral will be needed by traders. But they will be back, as they should be.