Derivatives and Economic Disaster?

Remember the hullabaloo about securities derivatives, such as interest rate swaps and credit default swaps? And their connection with subprime mortgages and collateralized debt obligations? With their role in the 2008/2009 financial meltdown?

                       

The left railed against CDS (credit default swaps), that they caused the financial meltdown in the mortgage market.. But there was a much larger market in interest rate swaps, and there was no problem with fixed income assets.

                       

And there was an even larger market In foreign exchange swaps, than in CDS, and there was no problem in the currency markets.

                                       

So derivatives were not the main cause of the financial meltdown. AIG lost $39 B on derivatives but also $24 B on mortgages with no derivatives. The counter-parties on derivatives were paid off 100 cents on the dollar.

                       

After all, government excesses, such as housing and poor monetary policy, produced economic problems, not bankers who become bystanders by necessity and happenstance. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)