[rbg81]

Inside Job argues that derivatives have no value of its own because its value is derived from another asset.

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Derivatives are a form of insurance. By this argument, the Insurance industry has no value. The real issue is that derivatives were (are) sold too cheaply because little risk was perceived when it was actually quite large. Just ask AIG about that.

[KC Burke]

I think one problem is that unlike any other insurance type product there were no commercial, state, SEC or Federal standards for deriviatives. Underwriting was left up to the marketer and the reserves for loss were nonexistant compared to other insurance products with such commonality — expecially in the mortgage derivatives.

It would be the same as having no underwriting standards and your entire insurance pool was low lying New Orleans residential frame construction — when a loss occured, no reserve would be big enough.