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Here’s a site on derivatives.

http://en.wikipedia.org/wiki/Derivative_(finance)

A similar concept is “securitization”. Mortgages are issued by lenders, then “bundled” and sold to others as derivative securities, traded. All the risk is transferred from the “man on the spot,” the expert in real estate, say a local bank, to a financial trading market.

The lack of responsibility serves as an incentive to issue more and riskier loans, bundle them, then take the payday. I’ve seen it for years, freelance mortgage agents going to poor peoples homes, tricking them with overvaluations of properties making them feel they can play the game too, but they lose.

Then, perhaps the biggest problem, the government encourages foreign national banks and sovereign funds to buy derivatives, along with government debt. Reading between the lines, some months ago Bernanke made his big change at time Bush hinted at this foreign issue. I think they threatened not to buy any more funny-money American products, and important to Bush, not to buy our debt which finance his tax cuts without spending cuts.

The culture of derivatives and such was pushed hard by Greenspan.