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Very good write-up. The net (note that word "net") effect of complex tiers of derivatives is to make a system brittle -- tightly coupled -- at the same time it allows endemic corruption.

The mix is explosive.

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Comparing the complexity of derivative contracts to Col Sanders recipe is not quite right. The contracts -- see Warren Buffet's comments -- can often be too inscrutable to value, thus can only trade in an environment of implicit fraud. The Colonel's recipe is a top secret mix of 11 herbs and spices. People have made guesses at it, and good guesses, but the exact recipe is still a top secret.

Derivatives often are worse --- not only are they confections of ad-hoc mixes of securities and events and tabulated valuations and probabilities -- they can have accidental or deliberate omissions or mistakes. A cookbook recipe of 7 or 11 ingredients is simple. A derivative's mix of formulas and schedules is more than seven come eleven -- it is as if someone shredded the cookbook and someone else who wasn't themselves a particularly good cook pasted the shreds back in some hopeful order.