Then it's just an illusion. If you and I bet a trillion bucks on a game, the worlds economic system isn't destroyed when the loser can't pay. If, as you say, the derivative markets will tag some with liabilities bigger than all things everywhere, than the whole thing is a joke and not really worth worrying about. There will be the same amount of real assets after the collapse as before. There will just be a greater number exposed fools, whose little monopoly game caused a few liquidity crisis before they got other jobs.
Ditto!!!! That is what makes this whole thing fascinating and ultimately raises the question - what is money????? Problem is that there are brokers/fund companies who have used the credit owed to them (i.e if Fund 1 put one dollar to buy 30 dollars of notes, they owe the broker/mortgage seller 29 dollars) to borrow money to make real investments or expand their businesses. These vendors who supply office supplies, landlords who leased offices, banks who foward the credit, etc, etc, are also caught in the system. Thus letting the system collapse means that companies and banks that lent services and hard assets will also lose as the make believe money system is allowed to fall. This is why Warren Buffet refer to derivatives as “financial weapon of mass destruction”.