The End of Goldman Sachs?

[SallyLightfoot]

Sure, derivatives aren't intrinsically bad, but that argument is like saying that guns don't kill people, people do.

The problem with derivatives are that they are often complex, custom-made and difficult to understand. This is good for the issuer and shitty for the buyer, because the buyer doesn't know if it will function as expected. As such, derivatives can't be easily compared to similar financial instruments, and there isn't a central exchange/clearing-house for them. The complexity and lack of transparency gives the seller a big advantage, which leads to a fatter profit margin. The Wall Street Journal is almost certain to defend the use of derivatives, since complex financial instruments have been a big source of profits for the banks over the last decade.

I personally don't think that derivatives are categorically bad, but when mixed with leverage, they're a recipe for financial ruin. I suppose if we could limit the leverage part, then derivatives would mostly just be risky sucker bets instead of ticking time bombs.