I’ve been blogging on for a while about the dangers (low probability, but some really nasty possible outcomes) posed by derivatives markets, but I’ve never felt entirely satisfied with the explanations I’ve given. Jim Jubak at MSN Money gives an excellent beginners guide.
I’d observe though that it’s not as reassuring as you might think that 85 per cent of derivatives represent interest hedges, which are relatively safe. The other 15 per cent still accounts for around $8 trillion, and JP Morgans alone has about half of this.