You all know about the billion-dollar mess in Orange County. Derivatives are a common thread to public funds losses across the country in the last two years. Sifting through the wreckage turned up familiar traces. Over here, a futures security. Over there, a pile of interest rate swaps.
Derivatives are the financial equivalent of explosives on a construction site.
Used properly, they do the job like nothing else can. But used carelessly, or by the wrong people, they blow up in your face. It'll hamstring the market. That's the Mad Hatter approach to public finance. Make a mess, and move on down the table.