November 28, 2008

We all have obsessions, and among mine, considered strange for someone literary, are the financial instruments known as derivatives that are at the centre of the economic meltdown we are experiencing. Derivatives are commonly defined as a financial contract where the value is derived from an underlying asset.These contracts cover the buying and selling of a wide variety of goods, ranging from currencies and agricultural products to oil and metals to stocks and bonds. They are not inherently bad. Indeed, the commodity markets are based on futures, which is a form of derivative that has been around since the Sumerians.We've landed in our current mess through the misuse of unregulated derivatives that became ever more ornate, ever more synthetic - frequently called bells-and-whistles securities but more like gimcrack and paste in the credit markets, which includes the mortgage industry.My interest came about by accident. I went to work at Merrill Lynch as a speechwriter in the 1990s under the aegis of one of the directors. I needed money because my husband was ill. The boys in the communications department were none too happy to have a 50-year-old "left-wing bohemian poet" who didn't know a stock from a bond, and so they fed me to an executive who not only had an alligatorish face but the habits of one. He liked nothing better than to feast on communications staff. "Stay off his radar screen!" He terrified them.