Originally Posted by DeafCaroline
Derivatives are short term contracts between two parties. It's basically hedging against future price of the stock derived from underlying assets.
Warren Buffet called derivatives "financial weapons of mass destruction" in 2002 - 6 years before the collapse. In 2002 - derivatives were 100 trillion. At the collapse, it was over 500 trillion.
This is correct. Just because you have a basket of stocks to hedge does not mean the hedge will work.