How do you think derivatives helped cause the 2008 financial meltdown?

QUESTION

How do you think derivatives helped cause the 2008 financial meltdown?

What will be an ideal response?

ANSWER

Answer: Derivatives required the use of computers, which led to financial products that were far too complex, making it difficult to properly value them. These complex, difficult-to-value products were then sold to others, and yet again to others, each time carrying with them a difficult-to-pinpoint and, therefore, erroneous value. The “snowball” effect was catastrophic.
Explanation: Derivatives required the use of computers, which led to financial products that were far too complex, making it difficult to properly value them. These complex, difficult-to-value products were then sold to others, and yet again to others, each time carrying with them a difficult-to-pinpoint and, therefore, erroneous value. The “snowball” effect was catastrophic.