Deja vu all over again

The derivatives market was a house of cards doomed to fall. The bailout is solely to save the bloody arses of those who designed and sold the infernal things.

As I understand it, a credit default swap is just another name for a type of derivative contract. A derivative is a crazy contract or bet consisting of a number of related and/or unrelated criteria that, dependendant upon whether certain events occur, has potential to pay an enormous return at some later date or nothing at all. (better definition below) Mostly, derivatives are designed to cheat the buyer.

They are designed by Wall St. mathematical whiz kids who probably would be thought of by "normal" people as idiot savants.

This I gathered from reading a book by Frank Partnoy called "F.I.A.S.C.O.: Blood in the Water on Wall" about 10-12 years ago. Since I remembered the name of the book, I was able to pull this from Amazon:

Amazon.com Review
The game of Russian roulette is alive and well and living on Wall Street, where it's known as the derivatives market. In his aptly named book F.I.A.S.C.O., Frank Partnoy, a former derivatives trader at Morgan Stanley, exposes the seamier side of high-stakes finance. Derivatives are securities whose worth is determined by the value of other securities; according to Partnoy, however, the derivatives market is an elaborate illusion performed with smoke and mirrors. In fascinating, frightening detail Partnoy describes several of Morgan Stanley's slick deals that, in his eyes, are just this side of outright fraud. More than just dishonest, the bait-and-switch tactics Wall Street traders employ to rig the markets are downright dangerous, since the massive debt these deals conceal will inevitably come back to haunt the dealmakers.

F.I.A.S.C.O. could be subtitled Portrait of the Trader as a Young Man, for Frank Partnoy is indeed young, and his short tenure on Wall Street left him sadly disillusioned but much wiser. His book will leave you wiser, too--and probably very worried.

From Library Journal
Before his recent return to practicing law, Partnoy was a derivatives salesman for the prestigious Wall Street investment bank Morgan Stanley. In simple terms, a derivative is a tricky financial instrument whose value depends on another security, such as a stock or bond. Partnoy takes us inside the complex world of high finance, deriving his title from Morgan Stanley's competitive skeet-shooting event, the Fixed Asset Annual Sporting Clays, which "set the mood for the firm's barbarous approach to its clients' increasing derivatives losses." This is a story about deceit and manipulation by fund managers wanting big bonus checks and a wake-up call to the average investor. Partnoy explains in easy language the investment alternatives used by the very wealthy to avoid paying capital gains taxes. In addition, we get an in-depth look at well-known derivative "fiascoes," namely Orange County, Procter & Gamble, and others. This fascinating book will appeal to serious investors. Recommended for all business collections.?Bellinda Wise, Nassau Community Coll. Lib., Garden City, N.Y.
Copyright 1998 Reed Business Information, Inc.

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Though human noses have an impressive 5 million olfactory cells with which to smell, sheepdogs have 220 million, enabling them to smell 44 times better than men.