From a housing bubble blog:

OK, I figured out commoditized loans, and how that stupidity will be blowing a hole in the world financial system. I understand the roles of Fannie and Freddie, and how their enablement of the worldwide housing ponzi scheme came about. I also understand why the Arizona Cardinals will always be the worst football team in the land.

But for the life of me I can't make sense out of this derivatives explosion. Someone make sense of it to me por favor. Buffet tried awhile ago here, but I'm still unclear:

Buffet labels derivatives "time bombs, both for the parties that deal in them and the economic system" and "financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal".

From Mogambo's "Something Bad is Coming Soon" rant the other day:

"Derivatives Deluge Multiples Real Risks and Potential Profits" by Deepcaster.com reports that "262 trillion is the notional amount of OTC Interest Rate Derivatives which existed as of June, 2006. This figure was 24% higher than six months previously.

I gulp in dread. $262 trillion is about six times the entire yearly global output of all goods and services produced by everybody and every business on the entire freaking planet!

And in just six months these derivatives grew by more than the total of everything else on earth? And grew to that preposterous size by gaining another 24% in six months? Yow! I quickly check to make sure I am wearing my tin-foil hat and some artillery, because, brother, this is serious business here!

I think I might not be the only one in the room who doesn't understand what's happening out there with derivatives. The government, the media and 99.999999% of the world population is probably a bit foggy here too.

But I've got a hunch we'll all be hearing a lot more about 'em real soon...