There's a great article at Slate.com (here) that describes those all-too-complicated derivatives in terms we can all understand: gambling, baby, yeah! Turns out somebody smarter than me looked at what the banks were doing, figured out a mathematical probability of the investment banks making money versus total financial meltdown and came to the conclusion that what the Wall Street folks were doing was essentially a game of double-or-nothing. See, it turns out that, statistically, higher risk means a chance of higher reward, whereas lower risk leads to lower rewards. What the Wall Street folks were doing was concentrating risk in a way that makes it highly unlikely that their bets would fail, but, in the event that they did fail, well, armageddon. I don't really have much to add to the article, so I just suggest you read it and discuss.
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