The New Danger From Derivatives

Global regulators are turning their attention to an important piece of unfinished business: ensuring that a bad bet on derivatives can't upset the entire financial system. They've hit on a good solution -- as long as they can prevent it from becoming a threat in itself.

The 2008 financial crisis proved that derivatives had gotten out of control. Some participants were making huge bets -- say, on the likelihood of bond defaults -- without putting up collateral to guarantee payment if the bets went wrong. When U.S. insurer AIG couldn't make good on almost $50 billion in derivatives-related debts, it nearly brought down several of the world's largest banks.