cds
financial derivatives are generally blamed for the wall street meltdown. they work kinda like this. you have a bunch of mortgages. some are going to fail. but you don't know which ones. you separate them into two categories: good and bad. you randomly select a few of the good and a few of the bad. you package them up in one contract and sell it. the theory being that you'll make so much money off the good mortgages that it'll cover the losses from the bad mortgages. okay. so far so good. the problem is there's a fundamental assumption defaulting mortgages are independent. turns out they're not. which is actually pretty obvious in hindsight. you'd think no one would want to touch these contracts as being too toxic. heh. not so. the industry has factored that interdependency into the cost of the contracts. they are still being traded. and they're still extremely lucrative.