Derivatives adding risk
Do derivatives add risk because of the secondary markets' lack of liquidity? This question is inspected on the New Economist web site in the article Derivatives: adding risk, or reducing it?. In recent years, investment firms have done very well by trading in credit risk derivatives. This article brings up the question of inefficiencies in the market, from poor book keeping to liquidity issues in secondary markets. Also, questions of SEC regulation inefficiencies have been of concern for years, and I suspect that when the SEC gets around to regulating the derivatives markets that hedge funds will have lower returns.