Comment: You seem to be confusing your opinion with fact

I thank you for your interest in this subject. But the fact is, derivatives have existed for centuries and as Lynn Stout points out in her article, the centuries old common law "rule against difference contracts" kept speculation in check by declaring purely speculative derivative contracts to be legally unenforceable wagers. Stout explains this as follows:

"The rule against difference contracts did not stop you from wagering on anything you liked: sporting contests, wheat prices, interest rates. But if you wanted to go to a court to have your wager enforced, you had to demonstrate to a judge's satisfaction that at least one of the parties to the wager had a real economic interest in the underlying and was using the derivative contract to hedge against a risk to that interest."

An example of a legally enforceable wager (derivative contract) being used as a hedge against risk is buying fire insurance on your home. A legally unenforceable wager/derivative contract would be buying fire insurance on a home you did not own, i.e., you do not have an economic interest in the underlying asset, in this case, the home.

If you watch the 90 second video of Michael Greenberger, the difference between a hedge and a purely speculative bet will be perfectly clear. This legal distinction between hedging and bets was removed in 2000 by the Commodity Futures Modernization Act, which is why Wall Street speculation is now backstopped by the Federal safety net (FDIC).

Also, you incorrectly believe that Wall Street banks were forced to buy subprime loans on the secondary mortgage market. I don't know where you're getting that information but I suggest you check out the Financial Crisis Inquiry Commission hearings (FCIC). You'll hear sworn testimony from top officers of Wall Street banks, ratings agencies, Fannie and Freddie, and gov't regulators, none of whom say that banks were forced to buy and securitize subprime loans. Here's the link to the FCIC.

http://fcic.law.stanford.edu/hearings