Derivatives did exacerbate the unwinding of the mortgage mess, because the chain of title was so convoluted. I've read reports of people who were given homes in

Derivatives did exacerbate the unwinding of the mortgage mess, because the chain of title was so convoluted. I've read reports of people who were given homes in south Florida because the owners of mortgage debt were unable to finish foreclosure proceedings before the statute of limitations ran out. That is an extreme case, but the milder case of banks being landlords when that's not what they're good at, plus borrowers being stuck in foreclosure limbo longer than should be necessary, introduces unnecessary friction in the economy that wastes time and money. This could be the self-regulating limit for derivatives - the legal time required to unwind them in the case of mass redemptions, bounded by the business cycle length and statute of limitations for a locality.