Roughly, yes. The simplest example to think of is a derivative in a stock of a financial entity that mostly holds derivatives. In general the credit default sw

Roughly, yes. The simplest example to think of is a derivative in a stock of a financial entity that mostly holds derivatives. In general the credit default swap (CDS) causes a lot of these problems. Basically, a CDS is buying insurance against a third party going bankrupt. So if company A buys some complex financial product from company B, but A is afraid B might go bankrupt, A might buy a CDS from company C. The terms of the CDS would be something like, company A pays C a constant slow stream of money (like insurance premiums), and if B goes bankrupt, C pays A a big chunk of money. So in essence, the CDS is valuing the risk that B will go bankrupt. But B might be a financial company that is itself holding all sorts of other derivatives. So in essence the value of the CDS is a derivative of all the other stuff that B is holding. So when all of A, B, and C in this example have tons of mortgage-backed debt, there's a domino effect where if either B or C goes bankrupt, it puts even more risk on A's hands.