Not at all. These serve actual useful purposes, namely the reduction of risk. A CDO/CLO literally just structures a diversified portfolio of many tiny debts. Le

Not at all. These serve actual useful purposes, namely the reduction of risk. A CDO/CLO literally just structures a diversified portfolio of many tiny debts. Lending a mortgage to one homebuyer is risky... Lending a million mortgages to a million homebuyers is much less risky. A derivative simply transfers risks to parties that are more able to withstand it. It's a fancy word for insurance, and nothing more. Imagine a world without currency or interest swaps... Global trade would be so much more difficult if companies like Apple were unavoidably making a gamble on the Indian Rupee when they started selling iPhones in India. Apple doesn't want to be in the currency speculating business, it's risky and they're better at making technology products. Currency swaps insure them against swings in the value of foreign currencies that could incur billions of losses. CDOs have a bad name because everyone and their mother has seen big short and thinks they're a genius but the CDOs themselves aren't risky unless the underwriting standards on the loans are garbage. And if that's the case, the fact that CDOs exist is irrelevant anyway.