This article is flawed. Here's why: CDS-linked credit lines are just another way to manage risk. If the risk of the loan goes up, the interest rate rises. What

This article is flawed. Here's why: CDS-linked credit lines are just another way to manage risk. If the risk of the loan goes up, the interest rate rises. What this actually means is that the bank can offer a lower initial interest rate, knowing that their risk is hedged. Payday loans: if someone living paycheck-to-paycheck has their car break down, should it cost them their job? Payday loans are a very effective solution to short-term cash flow crises, and it's often much easier to pay back 10% more money a week later than to, e.g., spend a week without a phone (and with a black mark on your credit). "Derivatives for small investors." Okay, YCers, let's get hypothetical: what if instead of referring to malicious code as a "virus," people started calling it "code." And then you read an article about how, e.g., "Apple is knowingly shipping a new kind of computer which is full of code. Every application available on the new computer uses code, and users will be forced to send code to anyone they send an email to." That would be incredibly frustrating; this is how the word "derivatives" feels to anyone involved in finance. Derivatives are just contracts whose value is based on the something that varies. You can use derivatives to reduce your risk, or to take on risk. In the case of "structured notes," the derivatives are generally designed to reduce risk -- e.g. you'll get the S&P's return, less two percentage points, but with a maximum loss of 10%.