In a clean, theoretical construct, financial derivatives were perceived as pieces of a jigsaw puzzle that could be combined/arranged in multiple ways to customize cash flows for hedging and managing risk. However, as Mr. Satyajit Das has noted in a recent FT article, derivatives were mostly used to “circumvent investment restrictions, accounting rules, securities and tax legislation”.
The clearest example being the factory production of credit derivatives portending to convert, quite literally, trash into gold. The recent case of Greek swaps is another instance. Without going into the legitimacy of such deals, what comes out clearly is the use of derivatives to suitably alter/manufacture cross-temporal cash flow profiles in a non-transparent manner.