The failure is in inadequate regulation.
You must understand that the people who create these 'exotics' as they're called, or derivatives to those outside, are in many cases PhD's in applied maths from Oxbridge and such like. These are the guys who are called the rocket scientists. They use their skills to create ever more complex and complicated ( and in many cases, highly volatile and high risk) strategies. Very profitable when they go as they predict the markets will go, but explosively dangerous when they don't!
Now, this is all fine so long as it's properly regulated. It wasn't, and still isn't! Why? Well, firstly, let's go back to the core of that problem, you can't regulate what you don't begin to understand. So, there's the heart of the problem. Why don't the compliance depts of the banks and the FSA employ people who do understand these products? Quite simply because they are paid millions a year. Unless and until the regulators step up and lure some of these people to turn gamekeeper, the problem will continue.
