There is no reason derivatives should be illegal. What happened was, sub-prime mortgages, aka mortgages to people who couldnt afford to pay them were packed into securities that *were labelled as AAA* by the rating agencies. In other words, those securities based on sub-prime US borrowers got a higher credit rating that *most first world governments*.

In other words, it was *fraud*.

Securitizing an investment and selling shares shouldn't be illegal. Misrepresenting those securities as something they are not however, has been illegal for a long long time.

If those securities had gotten the DDD rating they deserved, the market would never have picked them up.

In actuality the nuances get a bit deeper as to the hows and whys it happened... and the role a few corrupt people at Freddie and Fannie played in underwriting large segments of subprimes, thereby giving the impression that they were govt-back (which was partially the reason for the AAA credit rating) and many many other aspects have not been covered.

If someone wants to propose, individually, a single regulation or law along with method of enforcement... then sure, individual proposals can be evaluated on their own merit.

But adding regulation willy-nilly usually has unintended consequences.

For who could be free when every other man's humour might domineer over him? - John Locke (2nd Treatise, sect 57)