The Devil's in the Derivatives

Exotic securities spread financial wreckage across the country in the wake of interest-rate hikes

Even Marcia Stasch got caught. She had sold securities for a living and so, naturally, she read the prospectus and the brochures from the local brokerage of Piper Jaffray that came on heavy-card stock paper. They offered a government bond fund that seemed the perfect place to invest the $50,000 Stasch's 86-year-old widowed mother had made after selling her home in Minneapolis, Minnesota. Not only did Piper tout the triple-A-rated fund as a low-risk investment, but also said it would produce enough income -- $318 a month -- to pay her mother's rent. "I told Mom, 'This is your decision, but...

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