Right, but consider that the sub-prime mortgage market was a tiny portion of the overall mortgage market in 2007.
Derivatives written against sub-prime holdings tipped the balance when the fan was hit. There are tons of derivatives written against the indices, thus indirectly against those funds.
No, not against those funds. Pass a royal decree that banishes all index funds from the face of the earth. The tons of derivatives written against the indices remain, unchanged.
Those derivatives might be "somewhat in the neighborhood of the funds" or something, but it's not analogous to mortgages.
>Derivatives written against sub-prime holdings tipped the balance when the fan was hit
There's a bit more nuance to it: those derivatives were a problem because a substantial proportion of them were concentrated in a single, widely-connected, entity (AIG).
The derivative market as a whole nets to zero; for every loser there is a winner.
