Going for securitization and financial derivatives such as credit spread call option or digital default option or credit default swaps $($CDS$)$ can provide protection against credit defaults. However, during economy wide defaults this mechanism does not work. During week $8,$ we discussed how AIG failed due to writing CDS related to subprime mortgage market in $2008.$ Can we say that securitization and derivatives actually cannot help us to hedge credit risks specially during a really bad time? Sometime, there is also cost of hedging $($option premium$)$ to be considered before going for hedging risks from banks$$ side. Explain why derivatives and CDS may not solve credit defaults and may pose greater risks to financial stability.