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This article was helpful in explaining a very complicated economic system in the most basic terms. Like any explanation that attempts to simplify, you're going to lose a lot in the translation to basics. An interested reader can use this as a foundation to conduct his or her own research as needed.
I want to agree with the commenters who have noted that structured finance and derivatives are not "separate" from the economy -- they are part and parcel with it. These elements of Wall Street are now global in scope, and are designed to help those with money -- loosely called, the "capitalists" -- earn more money and capital from their investments. One way to do that is to find a way to have banks make riskier loans so that you can charge more interest. You are taking a risk that the person taking the loan will pay, but if you can minimize risk through "risk slicing", you stand to make more money. In theory, at least.
There is a second element to all of this, which is that this money is being invested in the stock market. Today's lowering of interest rates to keep the ball rolling is extremely telling. The Fed has basically admitted that one of the key columns supporting the current economic system is the health of the Dow. The Dow is so important that the Fed is willing to risk inflation in order to keep cheap credit available to lend and invest in the stock market.
More and more, our entire economy is being based on easy cheap credit instead of more fundamental economic underpinnings -- manufacturing, for example. Some day that credit will run out and the whole thing will come crashing down.
