Oh look Ben Shapiro is shilling for hedge funds
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This happens whenever products become overly abstracted. At some point you disconnect from palpable value and enter the realm of gaming, and gaming isn't governed by the pesky constraints of reality. If you then build important infrastructure upon your abstract products, you make everyone vulnerable to volatile collapse. This is what has happened to our financial industries. They are no longer connected to sustainable business, but those businesses are still made dependent on those financial institutions. We can't escape the game without triggering our own destruction.
Eh. Abstraction isn't a problem in and of itself. Abstractions are just tools. They ultimately do represent something real, or else they have no meaning. The problems start when people assign some meaning to the abstraction beyond what it represents, or think of it as a concrete thing. Or really just don't completely understand the abstraction.
Its like that SA Minister of Agriculture (or whatever he was) that said they didn't need farms because all their food came from the retail stores. The problem wasn't that they had abstractions. The problem is that they were too stupid to understand the abstractions they had.
These clowns at Melvin could have hedged this bet. They could have bought options in the other direction too so that they limited their exposure (that's assuming they could find someone willing to be on the other side of that contract, and if they couldn't, maybe that should have been a big clue that they were doing something retarded). Instead they took a position that had UNLIMITED downside. I'm guessing they just were betting that they'd be bailed out if they fucked up badly enough.