I've learned a great deal about economics over the last year or so. We are living in historic times and I want to be awake and aware of the process, wherever it might lead.

That being said, there is a huge gap in my knowledge and I'm having trouble finding a good, clear explanation. I think I've got a pretty good grasp on the phenomenon of mortgage based securities, credit default swaps, and how the housing bubble caused these vehicles to collapse, and how that collapse is affecting banks and Wall Street.

If I'm not mistaken the credit default swaps are part of the derivatives market. Now I keep hearing about the massive amount of derivatives above and beyond these credit default swaps. I hear insane numbers, up to 500 trillion or so. I hear this financial 'death star', if and when it were to unwind, would be a financial tsunami.

So my questions are... what are these other derivatives based on? Who holds most of these derivatives? What economic conditions would precipitate their beginning to 'unwind'? How is it possible for the amount of money involved in this unregulated market to be so astronomical? What would the beginning of the collapse of these derivatives look like? Would it be reflected in the more traditional markets?

I would greatly appreciate any answers that a layman might understand or any relevant links.

Thank you in advance for any replies!