We are about to defend, and in some cases praise, the use of leverage and derivatives in managing a pension plan. Although that may seem like a fool’s errand given the devastating financial crisis we have just lived through, we do realize that we are not in the Kansas of 2006 anymore. In fact, let’s paraphrase some inspiring comments that have become commonplace in recent times:• Derivatives are financial weapons of mass destruction.• There has been no valuable financial innovation for decades.• Short-selling is un-American.• Excessive leverage caused all our problems.There is, of course, some truth behind these quotes. But there is also much more exaggeration and overreaction behind them. Leverage and derivatives are financial tools that have many legitimate and helpful applications. Like any tool, they can be used for good or for bad. A few years ago, as would be likely before any crisis, many of us were undervigilant to their dangers....