WASHINGTON – One reason President Bush is having trouble selling his $700 billion rescue of the financial sector is the difficulty in understanding what Wall Street has been doing.

Members of Congress from Texas and across the country are hearing from angry, perplexed constituents.

"There's a general sense that we are living in a financial house of cards," said Rep. Kevin Brady, R-The Woodlands.

Half of all American households own stocks, bonds and mutual funds, usually in retirement savings plans. But the economic literacy needed to follow these assets doesn't begin to cover the stuff traded among hedge funds, insurance companies and others in the financial sector of the economy.

Since the 1980s, the financial sector's share of corporate profits has grown from 10 percent to about 40 percent. In that same period, financiers have hired the best and brightest minds in business to find profit in arcane and nigh-inexplicable trading schemes.

The corporate executives behind the trades that unraveled Enron Corp. in 2001 had so much intellectual hubris that it was chronicled in a book called The Smartest Guys in the Room. The managers of Long-Term Capital Management, which threatened to take down the financial system in 1998, included co-winners of the Nobel Prize for economics.

Now the authors of algorithms that can tweak profits from trades predicting weather patterns are imploring the American people to take off their hands the riskiest of their bets in the U.S. mortgage market.

An ordinary company or investor making that plea would get directions to bankruptcy court. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke cold-shouldered Lehman Brothers, which then failed and got picked over by foreign buyers.

But the near-collapse of American International Group revealed a spider web of complex trades suggesting the death of this company would take down many others.

AIG had taken the risk for many billions of dollars in other companies' trades in mortgage securities by selling financial instruments known as credit default swaps.

For an insurance company, insuring someone against calamity seems sensible. But these were not mortgage insurance policies. They were trading instruments covering the risk of other trading instruments called collateralized debt obligations – bundles of good, bad and volatile mortgages.

The face value of credit default swaps exceeds $58 trillion, according to the Securities and Exchange Commission. Nobody guarantees them. They are not traded on an exchange, where there's a counterparty to the transaction and a regulator to police manipulation.

Nobody wanted to buy AIG's credit default swaps because nobody knew what they were really worth. The Treasury and the Federal Reserve feared AIG's bankruptcy would leave all those collateralized debt obligations exposed to failure as well, dragging down other companies.

"Most people had never heard of collateralized debt obligations and credit default swaps until these came to the fore a year ago," said Kumar Venkataraman, an associate professor of finance at Southern Methodist University's Cox School of Business.

"These securitized assets held by financial intermediaries, pension funds and insurance companies are traded with each other in an entirely different world."

Trading froze last week as traders and accountants argued about what these securities were worth. Failed or failing subprime mortgages are marbled through mortgage securities and collateralized debt obligations.

The accountants insisted that the securities had to be valued at what they would fetch in the market if traded today, or mark-to-market. Those values were so far below the purchase price that some executives feared it would sink their firms.

Hedge funds are where complexity has reached its zenith. Long-Term Capital Management developed mathematical models that discovered profit in the differing frequency of government bond trades in the United States, Europe and Japan.

When the hedge fund ran out of arbitrage opportunities in government bonds, it sought profit in other instruments. Low margins for this type of trading meant Long-Term Capital needed to borrow heavily to make enough trades to keep paying high returns to its investors.

When it ran into trouble in 1998, Long-Term Capital had borrowed more than $120 billion and held securities with a notional – or underlying – value of about $1.25 trillion.

The Asian and Russian financial crises of 1998 made a hash of the fund's positions. The Federal Reserve, fearing bad trades would cascade among investment banks and other hedge funds, organized a $3.6 billion bailout. But Long-Term Capital folded in 2000.

These were not trades of bonds and stocks, but of derivative instruments that try to offset risk and find profit in volatility, market indexes, weather and all sorts of other variables. Traders rely on big computers and complex software to guide their trading, and – like Long-Term Capital Management – resort to substantial borrowing to get the leverage for big profit.

Financial guru Warren Buffett has called derivatives "financial weapons of mass destruction" because they lend themselves to so much leverage and can go spectacularly bad.

This year's roller-coaster ride of oil prices further blackened the image of derivatives. It would take much more than Hurricane Ike to explain why oil prices zoomed up more than $20 a barrel on Tuesday.

Trading was so bent that the U.S. Commodities Futures Trading Commission, which has insisted all year that oil prices were merely responding to market fundamentals, warned that manipulators would be punished.

Mr. Paulson and Mr. Bernanke are saying financial traders need a chance to "deleverage" by unloading many of their mortgage-security derivatives so that confidence can return to credit markets. The bailout, in effect, is an exercise in simplifying.

When Congress turns to the issue of how to stop this from happening again, several analysts expect that much of the derivatives business will be ordered onto exchanges. But derivatives are not likely to be outlawed.

"You can't stop complexity from happening," said Dr. Venkataraman. "The question is not whether these sorts of complicated positions should be done away with, but how can we design a market so they don't pose a risk to the entire economy."