Contagion Spreads Fast

Modern financial systems are so interconnected that trouble in one institution rapidly infects others. When Lehman Brothers collapsed, it owed money to hundreds of counterparties worldwide — and each of them was suddenly exposed.

Each counterparty then faced potential losses, threatening their own solvency and the solvency of everyone they owed money to. This domino effect turned a single bank failure into a global financial crisis within days.