The Rules of Contagion

judgment as to see a friend get rich’.[31] Investors’ desire to be part
of a growing trend can even cause warnings about a bubble to
backfire. During the British Railway Mania in the 1840s, newspapers
like The Times argued that railway investment was growing too fast,
potentially putting other parts of the economy at risk. But this only
encouraged investors, who saw it as evidence that railway company
stock prices would continue rising.[32]
In the later stages of a bubble, fear can spread in much the same
way as enthusiasm. The first ripple in the 2008 mortgage bubble
appeared as early as April 2006, when US house prices peaked.[33]
It sparked the idea that mortgage investments were much riskier than
people had thought, an idea that would spread through the industry,
eventually bringing down entire banks in the process. Lehman
Brothers would collapse on 15 September 2008, a week or so after I
finished my internship in Canary Wharf. Unlike Long Term Capital
Management, there would be no saviour. Lehman’s collapse triggered
fears that the entire global financial system could go under. In the US
and Europe, governments and central banks provided over $14 trillion
worth of support to prop up the industry. The scale of the intervention
reflected how much banks’ investments had expanded in the
preceding decades. Between the 1880s and 1960s, British banks’
assets were generally around half the size of the country’s economy.
By 2008, they were more than five times larger.[34]
I didn’t realise it at the time, but as I was leaving finance for a
career in epidemiology, in another part of London the two fields were
coming together. Over on Threadneedle Street, the Bank of England
was battling to limit the fallout from Lehman’s collapse.[35] More than
ever, it was clear that many had overestimated the stability of the
financial network. Popular assumptions of robustness and resilience
no longer held up; contagion was a much bigger problem than people
had thought.
This is where the disease researchers came in. Building on that
2006 conference at the Federal Reserve, Robert May had started to
discuss the problem with other scientists. One of them was Nim
Arinaminpathy, a colleague at the University of Oxford. Arinaminpathy
recalled that, pre-2007, it was unusual to study the financial system