Andrew G. Haldane recommends using an ecology/network metaphor to understand the financial system.

An external event strikes. Fear grips the system which, in consequence, seizes. The resulting collateral damage is wide and deep. Yet the triggering event is, with hindsight, found to have been rather modest. The flap of a butterfly’s wing in New York or Guangdong generates a hurricane for the world economy. The dynamics appear chaotic, mathematically and metaphorically.

Implicit in this story is the notion that there was nothing so horribly unsound about the balance sheets of the key financial firms. There was just a contagious financial panic.

This issue is one of ongoing controversy. I have always leaned in the direction of viewing the balance sheet problems as genuine, rather than blaming pure panic. But there are plenty of folks who take the opposite view. Like Haldane, they tend to be in the policy-making community rather than in what I call the peanut gallery.