But the real surprise, the amplifier, was that the design of these securities, rather than lessening correlation, actually boosted it. … What was uncorrelated in theory became extremely correlated in practice. Making matters worse were the CDS (insurance) contracts attached to the CDOs that would pay out if the security defaulted. If these insurance claims happened en masse, the insolvency of the entire system emerged as a distinct possibility. So, when the scope of CDS protection both written by and written on Lehman by firms such as AIG became apparent, not only did the markets take fright, the state for the first time began to see the problem as systemic rather than idiosyncratic, and too big to fail became a reality.

Mark Blyth, Austerity, loc. 96