Just finished The Big Short by Michael Lewis, and it ends with a chilling thought about how fucked we are. There's no other way to put it.
Before I read this book there was something I didn't understand about Credit Default Swaps, or CDSs, which are insurance policies, hedges against an investment failing. They are a way to short things that aren't stocks. In fact you can by a CDS for anything. You can buy a CDS against the Yankees losing the World Series.
But they are a weird kind of insurance. You don't have to own the Yankees to insure them. And both you and I could insure against the Yankees losing the World Series. Hundreds, thousands, even millions of people could do it. There's no limit to the exposure. So if the Yankees were to fail, i.e. fail to win the World Series, theoretically they could take the US economy with it, because of the way they were writing these policies in the days before the real estate bust.
And since credit default swaps are unregulated (thank you Reagan, Clinton, both Bushes and the U.S. Congress) no one knows how many CDSs have been purchased against any event. So you end up with the prospect of a small company being too big to fail.