Financial contagion

Imagine you and your friends are playing with building blocks. Each of you has a stack of blocks, and you start building towers. Suddenly, one of your friends' tower falls down, making a lot of noise. Because of the noise, some of the blocks from the next person's tower fall down too. Then, the next person's tower falls down as well, and so on.

This is what happens with financial contagion. When one company or bank is struggling, it can cause problems for other companies or banks that are connected to it. For example, if a large bank goes bankrupt, it might not be able to pay back money that it owes to other banks. This can cause those other banks to have financial problems too.

This type of problem can spread quickly, like a virus, from one company or bank to another. This is called financial contagion. It can cause a lot of damage to the economy, just like the collapsing block towers caused a lot of noise and mess in your game with building blocks.