Financial institutions borrow money all the time to fund their investments. When the real estate bubble burst, a lot of those investments lost value rapidly, leaving banks such as Bear Stearns and Lehman Brothers unable to borrow new money and unable to repay their existing debt. This situation lead to a domino effect — "contagious failures" — in which borrowers are unable to repay lenders, who are then themselves sucked into the financial crisis.

KK Kamal
AAO, LIC of India Mumbai
kamalesh.kamal@gmail.com