Introduction

The recent financial crisis was the biggest economic crisis of capitalism since the Great Depression of 1929. Starting in the United States after the collapse of a speculative bubble in the housing market fuelled by a massive credit expansion caused by the utilisation of new financial instruments (the subprime loans, securitisation, derivatives and so on), the financial crisis spread all over the world in just a few months. The triggering event of the crisis was the bankruptcy of Lehman Brothers on 15 September 2008 after the Federal Reserve (Fed) refused to bail it out. This decision had a tremendous impact over the state of expectations in financial markets, since there had been a general belief that the Fed would continue to bail out financial institutions affected by the collapse of the speculative bubble in the housing market. After that, it was no longer possible to believe that the Fed would always rescue financial institutions that are considered ‘too big to fail’. The result of this change in the state of expectations was the emergence of panic between financial institutions that resulted in a huge increase in their liquidity preference, mainly by commercial banks, producing a sharp decline in asset prices and in the supply of credit for almost every type of commercial and industrial transaction. The ‘credit evaporation’ resulted in a very rapid and deep decrease in industrial production and in the international trade all over the world (see Table 1.1).