Liquidity, however, does not simply evaporate like the morning dew. It burns up in a “fire sale” as a process called “contagion” takes hold. With everyone in the market knee-deep in mortgage securities and trying to raise money with the same devaluing collateral, they were trying to cash out what were essentially similar assets. And if they couldn’t sell mortgages, they sold anything else they could to raise cash and cover their losses, even supposedly high-quality assets that had nothing to do with mortgages. Because the market could not absorb the volume of securities being dumped on the market all at once, asset dumping to raise cash created the very panic everyone had sought to avoid. Prices plummeted, firms folded, and trust evaporated further.

Mark Blyth, Austerity, loc. 85