In this situation, the functioning of financial intermediation, which had already been impaired, was substantially damaged further. The erosion of financial intermediation acted as a negative shock to the real economy, so that it took even more time to make headway with balance sheet adjustments. It can be said that the financial system and the economy deteriorated through mutually reinforcing negative shocks.
A similar adverse feedback effect, in which the burst of a bubble and ensuing balance-sheet adjustments acted as headwinds to the economy, could also be observed during the recession that followed the global financial crisis.