What started as a contamination of sub-prime mortgage loans and the securitized products based on that, led to an illiquidity spiral and soon became a solvency issue for the financial sector. The inter-connection between banks in the financial system propagated it into a systemic crisis. Banks, starved of liquidity, started to deleverage and stopped lending to the real sector.
The financial crisis, thus, became a full-scale economic crisis. Since banks are essential to an economy and their failure affects the real sector, particularly when they are too big, the public authorities had no alternative but to rescue the banks by injecting capital, guaranteeing their liabilities and purchasing their toxic assets.