It is argued that this competitive market dictum does not work in financial markets because financial bubbles can build up to dangerous levels before a price correction kicks in. Indeed one of the lessons of the on-going global financial crisis is that the financial system can contain pressure for longer than expected; so when an implosion happens, it can be disastrous, even catastrophic. 10.
Second, uniquely financial firms are highly leveraged and interconnected. If a non-financial firm fails, only the stakeholders in that firm bear the damage; the externalities are limited. In contrast, financial firms are all interconnected; any pressure in one institution or one market rapidly transmits to the entire financial sector gathering momentum as the contagion spreads.