As well, the elements of leverage which had built up during the capital inflow stage made it imperative that positions be unwound quickly when the reversal came – leveraged investors cannot wait for the market to return to its senses: they sell or they are sold.
To make matters worse, these forced sales took place in markets which had become illiquid – when no one wants to take on these risks, the price falls a long way. In textbook markets, price falls bring out bargain hunters: in these markets, price falls just confirmed the worst fears.