As we saw in the recent crisis, this effect transmits not only to firms that must sell assets to meet immediate liquidity needs but, because of margin calls and mark-to-market accounting requirements, to many other firms as well.
The result is an adverse feedback loop, as these steps force still more sales.2    Third is a contagion effect, whereby market participants conclude from the firm’s distress that other firms holding similar assets or following similar business models are likely themselves to be facing similarly serious problems.