When housing prices fell, many discovered that they had taken on more financial risk than they previously assumed and more than their capital levels could support. The institutions with the highest leverage suffered the most, and, as it turned out, these were some of the largest institutions in the world. Financial panic quickly followed.
What started as a Wall Street panic soon created regional distress and finally Main Street suffering. And just like the largest institutions, the regional and community banks that were most leveraged, were most likely to fail. The wave of losses, consumer foreclosures and business failures infected every element of the economy.