This collapse of the financial system interacted with the real economy: even good investment projects (and there were plenty of bad ones) turned sour in the face of credit withdrawal and deep economic recession. The rest, as they say, is history.
Conclusion  More than a century ago, Bagehot observed: “the same instruments which diffused capital through a nation are gradually diffusing it among nations.” He went on to warn that while “the effect of this will be in the end much to simplify the problems of international trade… for the present, as is commonly the case with incipient causes whose effect is incomplete, it complicates all it touches” (Bagehot 1880, p. 71).23 This encapsulates a key insight: as countries integrate their financial markets with international markets – itself an eminently desirable process – there is a longish period of transition, during which an economy is extremely vulnerable to changes of confidence.