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Financial crises follow faithfully Ogden Nash’s description of ketchup coming out of a bottle: “First a little, then a lottle.” Consider the financial collapse of 2008. The action actually began two years earlier, when house prices in the US began to fall. In early 2007, some of those who had lent for sub-prime housing began to file for bankruptcy. In June that year, two big hedge funds failed on account of their exposure to the sub-prime market. These were the early tremors. Then came the earthquake.
In January 2008, Countrywide (the biggest issuer of sub-prime securities) avoided bankruptcy only by being taken over by Bank of America. Two months later, the investment bank Bear Stearns teetered on the edge of bankruptcy