financial crisis

(ECONOMICS) a shock to the industrial system caused by massive errors in investment decisions. In essence, financial crises are failures of the capital markets (stock exchanges, etc.) to do their job. In the lead-up to a financial crisis, money entrusted to capital managers to invest is spent instead on bolstering the plutonomy. Then, when those same capital managers are overleveraged, it becomes obvious that the economy has been producing the wrong stuff; its corporations are therefore worth a lot less than everyone had supposed they were. Then people sell their shares of stock, causing a liquidity crisis for many firms, which react by firing people and dumping anything of value at reduced prices. This requires a lot of expensive genius to do well.