How can a bursting of an asset-price bubble in the stock market help trigger a financial crisis?
Asset-price bubble is the rise of prices in the stock market. Therefore, at the bursting point, it causes all the stocks prices to realign to regular value. When this happens, IT DECREASES NET WORTH, WHICH THEN INCREASES ASYMMETRIC INFORMATION. or LEAD TO A DETERIORATION IN FINANCIAL INSTITUTIONS' BALANCE SHEETS, CAUSING THEM TO DELEVERAGE.
This bubble is driven by: Investor Psychology raising prices, and Credit Booms.