You can take the banana out of the republic, but you can never take the banana republic out of Turkey.

One day after we pointed out that Erdogan was resorting to ruthless authoritarian practices traditionally reserved for such EU nations as Romania, in which the Turkish dictator was preparing to block his top political challenger from competing against him...

... Erdogan has done just and early Wednesday morning, Erdogan stunned markets when he arrested the popular mayor of Istanbul, Ekrem Imamoglu, 54, who is also the top contender for the presidency. 

The detention of Imamoglu came a day after Turkish authorities revoked his university diploma in a move that could bar him from challenging Erdogan in the next presidential election. He beat Erdogan's handpicked candidate in last year's Istanbul mayoral race and was set on Sunday to be named the presidential candidate for the Republican People's Party, the main opposition group known as the CHP.

The arrest ignited a historic selloff in the country's markets, sparking a market-wide trading halt after the Borsa Istanbul which plunged 8% amid a wholesale liquidation panic, and sent the lira crashing as much as 11% to record lows.

It served as a stark reminder of the risks involved in investing in this particular Banana republic, where Erdogan's 22-year rule has been punctuated by periods of political turmoil, recurrent market meltdowns and hyperinflation. 

To arrest the collapse, Bloomberg reported that state lenders sold around $8 billion in FX to support the lira after it tumbled to a record low. The nation's stocks dropped so abruptly they triggered a trading halt while borrowing costs surged as investors dumped the government's debt.

Turkish assets posted the biggest losses worldwide: The lira weakened as much as 11% to trade past 40 mark against the US dollar before trimming losses to 5.5% at 38.8565 per dollar as of 12:45 p.m. in Istanbul after local central bank spent billions in dollars to halt the plunge. The intervention in the lira market was carried out through multiple lenders, the people familiar with the matter said, asking not to be identified given the sensitivity of the matter. The central bank wasn't immediately available for comment.

The benchmark Borsa Istanbul 100 Index fell as much as 8% after resuming trading after a marketwide trading halt, and sovereign 10-year bonds tumbled, sending yields 139 basis points higher to 29.58%.