Money market spreads rose quickly in the US and Europe as frictions emerged in the cash markets. Soon, the credit quality and liquidity of other types of asset-backed securities and derivative instruments became subject to doubt. The frictions spread further and markets in which risk is traded away became dysfunctional.
Financial institutions became increasingly unwilling to deal with each other as uncertainty about who was exposed, and how badly, became more and more enlarged. As 2008 progressed, it became obvious that the financial dysfunction was taking a lot longer to clear than expected. Innovative products with strong credit ratings proved less than robust.