In the wake of the Lehman failure and the near failure of AIG, it was as if someone turned off a switch on business activity. Almost overnight, businesses went into full protection mode, halting all capital expenditures, shedding inventory, and slashing expenses. In the face of massive unemployment caused by layoffs and business failures, consumers stopped spending.
For some time neither banks nor regulators seemed to have fully perceived how this decision would radically change the industry. •  Finally, the rapid growth of the CDS market, which in ten years went from zero to 44 trillion dollars in notional amounts, created an entirely new definition of counterparty risk that was much more difficult to assess, evaluate and collateralize.