Risk aversion spread to all asset classes. Forced sales to cover margin requirements saw volatility rise sharply (VIX doubled from 15 to 30 %). The unwinding of riskier positions caused stock markets to fall (Stoxx50 -11 %) and carry trades were liquidated (EURJPY fell from 169 to 152, a 10 % appreciation). As markets fell, margin requirements rose further.
The uncertainty about the pricing of some instruments added additional pressure. 5. As the credit crisis spread further short-term liquidity evaporated. Short-term funding in the interbank market became unavailable, causing casualties amongst banks and funds. In Europe, IKB and Landesbank Sachsen were rescued from insolvency. Northern Rock followed later. Funding in the primary market was impossible for banks.