When this happens, the typical correlations derived from historical experience tend to break down, liquidity may be more costly to obtain or unavailable, normal risk management strategies may no longer be useful, questions about counterparty solvency escalate, and the result can be a financial crisis. In times of such high uncertainty, it is human nature to act very cautiously.
Investors uncertain about what shocks other market participants have experienced and unsure about what those other market participants are likely to do tend to withdraw from potentially risky financial activities and to hold safer and more liquid assets, such as government securities.