And the resulting market-clearing prices across a range of asset classes were predicated on a world of modest risk premiums,  BIS Review 128/2007  3  low credit spreads, and plentiful liquidity. Market confidence ultimately begot complacency (Warsh, 2007). By mid-summer, complacency was upended. What followed was a rapid period of retrenchment, the first phase of financial market turmoil.
As concerns about losses on subprime mortgages and securitized products intensified, investors withdrew liquidity and markets became impaired. Investors revisited, almost anew, the quality of the information about their assets. Financial intermediaries also pulled back from making markets in many products, and the engines of financial innovation were all but turned off.