It is generally agreed that the trigger for the turmoil was a myriad of problems associated with the US housing market correction. However, the sharpness and speed of the contagion to unrelated market segments has made it clear that there were significant vulnerabilities present in the system, the nature and complexity of which was not always well understood.
The challenges facing the sub-prime market were part of a much broader problem. Now we are in a situation of high uncertainty – where risks are very difficult to quantify – and, as a result, confidence in the functioning of the financial system itself among market participants has been severely undermined.