When everybody runs for cover to minimise the loss, the “collective action problem” accentuates the market stress.
Pressure on capital and the severe credit squeeze As the prices of toxic papers witnessed free fall (in some cases the value of certain CDOs fell to below 30 cents a dollar, and stock prices also fell significantly), the losses for the banks having exposure to such papers rose significantly, and the capital buffer turned increasingly inadequate, creating concerns of insolvency.