Among other things, we are uncertain (a) about any judgment that the level of a particular class of asset prices is moving far enough away from fundamentals to make a correction inevitable and disruptive; (b) about the timing of a reversal of those prices, so that a step to truncate a movement, say by raising rates in response to a perception that the prices of some assets were becoming unsustainably high, does not increase economic instability by hitting the economy and asset prices just as the reversal occurs; and (c) about the response of asset prices, possibly driven by self-fulfilling optimism for a time, to a change in rates.
As banks were forced to take securitized assets on their balance sheet again and provide funding under committed liquidity lines, they were at the same time confronted with serious and unexpected liquidity drains.