In these circumstances, uncertainty led to contagion and dislocations in money markets more generally, even those markets that have no link to U.S. subprime mortgages. Liquidity, which was recently thought to be too abundant, became scarce. Some investors found that the assets that they assumed were liquid were, in fact, frozen.
Investors suddenly became extremely risk averse, leading to a surge in demand for the least-risky assets, such as government bonds and treasury bills. The lack of transparency and problems with information have clearly contributed to the ongoing market turbulence. The global repricing of credit risk is taking longer than many of us initially expected.