Events brought into sharper focus the possibility that liquidity in many markets can dry up simultaneously when fear spurs risk aversion, and an intense, near-term focus on protecting capital values markedly elevates the demand for liquidity.
Markets largely recovered from that episode, but an imprint was left in the form of wider credit spreads and more cautious behavior on the part of banks and other lenders. Recently, wariness about risk again has increased as default rates on less than investment-grade bonds have moved higher, debt downgrades have become more commonplace, and many high-flying dot-com ventures have collapsed.