Moreover, none of the federal regulators had a mandate or sufficient powers to evaluate and respond to the risks posed by large financial organizations to the financial system as a whole. Thus, the stage was set for the unraveling that began in the summer of 2007 and continued throughout 2008. As house prices and the equity of homeowners fell, mortgage delinquencies and defaults soared.
As I mentioned, investors – stunned by the resulting losses on mortgage-backed securities and other credit instruments they had believed to be safe – pulled back from a wide range of credit markets and financial institutions. As funding dried up, losses mounted, and confidence plummeted, a number of major financial firms, both here and abroad, came under severe pressure.