Unprecedented Financial Crises
It is important to note that what has been termed the credit crunch began in August 2007 when the structured finance market collapsed after the French financial giant, Banque Paribas, said it could not place a value on subprime assets in its portfolio. As a result, credit was already tight in early 2008. Upon the collapse of Lehman and AIG, credit simply dried up for many sub-investment grade corporate borrowers. The high investment-grade companies still had access to credit, albeit at higher prices—for example another 100 to 150 basis points higher. This is high by historical standards for borrowers used to not paying more than a few basis points.
What the financial markets experienced was an economic calamity ...
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