SUMMER 2007: DISRUPTIONS IN FUNDING
In the summer of 2007, as the prices of some highly rated mortgage securities crashed and Bear’s hedge funds imploded, broader repercussions from the declining housing market were still not clear. “I don’t think [the subprime mess] poses any threat to the overall economy,” Treasury Secretary Henry Paulson told Bloomberg on July 26.1
Meanwhile, nervous market participants were looking under every rock for any sign of hidden or latent subprime exposure. In late July, they found it in the market for asset-backed commercial paper (ABCP), a crucial, usually boring backwater of the financial sector.
This kind ...