Housing Boom and Bust
Causes and Consequences
Financial markets suffered significant disruption in August 2007. Certain financial instruments, especially mortgage-backed collateralized debt obligations (CDOs), became illiquid, that is, they became difficult to sell at any price. Liquidity problems then spread across other credit markets as investors feared that losses linked to housing securities might affect a broad range of market participants. There was a "flight to quality" as investors shifted funds into the least risky securities, such as U.S. Treasury securities. As a result, many types of corporate and financial borrowers — even some with few or no links to mortgage markets — had trouble obtaining credit,…
