The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookiesbefore using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2022 Euromoney, a part of the Euromoney Institutional Investor PLC.

Sub-prime fallout: Lessons of the market seizure

The liquidity crisis that blew up out of the sub-prime credit downturn reveals big gaps in understanding between senior managers at banks and the credit structurers. It also poses many questions to regulators and investors. Fairly sharing out the blame and guessing what comes next remain challenges, finds Peter Lee.

The week Wall Street went into meltdown 

                                                                                                              More on sub-prime


THE SENIOR CREDIT strategist at one of the biggest banks in the US, has been much in demand. In August, hedge fund and other clients are calling constantly for updates and insights on the turmoil in credit markets, where fast rising short-term spreads and underperformance of high-quality credit is threatening to inflict horrible losses. The only way to speak to them all is to stick strictly to 15-minute slots arranged back to back. Time is precious.

One of the bank’s traders appears at the strategist’s elbow, an individual used to positioning all the derivatives on the new credit indices, well versed in the credit curve steepener, the ABX tranches and mezzanine ABS CDOs. He asks if the senior man, when he has a minute, can explain something that’s troubling him.

Sure. What is it that he doesn’t quite get? The trader wants to know: "How do we fund the financial system? Where do the banks get all their money from?"

Deep breath.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?