Title: How debt markets have malfunctioned in the crisis
Description: "This article explains how debt markets have malfunctioned in the crisis, with deleterious consequences for the real economy.  I begin with a quick overview of debt markets.  I then discuss three areas that are crucial in all debt markets decisions: risk capital and risk aversion, repo financing and haircuts, and counterparty risk.  In each of these areas, feedback effects can arise, so that less liquidity and a higher cost for finance can reinforce each other in a contagious spiral.  I document the remarkable rise in the premium that investors placed on liquidity during the crisis.  Next, I show how these issues caused debt markets to break down: fundamental values and market values seemed to diverge across several markets and products that were far removed from the "toxic" subprime mortgage assets at the root of the crisis.  Finally, I discuss briefly four steps that the Federal Reserve took to ease the crisis, and how each was geared to a specific systemic fault that arose during the crisis"--National Bureau of Economic Research web site.