The blowup of two Bear Stearns Hedge Funds in the second half of June was the tipping point for the stock market in 2007. Those two blowups and their announcement that there would be little or no money left to return to their investors had a direct impact on credit crunch of 2007. That event, more than any other triggered the drying up of LBO's, M&A's, and liquidity in the credit markets. As Bill Gross put it back in September, “the commercial paper market, in terms of the asset-backed commercial paper market, is basically history.” Investors seeking low risk, high yield, predictable and stable returns simply balked and said "No Mas." This left the major central banks (primarily the ECB on the hook as lenders of last resort to provide liquidity to the global financial system – in particular the ABCP and LIBOR markets.

By the end of 2007, we find the asset-backed credit markets are still suffering from their lack of transparency and inability to price their products. So, as we enter 2008, the credit markets are still shunned by investors, and central banks continuing their role as lenders of last resort. They have fulfilled their obligations as lenders of last resort quite well, and will of course continue to do so. As the ECB succinctly stated at their Sept 6th meeting “Given [the] high level of uncertainty…The ECB has a ``determination to act in the future whenever it is necessary,'' It is for that reason the stock markets around the world have proved resilient to date – even if faltering, as a domestic recession in the US looms large as a result of the deepening housing recession and an elevated level of home foreclosures prolongs the credit crunch well into the first half of 2008.

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