The Ninth Phase: The Fall

There was a feeling of inevitability around the financial crisis which started in the summer of 2007. The sceptics who felt that the collapse would happen sooner rather than later were proven correct on the timing, but wrong on the cause. It was a US house price bust that started the process, not a global recession. The sudden steep fall in US house prices caused immediate problems for mortgages granted to people who could scarcely afford them. These “sub-prime” mortgages had been securitised in the form of collateralised debt obligations (CDOs) and sold around the world. The fall in value of these CDOs burdened the balance sheets of financial institutions which had acquired them. It quickly became apparent that almost every bank in the world was affected, and as a consequence, the credit crunch which ensued was a global one. The credit crunch quickly spilled over into the syndicated debt market, and wiped away the large-cap market for deals, and carried with it much banking enthusiasm for financing mid-cap deals as well. Many people in banks and PE houses were left with the feeling that there was nothing much left useful to do.