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SUMMER : DISRUPTIONS IN FUNDING 

Asset-Backed Commercial Paper Outstanding
At the onset of the crisis in summer 2007, asset-backed commercial paper
outstanding dropped as concerns about asset quality quickly spread. By the end of
2007, the amount outstanding had dropped nearly $400 billion.

IN BILLIONS OF DOLLARS
$1,250

1,000
750
500

250
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
NOTE: Seasonally adjusted
SOURCE: Federal Reserve Board of Governors

Figure .

market has made it impossible to value certain assets fairly regardless of their quality
or credit rating.” 
In retrospect, many investors regarded the suspension of the French funds as the
beginning of the  liquidity crisis. August  “was the ringing of the bell” for short-
term funding markets, Paul McCulley, a managing director at PIMCO, told the FCIC.
“The buyers went on a buyer strike and simply weren’t rolling.”  That is, they
stopped rolling over their commercial paper and instead demanded payment on
their loans. On August , the interest rates for overnight lending of A- rated asset-
backed commercial paper rose from . to .—the highest level since January
. It would continue rising unevenly, hitting . in August , . Figure
. shows how, in response, lending declined.
In August alone, the asset-backed commercial paper market shrank by  bil-
lion, or . On August , subprime lender American Home Mortgage’s asset-
backed commercial paper program invoked its privilege of postponing repayment,
trapping lenders’ money for several months. Lenders quickly withdrew from pro-
grams with similar provisions, which shrank that market from  billion to  bil-
lion between May and August. 
The paper that did sell had significantly shorter maturities, reflecting creditors’
desire to reassess their counterparties’ creditworthiness as frequently as possible. The
average maturity of all asset-backed commercial paper in the United States fell from