Of course, this explanation has the virtue of reflecting the widely-reported reality
that many banks were writing down the values of securities that they owned. These
securities had either been downgraded in terms of quality or were backed by sub-prime
mortgages that were becoming delinquent or going into foreclosure as housing prices
stopped increasing and began to fall. Clearly, the continuing decline in housing prices
and the slowing economy could easily raise the chances of a further deterioration in the
value of mortgage-related assets on the banks’ balance sheets. Moreover, the realization
of the risks in derivative securities based on sub-prime mortgages triggered doubts about
many other aspects of the derivative market, including the ability of credit default
insurers to meet their obligations and the size and nature of the likely restructuring of the
off-balance sheet operations know as structured investment vehicles (SIVs).