Critical to the financial turmoil was the shadow banking system. The renowned economist
and Nobel Prize winner Paul Krugman and US Treasury Secretary Henry Paulson Jr. explained
the credit crisis by way of the implosion of the parallel or shadow banking system which had
grown to nearly equal to the importance of the commercial banking sector.Without the ability
to obtain investor funds in exchange for most types of mortgage-backed securities or asset
backed commercial paper,5 investment banks and other entities in the shadow banking system
could not provide funds to mortgage firms and other corporations (Geithner 2008).