One of the consequences of the credit crisis that began in the summer of 2007 was the deterioration in the U.S. housing market, rendering the valuations of securitized or structured mortgage-backed assets volatile.The contracting demand for these assets — which had been dramatically overvalued by brokers who earned substantial commissions by pushing over 600 varieties of these assets to hedge fund managers through repos that were leveraged without regulatory bounds — precipitated the tightening of unsecured term funding. That led to credit downgrades, massive write-downs of MBS assets by financial institutions according to mark-to-market accounting rules, and illiquidity.

Losses mounting from forced liquidation of MBSes at low valuations triggered by redemption notices from hedge fund investors, as well as margin calls from brokers trying to make up for the difference in the value of securities used as collateral on repos, financially wounded most prominent veteran hedge funds while bankrupting others.

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