Part 8/11:
Beyond the visible market turbulence, increased risk aversion is exposing "cockroaches" lurking in shadow markets—areas often opaque and difficult to monitor. The Bank of England’s recent experience illustrates this, as industry insiders report minimal outward signs of trouble but underlying issues in credit portfolios and collateral quality.
Many of these cockroaches involve questions of valuation and potential fraud, especially as market participants grow wary of opaque transactions and asymmetric information. This opacity fuels risk aversion, prompting lenders and investors to tighten their standards and withdraw liquidity.