Credit Crunch

In 2008, the U.S. faced a liquidity crisis. Companies were unable to access capital on a grand scale.

When investment capital is difficult to access on a wide level, an economy is dealing with what is known as a Credit Crunch. During this period (one that can happen overnight), banks and other investment firms are cautious about the people to whom they lend money.

The lack of available capital also can drive up the cost of borrowing, as companies compete for whatever capital is available to borrow. When lenders tighten lending and focus only on borrowers with high credit scores and history of paying back debt, this is known as "flight to quality."