The above abstract is from a 1994 paper by Ben Bernanke, Mark Getler, and Simon Gilchrist called "The Financial Accelerator and the Flight to Quality" They argue that there is a financial accelerator from problems with agency costs at the outset of a recession. If lenders cannot distinguish the credit quality of the borrower when there is a reduction in the credit available, there will be a flight to quality and a credit crunch for those who are of lesser quality or who cannot advertise their credit quality effectively. The authors focused on the credit crunch between small and large firms, bu the framework for analysis can easily be applied to today's market.
The paper is worth a read to better understand how Bernanke thinks. he was a leading researcher on adverse selection and bank lending, so he understands the process and has a mental framework for viewing the current problems.
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