President

sharply following the credit disruptions in mid-2007. The aggregate value ofannounced M&A deals fell off sharply in late summer after having climbedto the highest levels since 2000–2001, as shown in Chart 2-6. Over the12 months through August 2007, the value of M&A deals were about$1.65 trillion, but over the following 3 months these deals totaled just$498 billion at an annual rate. Banks that were underwriting leveraged buyouts(LBOs)—whereby a company or investor uses debt to finance the purchaseof another company’s assets—found that buyers were no longer as willing topurchase the debt associated with LBOs, which meant that banks had to keepmore of the debt on their own books, possibly limiting the ability of somebanks to make further loans.Equity MarketsEquity markets continued to function amid the disruptions in thecredit markets, but implied stock price volatility—an indicator of investoruncertainty—jumped during the summer and remained sensitive to newsabout credit market developments. Unlike many credit market instrumentsthat trade infrequently and are hard to price, stocks trade in highvolumes and are continually repriced, making them much more transparentfinancial instruments.66 | Economic Report of the President