The dirty little secret is CMOs are not the only toilet paper in the portfolio. The credit market was drunk and bought a lot of “covenent lite” (commercial/junk) paper, that they are now suspecting will follow the path of “Ninja Loans” i.e. illiquid and eventually worthless. With that much capital loss/illiquidity + fear, condition is ripe for an extended credit crunch. Add to it the fact that a lot of these “investors” were overseas with weaker understanding of US markets, you can see why they would develop a renewed “fear of the foreigner”.