Given the excitement of the past few months, one can be forgiven for thinking of the US banking system as a homogenous, giant mess. After all, almost no bank has escaped the ritual of dramatic loss announcements, outsized asset writedowns and urgent capital raises. Moreover, bold action on the part of an individual institution, such as Merrill Lynch’s decision last month to sell its collateralised debt obligation holdings at distressed price levels, is seen as a harbinger of what others will need to do.

These dynamics will sound familiar to those that have been through multiple large market dislocations. They have seen repeatedly how markets’ initial reactions to unanticipated crises are largely undifferentiated. In a way, it is similar to how fire brigades respond to house blazes: the immediate task is to inundate the structure rather than be highly selective as to which room to target.