Three-month Libor, overnight index swaps and interbank liquidity: they are all so 2007. As 2008 begins, banks are again lending to each other at almost normal rates, and pressure on the money markets is much reduced. Yet all is not well. The ground may have stopped shaking – for now – but the aftershocks of the earthquake have revealed that thousands of financial structures were fragile and poorly-built.

Important among them are so-called structured investment vehicles and bond insurers such as Ambac and MBIA. Both of these business models appear to be broken. The short-term risk of a downgrade to the AAA rating of a bond insurer is more credit losses for banks and investors. The longer-term risk is that these types of business cannot be resurrected and the result is a permanent increase in the cost of capital for swathes of the US and European economies.