Little debt market bombs are starting to explode on the balance sheets of financial institutions around the world. In the space of a couple of days, $3bn Boston hedge fund Sowood Capital has shut itself down after losing more than 50 per cent of its capital, while a parcel of subprime debt has blown up in the face of IKB, a German bank. These losses are rather encouraging.

They are encouraging because the pain is dispersed, spread among institutions of different kinds in different countries and buffered by those institutions’ capital. That makes a contagion, where losses at Fund A mean it cannot service its loans from Bank B, which in turn calls in debts from Company C, unlikely, and should prevent the current, healthy repricing of risky assets from turning into a crisis.