Jack Malvey, global fixed income strategist at Lehman Brothers, writes in the FT: This summer's credit wildfire would have been familiar to bankers and economists in the past. After nearly half a decade of fair market weather, portfolio credit risk vigilance was overrun by the quest to maximise yield and absolute returns. Markets were not completely oblivious to mounting risks. The US housing bubble and subprime mortgage worries were widely advertised. Policymakers and investors frequently cited the "new capital market architecture" as a potential source of systemic risk. Credit risk premiums struck cyclical troughs, with the extra yield demanded for holding emerging market and high-yield corporate debt over government bonds hitting all-time lows in May 2007. Since the beginning of 2007, a mild move towards higher spreads was widely anticipated for the third quarter. But the intensity and breadth of this credit wildfire surprised, and like many corrections, has been overdone.It has seared the asset-backed commercial paper market and sparked anxiety about counterparty risk following problems at a few hedge funds and structured investment vehicles, which hold portfolios of exotic debt. It has even singed equities. But this credit wildfire barely registers on our credit crash scales for the past century. Cash credit spreads have repriced to their 2003 to 2005 levels, not even as high as at the time of the last recession. This is far from the greatest credit correction of all time. Although hot spots remain, this credit wildfire has been largely contained. Central banks, especially the Fed, have executed their standard plans to corral turbulent credit markets (liquidity injections, discount rate cut, and next up, a Fed ease). In contrast to prolonged industry and issuer credit corrections, systemic credit wildfires tend to be brief, averaging just three months in the 15 US episodes since 1973. Spreads will not return this year to their May 2007 cyclical troughs. But just as the "Great Spread Sector Crash" of August-October 1998 was followed by strong credit market performance in late 1998, a tactical rebound in equity and credit assets can be expected before the end of 2007.