The current fallout in the US sub-prime market is an example of a reaction to a more cyclical imbalance caused by low interest rates, high liquidity and a general under-pricing of risk over recent years. Cyclical balances are normally restored through a combination of policy adjustments and market forces.
However, this can be a painful process, as many financial institutions, investors and sub-prime mortgage lenders and borrowers that were directly affected by the recent events in global credit markets can bear witness to.