The warnings from regulators over the dangers of excessive debt applied to complex financial instruments are coming thick and fast. Much too late, alas, for some investors and banks.

Yesterday it was Mervyn King’s turn to tell MPs that high leverage mixed with opaque securities is a recipe for grief. The Bank of England Governor was making the telling point that markets which look reassuringly deep and liquid can turn out to be anything but the moment sentiment sours.

Investors in and customers of the US sub-prime loans market have learnt this the hard way. London-listed Caliber Global Investments, which invested in these instruments, threw in the towel yesterday after suffering nasty losses. This follows similar spurts of red ink at two Bear Stearns hedge funds and at Queen’s Walk Investment, another London hedge fund. In the trailer parks of the United States, fresh loans are now virtually impossible to come by. People with impaired credit histories or no track record at all have gone from borrowing feast to famine in the space of a few months.

The credit markets have been deeply unsettled by all this. The contrast with the last big financial market upset, the collapse last year of the US hedge fund Amaranth Advisors, could not be more extreme. That implosion was dramatic, bizarre, unique. For everyone but the actual investors, who lost $7 billion or so, it was also blessedly contained. There was no contagion, no panic.

The sub-prime morass is a different affair entirely. It is pervasive, creeping, slow-motion and crops up in unexpected places – be it Caliber or Barclays Bank. The dicing up and securitisation of debt is good for spreading risk but poor for identifying where the risk ends up.

That curdles confidence. The appetite for risk is being blunted in unconnected corners of the financial markets. Bond issues from companies as diverse as Kia Motors, Arcelor Mittal and US Foodservice have all been postponed in recent days. According to one estimate, losses on sub-prime could be as high as $75 billion. This feels like an epic with more chapters to come.

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