The author of the maxim that "those who ignore the mistakes of the past are condemned to repeat them" may not have been thinking of the operations of the credit markets, but he could have been.  

The statement is an appropriate characterization of the way in which banks and others in the credit delivery system have conducted their affairs in the past. Irrational exuberance in lending is almost always the product of the loss of institutional memory in those organizations.

These institutions have historically reacted to credit problems by ridding themselves of the supposed culprits who led the bank to making bad credit decisions. As a consequence, after cleansing their books and their organization of the bad assets and those who put them there, a raft of new hires are put in the position of acquiring new assets as the lending environment and the availability of capital to lend improves.

Eager to aggressively compete for new business, those making credit decisions are often willing to ignore, or worse, be unaware of,  the decisions that contributed to previous asset quality problems at the bank. Ergo, the cycle repeats itself.

What does this mean to an investor?

Besides being wary of the practices and operations of a particular institution, it means that the investor in this class of equities should expect significant swings in the credit quality of the assets of that institution.

More importantly, this observation underscores that credit market seizures are a normal part of the cycle of a mature economic system.

Albeit that the current seizure has the makings of a grand mal, an investor in debt instruments of high credit quality still stands to have a higher probability of recovery of principal and a return commensurate with that risk than an investor in more speculative securities.

So, where do we go from here?

I believe that a rational approach to fixed income investment can lead to substantial returns for the investor. Paying attention to credit quality is the first absolute.

While reasonable questions have been raised about how the rating agencies did not foresee the impact of the decline in home values and the extraordinary underwriting risks taken by the originators of toxic loans, these same agencies have had a good record of credit analysis and their ratings have been given high grades for the strength of their analysis.

There are currently opportunities for investment across the fixed income options. Governments offer the best security, municipals remain among the best tax-driven investments and corporate bonds are still solid bets with good returns.

I’ll be reporting on specific opportunities as they arise.

This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.