I've had a bunch of friends asking me about what is going on in the capital markets over the last few days. If you have a wsj.com subscription or can get access to one, there was a very good article on how we got into the current credit market mess. Definitely worth a read.
As usual, there isn't only one element that bears the blame: much of this is a fall out of fed actions dating back to Greenspan's easy money policies after 2001; part of it is desperation for higher yields through fancy and often opaque securities that few purchasers really understand; part is the fact that hedge funds are able to avoid many securities regulations; and part is of course just short-sightedness. It is very hard to say what the ripple effects will be: my own take is that it would be very prudent to make sure you're not carrying variable rate debt and consider using a no-risk interest bearing vehicle for a chunk of liquid capital (the latter is what the CAPM would suggest anyway).
There also seems to be a lot of interest in hedge funds. I'll follow-up this weekend with a brief explanation of US securities laws and how a hedge fund avoids a lot of regulation.