If a picture is worth a thousand words, then here is a graphic representing the performance of the American stock market.
2008 is all the way to the left. Yup, it's as bad as that.

[via DailyKos making a more legible version of a graph made by Value Square Asset Management, Yale University)
 
 
How did things get so bad? Borrowing. Very simple. People borrowed to buy houses they couldn't afford, paying banks to lend on more houses that their consumers couldn't afford. People borrowed against their 401Ks, credit cards, and even stranger ways of funding down payments.
 
Talk about a domino effect. After borrowing to buy houses they couldn't afford, they borrowed some more to improve the houses that they couldn't afford in the first place. They also borrowed to pay off credit cards and cars which is a bad deal.
 
Unsecured debt [cars and credit cards] was being paid for with secured debt [homes]. This is a bad deal for consumers, and a good deal for banks, except that when the banks took over the homes in foreclosures, there was no one left to buy them so the homes sit boarded up and do further damage by dragging down the home prices of homes that people _could_ afford.
 
Talk about a self-inflicted disaster. It's going to take us a long long time to get out of this mess. For those of us with 20 years to go before retirement, there is hope that things will get better when it's time to start drawing on our retirement accounts.
 
For those of us with less than 10 years to go before retirement, the face of retirement is changing. The expectation is now that you will work into your retirement, not for beer or shoes money, but to afford the medications and other expenses that go up with old age.
 
This is one pickle we're in. The question is just how many people and companies will be dragged down into this as the wave of destruction has spread to include people and companies that were relatively conservative in their use of credit.
 
Here is a lecture on leveraging [borrowing upon borrowing] that puts it plainly. Leveraging is how the banks borrowed themselves into oblivion.
 

 
How have you been impacted by this? What are you doing to recover?