George Reisman has up an excellent primer on the recent hubbub all over the news concerning the housing bubble, sub-prime meltdown, credit expansion and how they are all related.
That said, from the standpoint of an investor (in both R/E and the stock market) and trader (options), as well as business owner, it’s always a good idea to distinguish between the is and the ought, and never to assume that when things are not as they ought to be that it’s necessarily going to spell disaster. It doesn’t have to.
There is natural justice and judgment in the world, and ignoring the implications of doing wrong can bring on such implications in full force. The "problem" in this case is that all this bad news is well known by all the players. It’s being managed and flushed out of the system (well: "patched up," I should say) in a pretty competent, deliberate, and (so far) effective way. Sure, I’d love it to be done in a way that results in finally having real money, but I know that’s not going to happen.
I could be wrong (so could you) and the market could open a thousand down tomorrow and continue down from there. But I think it’s more likely that when and if the market does take a tumble, it comes from out of nowhere, in reaction to things not widely known, suddenly discovered, and around which flows a great deal of uncertainly. Black Swans. The housing and credit busts aren’t Black Swans. Everyone is well aware of them.